What is SKU | Benefits, How to Use, Purpose, Full-Form of SKU?

SKU

Contents:

1. What is SKU?
2. What is the Full-Form of SKU?
3. Why SKU is necessary?
4. How do you create a SKU code?
5. How is SKU calculated?
6. How many digits is a SKU number?
7. What is an SKU used for?
8. Where are SKU Codes used?
9. What is the purpose of a SKU?

What is SKU?

The full form of SKU, Stock Keeping Unit is a scannable bar code that is printed behind almost every retail product. 

• Stock Keeping Unit (SKU) is based on an alphanumeric combination that helps the retailers obtain all the product details including the prices and manufacturing details. They are usually used by the vendors to keep track of the sale & warranties of the product.
• A stock keeping unit is defined as a set of letters and numbers assigned to a vendor's product. Generally, SKUs have letter and number abbreviations that distinguish one product from another. For example, features such as manufacturer, specification, model, material, size, color, packaging, and warranty terms. Letters and numbers can be read by employees or displayed as scanned barcodes.
• In other words, SKU Code is a unique code issued by companies to identify unique products in a database. A retailer can have his own SKU codes applied to his inventory system. 

What is the Full-Form of SKU?

SKU stands for Stock Keeping Unit

Why SKU is necessary?

SKU is an important graphic differentiation of the product. Using the SKU code, one can easily identify the product in the system. It helps keep track of the inventory and gives uniqueness to every item.

1. For Optimizing Inventory Errors: Inventory Management Errors are one of the biggest causes of losses in retail businesses. SKU Codes eliminates it by keeping track of inventory at each of your locations. Sometimes it becomes tough with the more products you have to track and the more locations you have. With the help of SKU Codes through a largely automated process, you will be able to make smarter stock management decisions. You’ll end up losing fewer products, have a more reliable stock in each of your locations, and be less likely to make a bad development call.
2. For Inventory Sharing across multiple platforms: With unique SKU Codes, you can share your inventory across all of your online stores, which means your available inventory will constantly be updated, in real-time. You can share your inventory across all sales channels (Retail stores, shopping carts, marketplaces, etc), so there is no need to reserve inventory for just one. This means more sales opportunities for you, and more accuracy across all platforms.
3. For Inventory Tracking: Storehouse managers and Store retailers will find it much easier to track down individual items. This can greatly increase your speed and profitability.
4. For Increased Productivity: SKU Codes can help you learn which products are being bought most frequently (and how). This information can be used to create targeted advertising. They can also improve your in-store experience since you’ll be able to locate in-store items faster or order them from the correct locations.
5. For Time Saving Tool: SKU Codes help retailers as well as customers by saving their time to find products quickly.
6. For Reduced out of the stock situation: It helps retailers to know which products are most in-demand and which products are going to be out of stock soon.  It always reminds you to update the inventory before it runs out of stock.
7. For Fast & Accurate Service:  Once your customer places an order, the shipment needs to go out quickly. In this Online Shopping world, customers have very little patience when it feels like their order is taking too long to be shipped. Many warehouses struggle to keep up with the pace of their customer expectations. SKUs can help warehouses find what they need even more efficiently. They allow workers to find the exact product that they need with both speed and accuracy, which is required to keep up with customer demand.
8. For Creating Better Suggestions: You can use SKUs to recognize product characteristics that help your sales team identify additional items that your customer might want. They could also suggest alternatives when what your customer wants isn’t available. They can help give you valuable insight into the particular type of item that they want and help you quickly identify alternatives that will keep them happy. This can also be done online too. Most online stores offer suggestions for additional items of your choice as a complement or alternative to the item you're looking for. This is typically done by applying an algorithm to the retailer’s SKUs to come up with similar items.

How do you create a SKU code?

Some vendors believe in creating their own SKU codes, while some use the same as provided by their suppliers. While using an old one might be facile, creating a new one would help you standardize better. Here are the steps of creating an SKU code:

• Identify the Unique Features: The first thing you need to do is identify the unique features of the product, and choose the information you would like to obtain from the SKU. For example, the brand SkullCandy is vital information, followed by the product type, model, and color. The year of manufacturing may be extraneous information. So, you need to segregate the info you want v/s the futile information.
• The Cascade Method: Make a logically intelligible code. Now you may have different brands of Headphones. SKC for SkullCandy, followed by it is for iPhone which means you can add "i", then the model number given by the vendor is 423, you add the same.

You keep adding such attributes until you have a unique identification code. When you spate each attribute with a "-", you might get something like:

"SKC-I423-PINK"

• Things To Keep in Mind: While you are creating an SKU code, you need to keep a few things in mind like, the code has to be unique, it should be short, avoid special characters, and be careful with confusing numbers and letters(O & 0 and I & L). Also, make sure you do not use the same code for 2 separate brands.

How is SKU calculated?

The significance of SKU is clear, and if you choose this method to keep track of your inventory, you need to have an empirical SKU management system. It will help you analyze the cost carrying of each product, which will assist you in keeping a track of how every product is contributing to the financial objective of the business. It helps you to optimize your inventory level and purchasing. Here is how you can calculate different aspects of SKU manually:

• SKU Ratio: Make a list of all the SKUs in an excel, against it write down the selling cost, followed by the purchase cost, which means you will have 3 columns. Calculate the gross profit of each SKU(Selling Cost- Purchase Cost). Now make gross profit ranges in the next tab (Less than $10, $10 to 20.99$, 21$ to $29.90, and so on). Make a note of how many SKUs fall under each range. Divide the number of SKUs in a range by the total number of SKUs, and multiply that with 100. The answer you get is your SKU ratio.
• Sales Ratio: List down the gross profit ranges you had, and against it note down the number of units sold in a given period. Divide the number of units sold in each gross profit range by the total units sold and multiply it by 100. The answer you get is your sales ratio.
• Analyzing: In a new excel sheet, compare the SKU ratio and Sales ratio of each gross profit range. If the sales ratio is higher than the SKU ratio, the product has a higher demand. And if the SKU ratio is higher than the sales ratio, you might want to reconsider their sale as they are trounced.

How many digits is a SKU number?

When it comes to building SKUs, there is no universal system. The SKU code can be any length, but the standard practice is to keep it short between 8-12 alphanumeric characters. It usually refers to product information and is unique to each company. LIKE => "SKC-I423-PINK"

OR

As stated above, an ideal (Stock Keeping Unit) SKU number is supposed to be alphanumeric and should be idiosyncratic and short. Whereas, the length of an SKU code by anything you wish to, an exemplary code is made up of 8 alpha-numeric digits. LIKE => "SKC-I423-PINK"

What is an SKU used for?

You may just create an SKU code, but do you know how it can be helpful? This is how you can use the SKU codes to your gain:

1. Accurate Inventory Tracking: The main objective of having an SKU code is to keep a close track of the availability of your inventory.
2. Determine Profit: Using your SKU data, you can trace out the profit and loss for each product effortlessly.
3. Forecast Sales: When you keep a close eye on the explicit inventory numbers, these codes help you augur the sales of an item. You can do it, only if you implement the management system thoroughly.
4. Boosting Customer Loyalty: This is not a very popular use of SKU codes, but the architecture of these codes can be used to prognosticate the reorder points. This makes it easier for you to find the product your customer wishes to purchase, which makes their shopping experience better.
5. New Suggestions & Customer Retention: If the product us out of stock, your customers would know it right away, and the sooner you tell them, the chances are they will be willing to wait for the stock than go elsewhere. You can even offer them a similar product without wasting any time, which is highly valued by them.

Where are SKU Codes used?

1. Warehouses
2. Retail Stores
3. Online Marketplaces such as Amazon, Flipkart, Snapdeal, etc.
4. Product fulfillment centers
5. Etailers

What is the purpose of a SKU?

The main purpose of creating an SKU code for your product is to give it a distinctive identity. It will help the store keep track of the inventory. When you trace an SKU code into the system, it tells you all the product details associated to the code, the number of pieces you purchased, the number of pieces you sold, the number of the piece left in stock, the name of the supplier, and about the available variants. This makes it easy for the store owners to restocking, as well as in guiding the customers, saving their time. This succors to keep your business books in order and keep them updated.

Another purpose of having SKU codes is that they reduce the risk of errors. While your product name could be lengthy and have myriad variants, it may be difficult to remember all of them which may cause communication errors. SKU codes help eliminate them. 

Moreover, while the marketing team and sales team will always have differences in the big bet products, the SKU codes assist them with the best selling products based on past sale analysis and this helps bring everyone on the same page.

While one may understand that SKU codes can only be used in stores, you will be surprised to know that they can also be used in warehouses, catalogs, retail stores, and even by product fulfillment centers.

People also search for FYI, NOC, CV, POC, etc.

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