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Effective Inventory Organization Starts with SKUs

By Vera Lim

2 min read

Over the last two weeks, we’ve established the goals of inventory management. Now it’s time to take the first steps towards optimizing your inventory by organizing your products: devising an alphanumeric Stock Keeping Unit (SKU) system.

Here’s a list of three things to take note of when you’re setting up your SKU system:

  1. Make Them Easily UnderstandableSKUs record important product information, so do use letters where applicable for colors, size, type, and seasonal variants. Try to avoid loading the numbers with meaning (for example 1 is blue, 11 is teal, 12 is navy) because this will turn into a confusing string of numbers, and you’ll need to have a legend on hand to decode the meaning behind every SKU.

    When describing a blue dress, size small for Autumn/Winter ‘15, isn’t AW15DrBS easier to understand than 15020101?

  2. Arrange Attributes According to ImportanceThink of how you would describe your product in order of defining characteristics. Choosing to begin with the season/year will help you restrict your searches to the right collection, followed by increasingly broader characteristics like product type, color and size.
  3. Keep It SimpleDon’t use spaces, accents, symbols, or letters that look like numbers

    This is pretty self-explanatory, but using these can confuse your inventory system, so stick to alphanumeric SKUs as much as possible. Avoid using ‘O’ because it can be easily mistaken for a 0. If you’re using Excel, using ‘/’ could result in formatting your SKU as a date, while symbols like ‘>’, ‘*’, ‘^’ can also result in unintended consequences.

Do take note that SKUs are only associated with stock on hand that is available for sale, and do not include ordered products that are still in transit to replenish inventory levels in your warehouse.

By setting up an SKU system, you’ll be able to search and identify stock on hand from orders and invoices. You’ll also be able to track inventory movement right down to the individual variants of every product, such as color, size, and location.

With a good SKU system that defines your product right down to the minute details, you’ll always know where everything is, minimizing opportunities for theft. In a warehouse filled with thousands of products, it’s easy for missing items to slip under the radar. But when individual SKUs only denote a small number of items, it becomes harder for items to disappear.

Once you’ve created a list of SKUs featuring every product and their variants, you can rank them according to popularity so that you’ll know which ones to invest in and which to consider discontinuing. With an effective SKU system in place, you’ll be able to optimize your inventory by calculating the economic order quantity and individual reorder points for every SKU.

We’ll be back next week with a new post focusing on how to calculate your economic order quantity, and why you want to get these just right for your business success!

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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