From reducing supply chain errors to improving your customer’s experience, SKU tracking has many benefits.
Imagine you recently opened a boutique clothing store that sells screen-printed t-shirts with dozens of designs. You sell primarily online, but also operate a brick-and-mortar space with consistent foot traffic.
Sales are trending upward, and your marketing posts on social media are gaining traction, but you’re having trouble keeping track of your stock. You’ve been managing inventory by hand—tracking your t-shirts made and sold, their various sizes and styles—in a physical ledger. It’s an approach that’s taken up a lot of time and proven difficult.
To streamline your ordering and control, you try transitioning to using stock keeping units. With this new system, your supply ordering becomes more organized, you gain valuable insights into your most popular designs, and you have more time to promote your business. Here’s more on what SKUs are, how they function, and why they can be a crucial way to improve inventory management.
What are stock keeping units?
Stock keeping units (SKUs, pronounced “skews”) are unique identification codes distinguishing individual products in inventory based on attributes like color, size, and manufacturer. SKUs use scannable alphanumeric codes (a unique combination of letters, numbers, or symbols) to label products, making it possible to track inventory and sales and manage replenishment.
By creating and assigning unique SKUs to each product, you can track the movement of your inventory throughout the entire supply chain in real time, from when a product leaves your suppliers to when it reaches your customers’ hands.
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How is SKU tracking useful for your business?
Inventory management is a key component of running a retail business. Proper SKU tracking can inform your ordering process, help you cater to sales trends, and help you avoid problems like overstocking, stockouts, or phantom inventory. Here are four critical benefits:
- Forecast future demand. Keeping tabs on your inventory through SKUs helps you understand which of your offerings are most popular and whether the demand is seasonal, which can help you prepare for fluctuations by ordering or preparing stock in advance. Accurately forecasting demand can help you avoid accumulating dead stock (inventory that no longer sells).
- Improve customers’ shopping experience. Stockouts (when an item is out of stock) can drive customers away and decrease sales. Phantom inventory (miscounted goods) means there’s a discrepancy between what your system shows and what’s actually in stock, potentially resulting in a stockout you don’t even know about. SKU tracking helps provide an accurate handle on your inventory numbers, so your customers can be certain items are in stock; this improves customer experience, driving return business and increasing brand loyalty.
- Increase sales. While SKUs are primarily an identification tool, they can also be used to automatically suggest related or similar products through digital sales channels based on a customer’s purchase history.
- Identify and isolate issues in your supply chain. If you’re finding product defects or experiencing delays, a SKU system can help you quickly trace where in the supply chain the issues are coming from. If a product is defective, you can trace its SKU back to the supplier to determine whether the problem was caused by a specific batch or production line.
SKU tracking FAQ
How is SKU tracking integrated with point-of-sale systems?
Point-of-sale (POS) systems are a combination of hardware and software that allow businesses to perform sales transactions. SKU tracking integrates with POS systems through the use of bar code scanners that identify products based on SKUs, as well as software that can import and automatically update your inventory based on SKU codes.
What are the challenges of managing large numbers of SKUs?
SKUs are only as effective as the system used to track them. Managing large numbers of SKUs can be challenging, as it requires careful planning and execution to ensure inventory levels are accurately tracked.
How important is it to maintain accurate data in SKU tracking?
Maintaining accurate data about your products—labeling each with an appropriate SKU and importing it into your inventory management (IMS) and point-of-sale (POS) systems—can go a long way toward improving sales, streamlining your ordering processes, and avoiding inventory issues like stockouts.
Can SKU tracking be integrated with other systems and processes within a business?
Yes. Several systems can integrate with SKU tracking numbers, including your inventory management (IMS) and point-of-sale (POS) systems, as well as your ecommerce platform (your customer-facing website), and your warehouse management system. All of these integrations can help streamline business processes, leading to an improved shopping experience and a loyal customer base.