If you’ve just started selling, you’re probably getting familiar with retail terminologies. One that will make a regular appearance is SKU also known as Stock Keeping Unit.
It’s one of those terms that many use, but often understood poorly by sales representatives to inventory managers and software programmers. SKU has a very special significance and use when it comes to supply chain management and eCommerce.
Stock keeping unit has a very peculiar meaning so its application. A simple misunderstanding can lead to chaos and believe us no company can afford chaos at all in the areas of supply chain and stock management, marketing, or order processing.
You will thus require the appropriate processes and the correct solutions. Continue reading to further grasp the relevance and significance of SKU in supply chain management and how efficient usage of SKU can drastically boost your business profitability.
So let’s begin by exploring the term SKU and its significance.
What is a Stock Keeping Unit (SKU)?
The term SKU or Stock Keeping Unit is basically a product code that retailers use for products. This code helps them to identify or search a product from order forms, invoices, and product lists.
It’s a digitalized method to track any product. The data regarding the product is converted into a code (composed of numbers and letters) which can be easily manipulated by your system (computer).
People who’re new in the retail industry often confuse this term for UPC (Universal Product Code). Although the elements of SKU are quite familiar to the elements of UPC, they’re extremely different numbers.
The product is identified by a UPC code. An SKU identifies both the product and the location of the product. Every firm that sells the goods uses the UPC code.
SKU is a personal code — it’s simply an internal identification. But SKU architecture as well as logistics play a significant part in the company overall.
Let us suppose, you sell rubber gaskets and manage three regional warehouses that serve 50 sites. SKUs are critical for inventory management since the exact location of the product must be monitored at all moments. You utilise SKUs to know where the gasket is placed in the warehouse, and precisely where the product is stored. Think of SKUs as a GPS inventory tracking system.
If all your items are under one roof, all are located together and originate from one source, the distinction between a SKU and UPC may be of no significance. But whether you maintain various storage facilities or facilities, receive stocks at several places or keep items under one roof in different locations, SKU is important to digital transformation and order processing in the supply chain management.
SKUs are often used by B2B eCommerce platforms, inventory management solutions, order management tools, ERP, inventory management solutions, and management systems of marketplaces to know what products are available in stocks and where.
With SKUs, business management systems such as Marello assist in tracking items between locations or provide snapshots of the position of a product in several areas, such as stores and warehouses.
Importance of SKUs in supply chain management
Using Stock Keeping Unit Numbers to maintain a good database and track physical products assists you in predicting your sales more accurately. You can quickly determine which goods are performing well, selling quickly, or selling slowly. With all of this data, it becomes simple to forecast and monitor supply requirements. Products may be strategically assessed, and the necessary actions made to aid in sales growth.
Accuracy in inventory control
Inventory management may be challenging at times. While overstocking a product might result in decreased profitability owing to greater carrying costs, running out of stock can result in a loss of prospective sales.
Stock Keeping Units assist in keeping inventory records current, allowing you to optimise earnings and accomplish your business goals.
Improved customer service
Customer support representatives and physical-store sales representatives can easily find goods for which consumers have raised inquiries.
SKUs make it simple for customers to place repeat orders, discover products, and compare product characteristics. When suppliers have SKUs in place, they may rapidly offer customers with the items they require.
Generating more profits
Stock Keeping Units will assist you in maximising your profits. They assist you in determining which goods are the most popular. To sustain a high level of sales, strategic steps might be done. Proper product placement on both online and offline channels may help enhance client focus.
Additionally, SKUs assist in offering ideas for related items’ during sales. Suggestions for products aid in increasing sales and, consequently, profitability.
Quick shipment facility
Following the placement of an order, prompt distribution is critical—for this, keeping track of which product is stored where is critical. SKUs make this extremely simple.
They assist warehouses in rapidly locating the desired goods. The warehouse keepers can locate the precise goods with pinpoint precision. Multiple variation products may be quickly categorised and stored in the warehouse using SKUs.
Whenever a certain product is required, the database may be queried, and the product’s precise position can be determined. This eliminates the bother of locating items in large warehouses and expedites the shipment of orders.
Usage of SKUs (Stock Keeping Unit)
SKUs are commonly used in data analysis, order processing, supply chain management, and marketing as well.
SKUs are very important, it is more productive and profitable to support a business. Analyzing the data of SKU can help you do the following things:
- Detect breakage and theft
- Identify recurrent sales cycle
- Determine worst and best selling products
- Manages the turnover of inventory
- Turn up regional differences
- Deduce obsolete products
By leveraging SKUs to offer stock transparency, it’s certainly a robust sales tool that can be used for web-based sales. Consumers always want to know what you can offer them when they perform their own product research. But later on, more
If you’re a worldwide, domestic or regional physical product distributor, wholesaler or producer, your finished items are dispersed across several places. This inventory must be shipped from someplace when an order is placed. So, where is the question?
In the majority of situations, you wish to ship from the lowest shipping cost location. So, you have to know where the inventory is.
For example, your company’s warehouses are in Missouri, California, and Georgia, with most of your goods stored in the warehouse of California. If an order is placed from Georgia and you don’t have sufficient inventory in Florida, how will you deal with this issue? Would you transfer inventory to Florida from CaliforniaTransfer inventory or would you ship products from multiple locations?
You may construct algorithms based on user-defined regulations, by describing the stock and its position as an SKU, to determine where and how your orders are dispatched. The decision is computerised instead of making an order processing decision by humans. Based on the facts you collect, you can shift the inventory from place to place. This leads us to SKU’s second most popular use.
Supply Chain Management
SKUs and supply chain management are inextricably linked. The SKU is how inventory levels are determined. When an SKU is removed from the bin to fulfil a sales order, it is subtracted from the available inventory.
Inventory on hand is just as critical to understand as the maximum and minimum inventory levels. It may generate a low stock warning based on time-frame, prompting the procurement of more inventory. Inventory also plays an important role in determining the cost of products sold.
Additionally, SKUs are also utilized for tracking inventories on orders. In the order fulfilment example above, the scenario changes when you learn that the goods is on its way to Florida via truck and will get delivered the following day.
Periodically, for taxation, financial accounting, and warehouse management purposes, the physical amount of SKUs on hand is tallied and compared to the digital record in a procedure called taking inventory. This occurs around once a year.
Let’s return to those who purchase your items. Many marketers use an SKU rather than a UPC as the online product identification. If you utilise a UPC, customers may look up the code and compare prices.
By utilising SKU logistics to distinguish and advertise your goods, you can be certain that you’re presenting a unique product identifier that customers will not be able to locate anywhere else, regardless of how hard they search the web. This is due to the fact that your SKU is distinct to you.
Implementation of SKUs
Because SKUs are utilised for different business activities, members of the team from all the departments concerned should be involved in the deployment process. SKU data may have to travel across enterprise systems like eCommerce, ERP, WMS and other technologies that require stock data.
The warehouse team needs to determine its SKU use requirements for the collection and delivery and maintenance of breakage and loss of data.
All SKU information is used to enhance operations and performance through sales, marketing and buying. Marketing will want to utilise SKU data to find the greatest profit drivers to develop sales, promotions will use SKU data to detect trends, and provide predictions.
These inventory values comprise the maximum and low inventory levels, the reorder point and the restoration level. If stock forecasting software is utilised, the SKU data must also be transmitted. So SKU data is utilised across multiple platforms, as you’ll see once deployed. And all demand reports, therefore implementation should provide the constant flow of SKU data to preclude the creation of data silos.
eCommerce business with multiple websites and warehouses
When you have a single warehouse in a single location or when all of your items are drop delivered, SKUs and product administration are simplified, but shipment may be delayed, resulting in unsatisfied consumers.
With several warehouses, you can deliver items more quickly (which is critical in today’s climate), maintain flexibility, and minimise waste and loss. This all contributes to increased profit margins and a better client experience.
However, numerous warehouses complicate matters. When you combine several channels and various eCommerce websites, you end up with a lasagna with more layers of intricacy than the norm.
If you have not yet eliminated legacy warehouse management operations and silos , you should first design your technological change management project.
That is why it is critical that your B2B eCommerce solution cuts effortlessly through each layer of complexity. Whether the architecture is traditional or headless, it is critical that it integrates.
SKU data must move back and forth between each eCommerce channel and the ERP, WMS, and other applications. Orders for shipment must be directed to the location with the most inventory. If you provide client pick-up, you must ensure that the product is available at the specified location.
All of this prioritizing and routing must occur in real time, along with the customer’s online shopping. Another reason why your eCommerce solution must interact with other systems is to prevent data loss.
After all, your consumers want to know if the item they’re interested in is in stock before they make a purchase. Informing consumers about the quantity of goods and its location improves the customer experience.
According to Harvard Business Review, when a buyer cannot find the goods they want in stock, they do not choose an alternative; they just leave. And if your website says that a product is available when it is not, you will face significant credibility and trust issues.
Offering a backorder option is one strategy for securing a sale. Loyal consumers may be willing to wait if you specify a replenishment date and either provide the buyer the choice to purchase now and ship later or notify when the product is restocked.
Additionally, many warehouse activities create a large number of SKUs. Your systems must be scalable and capable of processing large data volumes as your business expands.
Any solution that restricts your SKUs is certain to fail in the future.
You now must have realized the value of SKUs, can you see how significant they’re for increasing company performance? SKUs are the codes that are the key to improving earnings by improving order performance, better stock forecasting and more efficient marketing activities.