What is a SKU number and how do online businesses use them?

Anyone who has purchased something online or read a product description has almost certainly come across SKUs. Below is the definition of a SKU and the typical uses for them for an ecommerce business.

SKUs Made Simple

A SKU, or stock-keeping unit number, is a unique string of letters and numbers representing each product in a seller’s inventory.

There is no standard practice for SKU creation, but often, the chosen approach is one that makes things the least complex for the employees who need to interpret the SKU’s data and determine what it means. Usually, the information contained in a SKU number is in order from most to least importance.

Sometimes, the SKUs for similar products in a merchandise line have only slight variations.

For example, a red shirt and blue shirt that are the same style and from an identical brand may be characterized by nearly the same SKUs except for one number that’s different due to the color variation. In any case, the seller assigns the SKUs to products and creates them in ways that make the most sense for business operations.

SKUs Versus UPCs

The Universal Product Code (UPC) is another identifying factor associated with merchandise. However, there's a notable difference between UPCs and SKUs. Whereas SKUs are seller-dependent, UPCs remain the same even when various merchants offer the respective products to consumers.

Also, whereas SKUs can have any number of letters or numbers depending on a merchant’s identification system, UPCs are comprised of 12 numbers and include barcodes.

Using SKUs to Determine the Most Significant Profit Generators

As explained in the example above, SKUs can contain information about a product’s color. It might also include the manufacturer’s name and a product’s size or style.

By keeping track of the most in-demand SKUs, the representatives from online stores can reliably know which products customers buy most often as opposed to the products that are less popular. Then, based on SKU trends, an individual in charge of replenishing the stock might decide to purchase fewer of the products that don’t sell as quickly compared to the most-desired items.

Improving Merchant-Vendor Communications With SKUs

Because SKUs are primarily used internally at online stores, customers and vendors may never see them. However, online merchants can still rely on SKUs to have smoother communications with vendor partners.

For example, SKUs are helpful in forecasting. A valid sales forecast can set expectations for anticipated demand, allowing online merchants to check with their vendors and ensure they can meet minimum requirements. If they can’t, it may be necessary to start working with additional suppliers.

Moreover, SKUs help online store representatives gauge how fast particular items usually sell. Then, they can talk about timeframes with their vendors and reduce the likelihood of shipments arriving too late.

The Role of SKUs in Boosting Customer Satisfaction

Most people who shop online are accustomed to at least occasionally learning that some products they want to buy are out of stock and back-ordered.

When individuals are sure that they want to purchase those items and think highly of the respective merchants, they might be willing to exercise patience. However, if there’s a high probability of finding the merchandise elsewhere and customer loyalty doesn’t come into the equation, people will likely look elsewhere and wait for products to come back in stock only when no other options exist.

An ecommerce business can rely on SKUs when setting their reorder points. A reorder point is a particular inventory level that triggers an alert that it’s time to buy more items.

As online sellers depend on SKU information to figure out their reorder points, the result should be that low stock levels become less problematic and customers find that the products they want to buy are available more often than usual.

SKUs to Speed Inventory Tracking

If there are thousands of items in the warehouse associated with an online store, it becomes almost impossible to track inventory swiftly without making errors. Because SKUs include an alphanumeric system that the people working for your establishment should understand, they facilitate accurate stock taking and reduce many of the challenges associated with warehouse logistics.

Inventory tracking is one of many things that help prevent stockouts — the condition whereby products sell out. By conducting stock counts with the help of SKUs, online retailers get accurate pictures of what’s available to sell.

Merchants can also do full inventory counts, which involve counting every product on hand. At a physical store, it's necessary to close the shop during business hours or hire a team that can take care of the job during odd hours. Fortunately, that doesn’t apply to a business operating only online.

The other option is to do a cycle count —focus on only a small section of inventory to count every day, and repeat the process to address all items in a store. A cycle count allows merchants to stay on top of inventory tracking without substantial disruptions to operations.

SKUs Are Essential for Online Stores of All Types and Sizes

A person responsible for running an online store should never assume the establishment is too new or doesn’t carry enough inventory to justify using SKUs. A SKU reduces challenges for merchants and vendors alike.