4 Tips To Using SKU Numbers For Best-in-Class Inventory Management

  inventory management


As a wholesaler, it is highly likely that your business deals with products that have multiple variants of various types. In that case, you might be thinking - How can I effectively keep track of each unique item?

The answer: stock keeping units, or SKU for short.

SKUs are unique product codes which help you identify and track your stock on hand.

A proper SKU number system can help you track inventory more effectively.  SKUs can be used to replace entire product names or item descriptions for identifying a unique product, which helps to speed up the data entry and inventory management process.

In this blog article, we will provide information on how your business can benefit from tracking inventory with SKU numbers as well as give some essentials tips for setting up a SKU system.

Benefits of using SKU Numbers

Track Inventory Easily

You can easily track your inventory right down to the individual variants (color, size, etc.) of every product by using SKU numbers.  A SKU number takes your physical product and turn it into pieces of data that can be easily tracked using your inventory management system. By tracking your SKU numbers, you can make smarter inventory decisions by locating the exact location of each item at all time and help to increase the accuracy of your inventory and warehouse activities.

Identify Inventory Shrinkage

Inventory Shrinkage can be costly for businesses. According to the National Retail Security Survey in 2017, inventory shrinkage caused a loss of $48.9 billion for companies in the United States alone. Thus, it is essential to identify and reduce inventory shrinkage in your business. Inventory shrinkage occurs when the accounting records show that a certain amount of inventory that exists on paper, while the same inventory no longer exists in reality. Missing inventory can happen anywhere along the supply chain process and in most cases, it is due to internal theft or burglary.

With a proper SKU number system in place, your business can ensure transparency during stock movements. Your business can identify and pinpoint instances when stocks go missing. With a more diligent tracking system, it will serve as a deterrence to any attempt of internal theft, which is responsible for 30% for all inventory shrinkage cases.

Reduce Chances Of Running Out Of Stock

Manual inventory management can be difficult for a small business owner. Having a proper SKU number system makes it easier to determine your stock availability. You can also track your inventory more easily by organizing your warehouse stock using SKU numbers. You can also set a re-order point on products, so you will know when you need to re-order to avoid running out of stock.

Prepares Your Business For Multi-Channel & Universal Standards 

You can set up SKU numbers to be unique and specific across different locations. This could be helpful if your business sells across multiple sales channels or have more than one stock location. For example, if you have two warehouses stocked with identical products, you can set them up to have different SKU number codes for more efficient inventory management.

Tips for setting up an effective SKU system

By now, you should be convinced that setting up a SKU number system is beneficial for your business. So, what should you look out for when setting up an SKU system? Here are some tips for you.

Tip 1: Create SKUs That Can Be Easily Understood

The key to creating a good SKU code is to have maximum information with minimal digits. Some businesses think that “more is always better” and try to insert as much information as possible into their SKU codes. However, having an excess of information will only lead to confusion.  Imagine having a product code that is 20 characters long (S12-2009-Gar-Tat-F456-67Y), isn’t it confusing? Before inserting the information, you should assess if the information is necessary. For example, information like “year of manufacturing” would be irrelevant as it does not value add your product code.

When creating your SKU number, pay close attention to different attributes such as color, size, type, and season variants. You will need to incorporate these attributes into you SKU number for easy identification.

In the end, the purpose of your SKU code is to record only the vital product information. The more straightforward and easy it is, the better it is for everyone. Here is an example of a good SKU code, a product selling in the winter of the year 2018, having a skull tee design, is in large size and blue in color can be translated to W18-Sku-LB.

One thing to take note is to never start your SKU code with the number zero (0). Some inventory management or data storage software interpret the number zero (0) as nothing. For example, if you key in “01234”, the software will read it as “1234”. This could give rise to duplicate SKU codes in your system. As such, it is best to avoid putting yourself in this situation at all.

Tip 2: Arrange Words According To Their Importance

Before creating your SKU code for your product, think what its most important attributes are. For example, if you have different skull tees for different seasons every year, you might want to place the year and season first to help you narrow down the search followed by less essential attributes like color and size.

Tip 3: Avoid Using Letters That Look Like Numbers, Spaces, Accent Or Symbols

Avoid putting yourself in a situation where you might confuse yourself. Avoid using letters that have a high resemblance to numbers when possible. The main culprits are O, I and L. ( I can look like a 1 and also looks like a lowercase L.)

Also, avoid characters such as ‘/’ as it might cause formatting issues in excel. Symbols such as @, #, * are also irrelevant and can create confusion in your organization.

Tip 4: Do Not Overload Your SKU With Too Much Meaning

While you want your SKU to have meaning, you don’t want to overload it with too much information. For instance, you do not want to create a 24-digit SKU number because you are trying to describe all your product details. The longer the number is, the more complicated it will be for you to track.

Instead, it would be best if you only focused on the details that matter. Try to keep to a maximum of 2-3 aspects that are the most essential and create the SKU number base on these aspects.

Also, do not load numbers with meaning. (i.e. 1 is blue, 10 is orange, 20 is blue). You will have a difficult time creating a legend to keep track of its definition, and it can quickly turn into a complex string of numbers.


By using SKU numbers correctly, it can be a powerful tool for your inventory management. By turning your product into useful number codes, you can track inventory and make smarter manufacturing decisions.

You can create your SKU numbers and track it by hand or by using spreadsheets. However, there is a far more accurate and efficient tool to use: an inventory management software. Sweet Technology’s inventory management software can provide your business with accurate and real-time data of your inventory, preventing any stock-out situations from happening.

Sweet Technology can also be integrated with various eCommerce, accounting, and shipping applications such as Amazon, Shopify, and Stripe. Integrating Sweet to your online platforms can help drive your profits by improving customer experience.

To find out how Sweet can help your business, request a free demo today.

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