What are SKUs and how to use them to grow your eCommerce?

Have you ever heard of SKUs? The term SKU stands for Stock Keeping Unit and is an identification for an item that is on sale. Here's how you can use them to get the most out of your inventory.

What is the SKU code used for?

SKU codes in a warehouse serve to have proper control of the inventory in the warehouse. It provides detailed information about the different characteristics and attributes that a product may have, such as size, colour, brand, size, and manufacturer.

Let's think of an online store selling sneakers. Each sneaker model can have different sizes and colours. And this is where the SKU finds its real usefulness. A very basic SKU code for a white sneaker model in size 41 might be SHO-XYZ-WHI-41. For shoes of the same model, but in blue and size 43, the SKU might be SHO-XYZ-BLU-43.

Another company involved in the marketing of wooden pens may prefer to organize its SKUs according to ink colour and stroke thickness. For example, WAL_BLK_25 refers to ink made of walnut, black ink and a 2.5 mm stroke.

EAN (European Article Number)

The EAN code, an acronym for European Article Number, is a standardized barcode system that has already been adopted by more than 100 countries and nearly one million companies.

It has a barcode that can be scanned. It is usually 13 digits long and consists of numbers only, no letters. Its format is as follows:

The first three digits identify the country.
The next four or five identify the brand owner.
The remaining ones identify the product code.
In addition, it has a check digit.

Like the UPC code, the EAN is a universal code that uniquely identifies a product on the market. In fact, it is similar to the UPC, although the format and standard used are different. However, most retailers now have scanners that are capable of reading both UPC and EAN codes.

In addition, it should be noted that SKUs are unique per product, whereas two identical products may have the same EAN or UPC.

Advantages of using SKU codes for your eCommerce

In reality, the use of the SKU is not going to bring you extraordinary benefits, at least not directly. However, its use has a number of advantages for your eCommerce:

Better control and tracking of your inventory, which in the long run will mean lower management costs and, consequently, better results for your company. This is especially useful for brands that have several storage locations or are engaged in dropshipping since you can know at all times where a particular item is located.
SKUs allow detecting and analyzing purchasing trends, since they serve as a reference to know which specific models are selling better and, consequently, optimize the management of that stock. For example, in a company that sells clothing online, the SKU will allow the manager to know which sizes, colours etc. are selling more. If a red T-shirt in size M sells more than a blue one in size XL, you will have to have more stock of the former than the latter.
It serves to save costs, both in time and money, since the management of items tends to be much simpler, shortening deadlines and reducing investment.
A much more efficient customer service, as you will have a much better understanding of consumer preferences.
It is easier to delegate the management of your stock to third parties (fulfillment) since the process is simpler thanks to SKUs.
Reduces errors in the shipment of goods, especially in those products with different intrinsic characteristics, such as colours, sizes, etc.
Improved inventory turnover and all that goes with this important concept: improvement of working capital, customer satisfaction, sales, etc...

How to create a SKU?

As we have already pointed out, SKUs are free and depend on each company. However, for SKUs to be really useful, they must comply with a number of common characteristics:

The first step is to choose the structure that the SKU will have, which after all corresponds to the information that will be stored inside the code. In the case of a pair of sneakers, the SKU had an XXX-YYYY-ZZZ-AA format. Obviously, you will have to make sure that the system you use for your inventory management is prepared to use it.
The next step is to create a pattern that is recognizable at a glance by the operators and managers of the company. In the case of a sneaker company, its structure could be as follows:
- XXX: type of product (SHO for Shoe, for example).
- YYYY: shoe model (XYZ for a given model).
- ZZZ: colour of the shoe (WHI for white, BLU for blue, RED for red...).
- AA: shoe size (41, 42, 43...).
Your workers should know the code and start working with it.
From that point on, you will need to continuously follow up, replicating and optimizing the SKU where and when is necessary.

How to use SKUs to grow your e-commerce business?

SKUs play a fundamental role in the inventory management of eCommerce companies. Its usefulness goes beyond simply tracking items in stock; it also serves to analyze product demand, detect buying trends on specific features and improve customer service, which has a great impact on inventory management.

As the prestigious Harvard Business Review comments in its article called "Which Products Should You Stock?", most consumers do not buy a specific product, but rather a set of attributes. They used a television as an example. Most of the time, we don't ask for a television, but for a product that has an LCD screen, 55 inches and a certain brand. And, most importantly, with a price of less than €1,500.

In this sense, SKUs make it possible to identify which attributes consumers attach most importance to, something that is not possible with other barcode identifiers, such as UPC or EAN.

In short, SKUs are a fundamental tool in the inventory management of an eCommerce company. Their use is becoming increasingly widespread, given their popularity and usefulness in logistics processes, regardless of the sector, they cover or the items involved.

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