What is SKU Management?

SKU management refers to the systematic process of creating, maintaining, and optimizing unique alphanumeric codes, known as stock-keeping units (SKUs), to track and manage inventory effectively. SKUs help businesses organize their products based on type, brand, size, color, and other attributes, facilitating efficient inventory control and improving operational efficiency.

Key aspects of SKU management include:

• Creation and standardization — Developing a consistent and descriptive naming convention for SKUs is crucial. This might include product type, brand, size, and color (e.g., “01-ABC-BLK-L” for a large black t-shirt).
• Inventory tracking — SKUs are tied to inventory management systems, allowing businesses to monitor stock levels in real time.
• SKU rationalization — Businesses periodically assess and consolidate their SKUs based on sales performance, shelf space availability, and other factors to optimize carrying costs, inventory turnover, and their product catalog.
• Efficiency in operations — Barcodes or QR codes are linked to SKUs for easy scanning and tracking throughout the supply chain.
• Data management — SKU data is valuable for forecasting demand, planning inventory purchases, and making strategic business decisions.
• Customization and flexibility — Businesses can set custom reorder points based on SKU data, ensuring timely restocking and optimal inventory levels.

Ideally, SKUs represent the product’s main attributes, making them easy to identify and differentiate. For example, a clothing retailer’s SKU might include shortened versions of the gender, product type, size, and color of an item. And each alphanumeric code is unique, so businesses can track each product’s movement and sales history accurately. 

Synonyms

• Stock-keeping unit management
• Product code management
• Product catalog management
• Inventory coding

Importance of Effective SKU Management Systems

Managing SKUs effectively is a critical part of product catalog management and a key aspect of supply chain management. It enables businesses to streamline their processes, reduce costs, and ultimately improve sales performance by ensuring the right products are in stock at the right time.

With effective SKU management systems in place, businesses can:

• Improve inventory control. SKUs enable businesses to track stock levels accurately and efficiently, reducing the risk of stockouts or overstocking.
• Optimize warehouse space. SKUs provide a clear understanding of each product’s sales performance, allowing businesses to prioritize high-performing products and allocate shelf space accordingly.
• Facilitate data-driven decision-making. SKU data helps businesses analyze sales patterns, identify top-selling items, and make informed decisions about product assortment and pricing.
• Enhance customer satisfaction. With accurate inventory tracking, businesses can fulfill orders promptly, ensuring customers receive their desired products in a timely manner.
• Increase efficiency and reduce costs. By optimizing inventory levels and reducing stockouts, businesses can minimize carrying costs and improve overall operational efficiency.

Without a way to manage product inventory levels or track sales data accurately, businesses risk losing customers and creating margin leakage. A company’s carrying costs already account for between 15% and 30% of its inventory value, and without proper SKU management, these costs can increase significantly.

SKU Management Best Practices

Mastering SKU management requires you to develop and follow a set of best practices to ensure consistent, accurate, and efficient inventory management. You also have to take into account your business’s unique needs and goals, as well as the types of products you sell and how they are sold.

Here are some expert tips to help you get started:

Establish a clear naming convention.

Establish a standardized format for SKUs to ensure uniformity and simplicity. This could follow a pattern like “Product-Attribute-Size-Color” (e.g., “SHIRT-M-RED”). Consistency aids in reducing errors and simplifies inventory tracking.

Use descriptive codes.

Make sure SKUs include essential product details without being overly complex. Descriptive yet straightforward SKUs help in quick identification and reduce the chances of mispicks.

Avoid special characters.

To prevent confusion and compatibility issues with inventory management systems, avoid using characters that can be easily confused, like “O” and “0,” and avoid special symbols such as “%” or “/”.

Group SKUs by similarities.

Organize SKUs by categories or similarities, such as product type or supplier, to make inventory tracking easier and more logical. This will also help in identifying top-selling products and profitable items, since you’ll know where to look for them.

Conduct inventory velocity analysis.

Internally, you need to regularly analyze the performance of each SKU to understand which items sell faster and which do not. This helps in optimizing inventory levels and reducing holding costs. Focus on high-demand items while phasing out low-performing ones.

Calculate reorder points.

Use historical sales data to calculate the optimal reorder points for each SKU. This ensures that inventory levels are maintained at optimal levels, preventing stockouts and overstock situations.

Automate inventory management with software.

Implement inventory management software that supports SKU tracking. Automation helps in setting reorder alerts, managing stock levels, and updating inventory in real-time, thereby increasing operational efficiency.

Eliminate low-performing SKUs.

To avoid unwanted SKU proliferation, find and discontinue SKUs that do not contribute significantly to sales. First, understand customer pain points, look at buying trends, and evaluate the profitability of your stock items. Then, analyze SKU performance data to eliminate low-ROI SKUs.

Conduct routine audits.

Conduct periodic audits of SKUs to ensure data accuracy. This includes verifying physical stock against inventory records and consolidating duplicate SKUs. Regular audits help in maintaining data integrity and optimizing stock management.

Build scalability into your SKU management system.

To future-proof your inventory management, ensure that the structure is flexible enough to accommodate new products and categories without needing significant changes. Before creating sub-categories and SKUs, test what they would look like if you expanded the width or depth of your product lines.

Benefits of SKU Management Software

The more product variations your company offers, the more critical SKU management becomes. Every item needs a product code, so selling hundreds or thousands of items requires an effective SKU management system to track and organize products.

By using software to codify and manage your individual products and SKUs, you can:

• Improve accessibility and visibility of SKU data
• Reduce errors in inventory management
• Make informed decisions about product assortment, pricing, and promotions
• Enforce standardization and consistency in SKU naming conventions
• Automate inventory tracking and alerts for restocking
• Increase operational efficiency by eliminating manual data entry and optimizing stock levels
• Scale your inventory management system as your business grows

You’ll also have access to real-time inventory data and analytics, allowing you to make data-driven decisions about your stock levels and improve overall inventory management. By implementing a robust SKU management system, you can reduce costs, increase efficiency, and improve customer satisfaction — all essential for growth and success.

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