I remember my first two online sales. I’d finished adding what I thought was a robust inventory of 24 products to my shop three days earlier, and was wasting time in the seller forums when the orders came in, two in a row.
I was filled with a dizzying sense of joy of anxiety. I thought, “Yes! I sold something!” And, “Oh no! What now?” Having never shipped a package, I raced around making trips to the post office and Office Depot. And after several frantic hours, I was able to get the packages out before another order came in, and I started the process all over again.
If you’re like me, receiving orders never loses its excitement, but running a warehouse and keeping track of inventory can feel like an endlessly urgent cycle of incoming merchandise, outgoing orders, and returns.
It can feel so overwhelming to keep up with it all that it's easy to put off making changes, even changes that are essential to growth. Implementing the use of SKUs for inventory management is one change that will lay a good foundation for the future, increase efficiency, and allow your business to grow.
In this article, I'll tell you what SKU stands for, give you the SKU definition, explain how they are used, share the best practices for SKU naming, and outline the steps to help you get started.
What does SKU Stand for?
SKU (/'skyo͞o/) is pronounced "skew." SKU stands for Stock Keeping Unit.
SKU Definition
SKU is defined as a set of letters and numbers given to a product by a seller. Typically, the letters and numbers in a SKU are abbreviated attributes that distinguish one product from another product such as manufacturer, description, model, material, size, color, packaging, and warranty terms. The letter and numbers may be read by employees, or rendered as a barcode to be scanned.
SKUs also known as SKU numbers and SKU codes, are used for internal inventory management and are not regulated or universal. This means that different sellers will all have different SKUs for the same product.
SKU VS UPC
What does UPCstand for?
The SKU number should not be confused with the UPC code. UPC stands for Universal Product Code.
What is a UPC Code?
A UPC is a standardized 12-digit number assigned to products, and remains constant regardless of seller. While UPCs reveal information about the product when scanned, they are different from SKU numbers in that they are comprised entirely of numbers and cannot be interpreted by humans.
How do you get a UPC Code?
UPCs are assigned by a nonprofit called GS1 US. After a business pays for a membership with GS1 US, it is assigned a unique ID number that will populate the first part of its UPCs.
What is the purpose of a UPC Code?
UPC Codes are required by most retailers and distrubutors. As the unique universal identifier of a product, they are used as the standard for inventory tracking and point-of-sale (POS) software. Pretty much any product you've purchased from a major retailer had one of these codes on it at some point.
The difference between a SKU and a UPC
When looking at the difference of SKU vs UPC, remember:
- SKU codes are assigned internally, and are used for internal tracking purposes only vs UPC codes, which are assigned externally by a nonprofit, and are used for external tracking by retailers and distrubutors at the point-of-sale.
- There is no standardized practice for creating SKUs, while the practice of creating UPCs is standardized.
- The same product from a different seller will likely have a different SKU vs UPC codes, which will have the same code regardless of the seller.
- SKU codes can be alpha-numeric vs UPCs, which are only numeric.
- SKU codes may be interpretted by humans, while UPC codes cannot.
[Also read: Warehouse optimization 101]
What does a SKU look like?
Let's say that you have a pair of Steve Madden black Terraa women's shoes in size 6. Here's SKU number example for that product:
"Sm," the abbreviation for the manufacturer, Steve Madden, is followed by, "terraa," which is the name of the shoe. "Bk," describes the color of the shoe, black. Finally, "6" is the size of the shoe.
Here's another SKU number example for an Alloy Art 1” rear axle kit for a 2010 Harley Davidson that's a little more complex:
"Aa," the abbreviation for the manufacturer, Alloy Art, is followed by, "rak," which is an abbreviation for the type of part that it is - a rear axle kit. "1," describes the size of the part. "2010," is the year. “Hd,” stands for Harley Davidson, which is the make of the motorcycle that the part is intended for.
Why SKUs Are Important to Your Business
1 | They are an industry standard
SKU codes are an industry standard throughout the supply chain. Operating as a seller without SKUs is like having a business without a website, you just can't compete without it. You may be getting by without using SKUs right now, but you really need them to function in any kind of multi-channel selling. For example, Amazon will not allow you to list a product without a SKU.
2 | They convey information quickly
SKU codes are chiefly used for communication by describing products in a way that helps everyone to quickly get on the same page. They are a form of shorthand, that if done well can communicate exactly what the product is at a glance.
3 | They speed up warehouse processes
SKU codes speed up the process of finding products because they allow you and your employees to search, track, and reference products and inventory levels in your warehouse (or basement). There are many procedures that take place in a warehouse in the life of a product, and SKUs can be used in each of these steps to shave seconds or even minutes off of the time a task takes to complete. If you multiply those seconds saved by the hundreds of times a week or day each of those tasks get completed, you’re looking at hours of time saved. And I don’t think I need to remind you that time is money.
4 | They increase accuracy in warehouse procedures
One benefit of using SKU codes is that businesses can take much more accurate inventories because they allow you track your inventory electronically in a multitude of ways. Barcode scanning is 99.99% accurate... can you say the same about your warehouse workers?
5 | They improve quality control
With everyone in your warehouse reading SKU codes, you decrease the number of problems that occur because of miscommunication, which is the main source of human error. Concise communication through the use of SKUs is just one more way to prevent things like mispicks and misships, and to make sure that orders go out correctly every time.
Creating SKUs
When it comes to creating SKUs, there's no universal system. This guide will help you get started understanding some SKU naming conventions, but I recommend that you read it and then figure out a system that works best for your business.
Create a Format
The first thing that I recommend is to create a standard format for all of your SKUs to follow. Decide what numbers and identifiers will be included in your SKUs, and in what order. Will you include the brand name? The color? The manufacturer's part number? Think about what attributes your products typically have that distinguish them from other products to figure out what needs to be included.
Here's an example of a SKU format:
manufacturer/brand identifier, part number or name, category identifier, product name-color identifier-size identifier
So, for a red Stacy Adam's Men's Gordon Shoe in size 9.5, the SKU might be, "samsgordon-rd-9.5".
If you can determine your SKU format now, you can save time in the future when you're naming more SKUs because you'll already know what to include. You'll also know exactly how to read a SKU because the same attributes will be in the same place every time.
Create a Coding System
You'll want to create and maintain a list of codes for things like manufacturers, brands, colors, and sizes.
You can do this on a spreadsheet by making a list of the manufacturers and brands that you carry in one column, and then assigning a code to each of them.
That might look like:
The same goes for colors and sizes. You can add the variations to a spreadsheet and decide how you'll abbreviate each of them.
For sizes, it might look like:
And for colors:
The benefit of creating a set of standard identifier codes to name your SKUs by is that with repeated use, you and your employees will begin to memorize them, and eventually be able to read and interpret SKUs quickly. You don't need to have a great long-form descriptive title for each item because you'll be able to look at a SKU and know exactly the type of product that it's representing. Save that long-form descriptive click-bait title for display on your marketplace(s) and your website(s)!
SKU Naming Best Practices
There are no rules when it comes to SKU naming, but here are a few do's and don'ts that you might want to consider to make things easier on yourself and your employees:
Do:
- Keep it short
- Use identifier codes like 's' for small and 'rd' for red
- Uses dashes as separators
- Use sequences of numbers and letters
Don't:
- Make them too long
- Include special characters like asterisks and ampersands. Some programs may not recognize those characters, so your SKU may not show up correctly or at all.
- Spell out every single word e.g. stacy-adams-mens-shoe-gordon-red-9.5
So, there you have it! You don’t need fancy software to get started. You can set up your coding system using a single spreadsheet with a handful of tabs. Once you have a plan, naming SKUs is a fairly simple process.
SKU Generators
If you'd prefer not to name your SKU numbers manually, a SKU generator might be the way to go. eCommerce platforms sometimes have SKU generators for their clients. Bigcommerce is one example of this with its Auto-SKU Generator. There are also SKU generator apps like this one that you can download from Magento. We also offer SKU generation at SkuVault for our clients. With so many options to name SKUs, there's no excuse not to do it!
Next Steps
Take charge of your inventory today by taking these actionable steps:
1 | Schedule a time to create your formatting, codes, and name your SKUs.
2 | Create your formatting, codes, and name your SKUs.
3 | Implement a system to continue labeling, tracking, and naming new SKUs in your warehouse. Be consistent.
Implementing changes like creating SKUs for your entire inventory may seem like a daunting task, but once it’s done, you’ll open the door to so many possibilities when it comes to tracking your inventory and growing your business. Your business is worth the effort!
Do you have a system for naming SKUs? Leave a comment below and let us know what works for you!