What is a SKU, why is it so important, and how many do you need?
The Definition of a SKU
A Stock Keeping Unit, or SKU, is an individual item, product or service for sale. The SKU is a unique set of characters that relates exclusively to that particular item. Each code has variations which refer to parts of its product, cleverly, this means that, unlike a barcode, they can be read and understood by a human. The greatest advantage of a SKU however is that it enables companies to take more accurate stock readings, granting them the ability to save time and money, and above all provide extremely efficient fulfillment.
Prioritizing product selection to optimize sales
Why is a SKU so important?
The key advantage to using a SKU over a barcode is the fact that it most people should be able to decipher them with ease, however they have additional uses. If for example you were in the business of reselling products sourced from a manufacturer and relying on barcodes, there is a chance that said manufacturer might change those barcodes. A SKU remains completely unique to your business regardless, reducing the chance of confusion or error. Because a SKU is specific to the particular size, color or flavor of an item, it also allows for complete stock visibility.
Barcodes and serial numbers are all well and good and serve their purpose, however should you be without the technologies so closely associated with them, you would be unable to easily identify packaged products. By using SKUs, the problem is eradicated - allowing for far more streamlined picking process. Efficient fulfillment is quick, succinct and without error - by employing a SKU system, valuable time can be saved and there is an instant level of certainty. The chances of picking and packaging the wrong product are cut, so you would not need to worry about accidentally sending an XXL orange shirt to someone who actually ordered a pair of size M galaxy print leggings. If you are a small retailer, with a select few niche products, using SKUs can help build your inventory base, ensure that customers are receiving the right orders, and as you develop, SKUs can grow with your company.
For a larger company working with thousands of individual products, SKUs are invaluable. They allow you to monitor and control your stock with far more ease than you could a barcode. When dealing with a high volume of items, it will save time in the picking process, enabling your staff to process and send out orders at a faster rate whilst maintaining a high level of fulfillment.
How many is too many?
There is no wrong number of SKUs - there is only the right amount for you. There would be no point comparing yourself to similar companies who stock the same products as you, as their requirements, disposable income and method of manufacturing and fulfillment will be different to yours.
It is fast becoming fashionable to be a small retailer with a limited number of products, cornering the your customer base and giving them limited choice, allowing for those few items to sell through. This makes the entire selling and fulfillment process far easier to monitor, stock and forecast. By having fewer SKUs, it allows room to grow as demand does, innovate products and increase customer interest. It also costs less to have fewer SKUs - if you are operating out of your spare bedroom of course it will not cost you a penny, but if you are thinking about outsourcing, then the costs can build. A limited number of SKUs would keep those costs down, and allow you to focus on providing an exceptional customer experience.
However if the market you are competing in is larger, for example the fitness clothing sector, there is a need to provide consumers with more choice. By offering more SKUs, you may be limiting the number of products you move - too much choice can leave customers undecided, but it will be expected. There are a lot of additional costs (time and money) that come with providing a vast amount of SKUs:
- Warehouse storage
- Picking and packing
- Increasingly up to date software
- Customer Service
These can be appropriated, however, by intelligently picking your SKUs in relation to the market. By providing the same yoga pants in eighteen colors, you are allowing broad choice for customers, but overall limiting just how many of those eighteen you will sell. Ten color variants would be a far better option as it lowers the chance of unmoving stock and still provides choice.
It is important to understand what type of business you wish to be and what kind of consumer market you wish to pursue before you even contemplate SKUs. However when you have your ideas and plans in place, as well as researched your products and the demand for them, you will be able to calculate just how many SKUs will be important for the company, and for development.
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