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Inventory Management – The Taming of the SKU

Maintaining an inventory management system is a cumbersome process, to say the least, but without proper inventory tracking it would be an absolute nightmare.

So why do I need an Inventory Management System (SKU)?

You don’t need to be a rocket scientist to know that managing a large inventory can be very difficult, especially for the small business owner. Having a SKU system allows you to easily identify and track the movement of every product in your inventory. Not only does a SKU system allow you to easily know what you have available, but it makes replenishing a breeze since you have complete control over when you need to order new product.

Stock Takes and Shrinkage

Taking stock of what you have on the floor and comparing it to what you have in your inventory management system is crucial to controlling shrinkage due to damaged, unsellable or missing items. A good SKU system will have unique identifiers for every product variation and allow you to see what may have been damaged or is missing, no matter where your product is along the supply chain. And let’s face it; theft happens whenever product is moving around. A good inventory management system with SKUs creates transparency and minimizes the opportunity of losing product along the supply chain. Everyone keeps their “cards on the table”.


And I’m not talking about the conversation you have with your buyer who is ordering 300, 8” round planters and wants to know if they come in “crimson mist”. No, I’m talking about how systems communicate with each other. In this day and age of the connected business, it is imperative that your system can communicate with other systems, specifically your customers. Your customers will have their own SKU system and to properly “connect” their business to yours, they will need to cross-reference your SKUs to theirs. The major benefit to properly cross-referencing SKU systems is it simplifies the order management process from both sides and takes out all the guess work. This creates a stronger business relationship with your customers, who will enjoy the efficiency of doing business with you.

Setting up a solid SKU system

Solid SKU System
Source: Ministry of Forests, Lands and Natural Resource Operations, BC
It’s all in the wrist. Well, actually it’s all in the short-hand. The whole reason a SKU number is so effective, is that it allows you to have a short-hand version of longer product descriptions. “32650402” is a lot easier to look up in an inventory system than “Amber Jubilee Ninebark – Physocarpus opulifolius Jefam”. WHEW! This speeds up the process of data entry and inventory management.

So how do we go about creating good SKU numbers that work for my business? I’m glad you asked. It is important that you make SKU numbers that are simple enough for others to understand, yet serve as short-hand descriptors of your products so that you can easily organize them and see, at a glance, what each product is. Good SKU number systems usually have a logical grouping. For example, you may want to use the first part of the SKU to group like products together and use the last part of the SKU to list any unique values, like colour or size.

There are many different ways to create SKUs. Some businesses like to only use numbers, so that keying in product is quicker and more efficient. Others may like to use a combination of letters and numbers so at a glance you can tell what the product is. This makes it easier for your staff on the floor to identify product. No matter how you want to set up your SKU system, make sure you stay consistent with your naming convention. Consistency is king and imperative to keeping things organized.

Here are some quick tips to follow when setting up your SKU system:

  1. First and foremost, never have a SKU begin with “0”. I can’t begin to tell you the headaches this will create, especially if you have to import your inventory via an Excel spreadsheet. Just say no!
  2. Using an all numeric SKU makes for very efficient keying in, so if that works for you it would be the easiest system to implement.
  3. If you can, keep your SKU as short as possible, but not so short that it could be mistaken for other values (ie. Quantity). 4-8 numbers is a good rule of thumb for a small business.
  4. If you have a big inventory or have multiple variations, it may be to your advantage to have an alpha-numeric SKU system. This allows you to give more descriptive identifiers to your products. The SKUs typically start with alpha characters, followed by numbers describing certain values (ie. Size). 8-12 alpha-numeric characters are typical for these SKUs.
  5. Try to stay away from alpha characters that can be mistaken for numbers. The letters “O” and “I” are obvious, as well as lower case “L”.
  6. Using a few letters at the beginning of your SKU can be beneficial, especially if you carry a large inventory, as it can give you much more flexibility in how many variables you can put in your SKUs. But keep it to 2-3 letters. For example, AZ1201-5 is a perfect SKU to describe an Azalea that comes in a 5” pot.
  7. Keep away from characters that might cause unwanted reformatting of your SKUs when importing into software. Characters like the forward slash (/), comma (,) or period (.) can have adverse effects in programs like Excel. If you need to use some sort of separator in your SKU, stick to the “en” dash (-).
  8. Don’t try to describe your product in the SKU. A simple “DT” at the beginning of your SKU can easily describe a “Deciduous Tree’, as opposed to a SKU that begins with DECTREE. That’s what the “Item Description” is for.

And now you know!

Well there you go. You should now have enough ammunition to confidently create a SKU system that you can be proud of and the envy of all your colleagues.

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