Everything we buy both in-store and online is tracked by sku numbers assigned to products. Sku numbers play an important role in any business’ ability to track inventory and sales, offering a way to evaluate product performance, costs, and profitability.
Skus are specific to an individual
retailer; however, a product can be tracked with more than one code. For
instance, you might buy a t-shirt on Macy’s website listed with a sku number
unique to Macy’s; however, that t-shirt might be made by a popular brand sold
elsewhere. That brand would identify its unique item with a UPC code.
Sku numbers tend to contain both letters and numbers.
Companies tend to use letters that are abbreviations for product descriptions.
So, the brand could be indicated in the letters of the sku number, if that
seller chooses to do so. Another common use of letters is to indicate the color
or size.
When a user shops online, the sku number is usually
displayed on the page and listed in the user’s shopping cart, but skus show up
many different places internally within the business.
How Businesses Use Skus
When a product enters a business’ facility, they can
generate sku numbers, print them out and affix them to their products. In their database, a wide
variety of information can be associated with that number from size,
description, cost, color, ingredients, materials, special instructions, etc.
Once that product is entered into the system, all movement and changes to that
product can be tracked.
Every time that item moves to a new location, information
about that product is updated, whether the product is somehow altered by a
process or combined with other materials. Costs and labor are recorded so work
in progress reflects accumulated costs up to that point.
When a sale occurs, the customer enters the sku number and
that product is removed from the current inventory to keep physical inventory
counts recent. That sale can occur on an ecommerce platform or at the cashier
of a brick-and-mortar location.
Skus offer a tool for tracking inventory; however, the
tracking accuracy is only as good as the system the business uses. It’s
important for information to be shared across the business so that no matter
who accesses it, the data is consistent. By the time your finance department
receives an invoice, all costs for materials, overhead, and labor should add up
in your books and match actual costs.
Different industries handle their inventory in different ways depending on demand, seasonability, expiration dates, regulations, etc. In the clothing industry, sweater sales spike when the weather turns cold so the manufacturer and retailer know demand will increase around that time, too.
They will look at
their historical sales for the past year and make estimates based on past sales
to predict what they should order to produce the inventory they think they
need. Knowing precisely what inventory is on hand, by tracking what’s been
produced and sold, will tell the business owners how much cash they need on
hand to invest in inventory.
While skus are not the only type of tracking used, they are one of the most common. Technology and how they are tracked will evolve over time, but the basic principle of keeping a record of product information will still be vitally important for helping the business be profitable.
