April 1, 2020
What is an SKU (Stock Keeping Unit)?

What is an SKU (Stock Keeping Unit)?


If you’ve just started selling, you’re probably getting to know retail terms. One that will make a regular appearance is Stock Keeping Unit, or SKU. An SKU is a product code that you can use to search and identify stock on hand from lists, invoices, or order forms. It’s a term commonly used when talking about inventory management. So, now that you know what an SKU is, when is it most commonly used, and what for? Let’s go through some of the key use cases together. As you know, SKU is a term used in inventory management, so it shouldn’t surprise you that you would use an SKU to track inventory. Any product that your business receives will need to be properly tracked. The SKU is used so you know exactly how much product you have. Wherever you stock your products this could be a warehouse or storage room using SKUs greatly helps you identify stock availability. Another important reason to use SKUs is when your business needs to conduct stocktakes, which are used to record exactly how much stock your business holds. Your SKUs help you identify actual stock levels in your warehouse, to match the stock levels you’ve recorded, most likely in an inventory management system. Now you know the importance of SKUs in relation to stocktakes, a crucial aspect of any business is the ability to identify and track inventory shrinkage, which is the number of items a business can’t sell, or is missing. The more detailed your inventory categorization with SKUs, the easier it is to pinpoint where, and even how stock goes missing. When stock levels are low, it’s time to replenish your inventory. Adding an SKU to every variant of each product is good practice for identifying the quantity of the products you have on-hand. This way, once you’ve set a threshold limit alert within your inventory management system, you can make a new purchase order. Carefully setting your reorder point means you only order when you need, minimizing inventory holding costs. Finally, using SKUs to track product variants in detail plays a big role in helping you spot which product variants are your best sellers. This has a direct effect on your profit margins, and is a crucial factor in aiding you with strategic product decisions that will help grow your business. Now that you know the importance of using SKUs, it’s equally important to use them properly. A common practice is to split an SKU into parts: the first part could be used for product grouping, while the other part might be used to identify a unique value like a date, or color of the product. It’s also best to use an alphanumeric system for your SKU tracking, to avoid any clashes with your spreadsheet or inventory management system. So, that’s it! I hope you’re now equipped with the knowledge and confidence to start managing your inventory using SKUs as the tracking system. As always, for further information on all things inventory management and eCommerce, head over to the TradeGecko website.

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