What is a SKU? Definition and Solution | Katana MRP
Growing manufacturers can struggle to keep on top of their inventory once the sales start rolling in. That’s why it’s pretty much a necessity to implement an SKU system to help out.
Question is: what is SKU?
Take a look at this:
Do you know what it means?
How about this...
Well there is nothing to worry about, because there’s no way you can know what this jumble of numbers and letters are. Other than they are what is known as SKU or Stock Keeping Unit.
You might also refer to it as the manufacturer's secret language.
So... what is SKU?
Stock Keeping Unit or SKU it is a unique code that you use to identify every inventory item in your stockroom.
Inventory management using SKU codes helps you easily track your inventory items and their variants (e.g. color, size) in lists, invoices, manufacturing and purchase orders.
In real terms this means you have a specific code for every possible variant of your final products.
And if you happen to sell on Shopify, then make sure to keep reading for our detailed outlook on Shopify SKU.
Because there comes a time in every growing manufacturer’s life that the number of products gets hard to keep track of and can even get quite confusing.
SKUs are the solution to that problem.
But they aren’t just about keeping track of your inventory. It’s also about having a system which you can use to communicate and better know your products.
The impacts can ripple throughout your business: from enhancing your online store, to giving you control of inventory, to offering you vital information that can help propel sales.
In fact, SKU’s help marketplaces and e-commerce sites to suggest items in your store to customers based on what they look at.
Definitely something worth looking into.
Why is SKU Important?
Let’s take an example.
You have been designing and printing t-shirts for a couple of years.
But now you’re not just printing white t shirts like you used to.
Now there are 15 designs. Each with a different majestic creature on the front.
They come in 5 different colors. Plus the 4 different sizes: small, medium, large, XL.
It doesn’t take advanced mathematics to realize you have a lot of unique products there.
Just multiplying each set of variants can give you the grand total.
15 x 5 x 4 = 300 unique products
Yes, it might not have seemed like such an extensive variety of products at first glance. But it’s clear that those are a lot of unique products to keep track of.
If your warehouse is filled with hundreds or thousands of products and you have no SKUs, then having a clear understanding of stock levels of each product or material and its variants is difficult.
Using SKUs allows you to track stock levels for each product and material variant.
This is paramount when optimizing your inventory levels and achieving efficient inventory management.
Here is a list of benefits:
Get everyone on the same page – the main advantage of using SKU as shorthand is that everyone internal can understand the products and their movements efficiently;
Reduce mistakes - lengthy product names and variant attributes can cause communication errors;
Simplify stock taking – the ability to identify variants means that you can easily check if inventory matches the actual stock levels;
Prioritize products – using SKUs allows you to identify sales volumes for each product variant. Perhaps certain colors or size combinations are more popular than others; and
Optimize inventory – set reorder points on each variant on your stock keeping unit to keep inventory at maximum efficiency.
As you can see these are not benefits to be taken lightly.
The effects can be wide ranging on your business and at some point using SKUs becomes a necessity rather than a luxury.
Setting Up Your SKU
Alright we know what SKU is and why it’s important.
Now you might be asking, how do I set mine up?
Well the first thing to note is that they are meant to be human readable.
This means that the purpose is not just that they are read by a machine. They need to be set up in a way that any one that needs to work with your inventory can understand them.
SKU codes should help you identify the exact product variant you are looking for. Therefore, you should incorporate information on color, type, size and other similar attributes into the SKU.
This saves you time in decoding the SKU during everyday operations.
For example, if your product list includes a coffee table that comes in various sizes and colors then the following would be a good SKU example code:
Coffee table (small, black) - COF-S-BK
SKU codes can include both letters and numbers (but beware of using letter O and number 0 - they are easy to mix up).
Another SKU number example:
Jacket (size 12, white) - JAC-12-WH
It also makes a lot of sense to put the more important info first in the SKU code.
For example, if your product assortment changes every season you might want to use S17 (for Summer 2017 season) in the front of your SKU code.
Leather bag (Summer 2017 season, green) - S17-LBA-GR
Reading these codes might seem like a lot of effort at the beginning. But the reality is that they will be used daily so eventually they will become second nature.
When setting up your SKUs remember that this is ultimately to make communication easier and help grow your business. Account for what is important for your business so that you can tailor the SKUs into what you want.
Each business has its own needs and therefore its own SKU language.
Sound like a lot to handle?
Don’t worry, we have made you a simple SKU generator to help you get started.
What is SKU? Just check out the little codes on the left hand side of the screen like “DT-BR”. It shouldn’t be too difficult to make sense of once you see the names of the products next to them.
Having an inventory that uses SKU is one thing, taking full advantage is another.
That is not to say that you won’t see the benefits immediately.
Being able to communicate with a short code will organize your thoughts as well your inventory straight away. A lot of brain energy will be conserved – that's for sure.
But to take the usage to the next level is to track your SKUs so that you can optimize your inventory and maximize profits.
A solid point to make use of SKU is to set reorder points for each of your products. This means that you will only order stock when you need, saving you money and resources.
Your stock levels don’t have to take any more space than they need to while simultaneously always being on hand to manufacture without delay.
There will have to be a bit of time spent on setting this up, but the fact is that once you do the amount of time you save in the long run is not even comparable.
It’s like when you tidy your house up for a spring clean and it stays like that for ages. Because once it’s clean then it a lot easier to keep it that way.
And once it’s spotless you can see everything that’s happening with full visibility.
In the same way you can use visibility with your SKU to prioritize the product variants that you can see are doing well.
With an SKU inventory each of the variants can be tracked and compared to others.
So, upon inspection you might see that hey, blue t shirts seem to be the most ordered across the board. That gives the incentive and understanding to drive sales however you see fit.
Maybe you want to market your other products more.
Or you decide you want to take advantage of this sudden love of the color and do some blue-based promotions.
The potential benefits come out of the woodwork once you have your secret language set up, and they won’t all be clear until then.
If you have an online store where you sell your products then it can be really useful to use the same SKU system on the store as with your inventory management.
Especially if you use inventory management software to match the two, rather than using spreadsheets. Because this means your inventory is always up to date on both systems and you can deliver to your customers without delay.
A great online store platform to use is Shopify which caters to all kinds of business, especially growing manufacturers and workshops.
Implementing a Shopify SKU system means that you can optimize your Shopify inventory by using the same SKUs as you do with your inventory management software.
So, you can compare all your reports on either system without any hassle.
If the sales for TSD-S-BL are skyrocketing on your Shopify store then you can seamlessly switch to your inventory management software...
You see the matching SKUs and life suddenly makes sense!
Now you can set the inventory levels at what you need them to be to match the sudden rise of demand. No more customers waiting desperately waiting by the door for their delivery.
That’s just one example but integrating your Shopify store with your inventory is only going to give you more control.
One of those lucky few situations in life where there’s nothing to lose.
If you are a product-making business, selling on Shopify, you’re probably struggling with manufacturing, inventory management, purchasing, and meeting deliveries. Join over 500 successful modern manufacturers, implement the best Shopify order management system for scaling manufacturers, and get the freedom you deserve.
Hidden wonders of Shopify SKU
Alongside solving your Shopify inventory issues, you can also involve customers with your system to make their lives easier. It might seem counterproductive to list your scary looking SKUs on your store, but there is a reason that Shopify has that feature.
Here’s an example scenario of the unseen benefits:
A customer returns to you after a year asking if you still carry a particular t-shirt which was a kind of red/purple color.
Normally there would be a lot of back and forth in this situation before figuring out exactly what is being referred to.
Now if she has the Shopify SKU code at hand, you can find out very quickly what the options are for the customer.
Its time saved for you, and great customer service for them.
That’s the beautiful thing about having these codes. They just work as shorthand for anyone that has anything to do with your business.
Everyone can get an understanding of all the options and variants that are available to them efficiently.
If you’re wondering how to create SKU for your Shopify store then look no further.
You can check out our Shopify SKU generator to help you get the ball rolling.
Smart SKU use
See, secret languages aren’t just useful for gossip and inside jokes.
SKU might seem crazy complex on first glance when you see a hodgepodge that reads:
But there’s a method to the madness.
And once you get accustomed to reading as “T-shirt with dragon print that’s medium size and black in color” then it starts to make a whole lot of sense.
Unless your business makes very few types of products and uses limited raw materials then there’s no reason not to use SKUs. Even if you do only have a narrow set of items then it can still be a great set up for the future and growth.
At this point you should consider embedding your brand new SKU system into Katana’s Smart Manufacturing Software. You gain total control of the advantages of an implemented SKU system without all the continuous manual work.
The software not only helps you set up your SKU’s but works in sync with your Shopify store to keep your inventory updated.
It’s the most efficient way to take full advantage of what SKUs can bring to the table for a growing manufacturer or workshop.
Plus, who doesn’t want their own secret language?