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What is SKU Management? [2024 Update]

2 Minutes

In this article, we will examine what is SKU management and its significance as well as display our effective SKU Management process applied to a real-world example.

sku management

What is SKU Management?

SKU Management is the systematic process of assigning and tracking unique codes or labels for products within an inventory system, aiding in efficient organization and control.

Example: A shoe store might assign a unique SKU, like "SHOE123-BLK-9", to a black shoe of size 9. Using this SKU code, they can quickly assess stock levels and more effectively manage their inventory.

Importance of SKU Management 

Let’s explore the benefits of effective SKU Management below.

Suppose you run an online electronics store, and one of your best-selling products is a specific smartphone model with SKU "PH001." 

Here's how SKU Management can significantly benefit your business:

Efficient Inventory Control: 

With SKU "PH001," you can precisely track the quantity and location of this smartphone model in your warehouse. This prevents overstocking or understocking that ensures you always have the right number of units in stock to meet customer demand.

Accurate Order Fulfillment: 

When a customer orders SKU "PH001," your warehouse staff can quickly locate and pick the correct smartphone model. This reduces the likelihood of shipping errors or delays.

Improved Forecasting: 

SKU data allows you to analyze historical sales trends for "PH001." For example, you may notice that this smartphone sells particularly well during the holiday season. With this information, you can plan your inventory levels and marketing strategies and ensure you have enough stock to meet increased demand during the holidays.

Inventory Optimization:

If you find that SKU "PH001" is selling slowly, you can take action to optimize your inventory. You might decide to run special promotions, bundle it with other products, or adjust pricing to move the inventory more quickly.

Streamlined Reordering: 

Using SKU Management, you can set automated reorder points for SKU "PH001." When the stock reaches a predefined threshold, your inventory system can automatically trigger a reorder with your supplier, ensuring you don't run out of this popular product.

what is sku management

SKU Management Process

In this section we will explore our step-by-step process for effective SKU Management. 

1. Inventory Assessment:

Begin by conducting an assessment of your inventory. For example, if you operate a clothing store, take stock of shirts, pants, dresses, and accessories, along with their variations.

2. Categorization:

Group your products into categories or product lines to create a logical structure for your SKUs. For example, categorize shirts into "Men's Shirts" and "Women's Shirts" and pants into "Jeans," "Slacks," and "Shorts."

3. SKU Naming Convention:

Establish a consistent, descriptive, and unique naming convention for your SKUs. This might include elements, such as product type, brand, size, and color. For instance, a large red men's shirt from brand XYZ could have the SKU "XYZ_MS_L_Red."

4. Unique Identifiers:

Assign a unique SKU to each product variant to prevent confusion in tracking and managing your inventory. Avoid duplicates like having two "XYZ_Shirt_Large_Red" SKUs.

5. Digital Record Keeping:

Create a digital database to record all SKUs and related information. For example, record the SKU, product name, description, supplier, cost, selling price, and current stock levels. This helps maintain accurate records.

6. Barcode Generation:

Generate barcodes corresponding to each SKU to facilitate efficient tracking. Barcodes make it easier to scan and manage products throughout the supply chain, from receiving shipments to point-of-sale transactions.

7. Inventory Tracking Software:

Implement inventory tracking software (e.g., "InventoryMaster") to efficiently manage SKUs, automate reorder points, forecast demand, and generate reports.

8. Regular Audits:

Conduct regular physical audits of your inventory to ensure accuracy. For example, physically count the number of "XYZ_MS_L_Red" shirts on the shelf and cross-reference the count with your digital records.

9. Reordering and Restocking:

Set up reorder points for each SKU based on historical sales data and demand forecasts. When stock levels reach these points, automatically trigger restocking orders to replenish inventory. For instance, reorder more "XYZ_MS_L_Red" shirts when stock falls to 10 units.

10. Performance Analysis:

Continuously analyze SKU performance. Identify slow-moving or obsolete products and consider strategies like clearance sales or discontinuing them. Conversely, highlight best-selling items and explore opportunities for promotion or expansion.

what is the sku management


Let's now apply our management process to an example. Imagine you run an online store named “Fashion Haven” that sells clothing and accessories. Here's how the SKU management process works in your business: 

1. Inventory Assessment: 

Fashion Haven conducts an inventory assessment and take stock of various clothing items in their inventory, including shirts, pants, dresses, and accessories. For instance, they note that they have men's and women's shirts, different styles of pants and various types of dresses. 

2. Categorization: 

Fashion Haven categorizes its products into distinct categories. For example, they group shirts into "Men's Shirts" and "Women's Shirts." Pants are categorized as "Jeans," "Slacks," and "Shorts." Dresses are divided into "Casual Dresses" and "Formal Dresses." 

3. SKU Naming Convention: 

Fashion Haven establishes a consistent and unique SKU naming convention. Following this convention, a large red men's shirt from brand XYZ is given the SKU "XYZ_MS_L_Red." This ensures that each SKU is descriptive and unique, making it easy to identify the product's attributes. 

4. Unique Identifiers:

Each product variant receives a distinct SKU to avoid duplicates and ensure tracking accuracy. For example, they avoid having two "XYZ_Shirt_Large_Red" SKUs to maintain clarity in tracking and management.

5. Digital Record Keeping: 

Fashion Haven maintains a digital database recording SKU details, including product name, description, supplier, cost, selling price, and stock levels. This record-keeping helps in maintaining accurate inventory information. 

6. Barcode Generation: 

Barcodes are generated for efficient supply chain tracking, simplifying processes from inventory receipt to point-of-sale transactions. This is done to streamline tracking at various stages of the supply chain.

7. Inventory Tracking Software: 

"InventoryMaster" software is employed to efficiently manage SKUs, automate reorder points like setting reorder points, forecast demand based on historical data, and produce informative reports for informed decision-making. 

8. Regular Audits: 

Routine physical audits are conducted. For example, they physically count the number of "XYZ_MS_L_Red" shirts on the shelf and cross-reference this count with their digital records to identify any discrepancies. 

9. Reordering and Restocking: 

Reorder points are set based on sales data, and automated restocking is triggered when inventory levels reach these thresholds. For instance, they reorder more "XYZ_MS_L_Red" shirts when stock falls to 10 units. 

10. Performance Analysis:

Fashion Haven continuously analyzes SKU performance. They identify slow-moving products and devise strategies, such as clearance sales or discontinuation. Conversely, they highlight best-selling items and optimize promotions to maximize sales and profitability. 

We hope that this article gave you a better understanding of what is the SKU management process and its importance in improving your business operations.

If you enjoyed this article, you might also like our article on SKU productivity or SKU based pricing. 

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