Basic principle
of inventory
management:
Choose your
SKUs carefully

This article has been updated in Marche 2019.

Basic principle of inventory management: Choose your SKUs carefully

Implementing a good inventory management system is an excellent way to avoid many problems and complications in a business. An inventory that relies on a consistent structure can help to reduce losses and mistakes and speed up the work of employees. By keeping a strict control over your inventory, you minimize the opportunities for theft while acquiring the means to optimize your stocks.

One of the first steps in structuring an inventory is to assign a unique ID to each item. This product number, or stock-keeping unit (SKU), is an essential component of an effective inventory management system.

In this article, we discuss what you should and shouldn't do to create useful SKUs that will contribute to the smooth operation of your inventory system.

Why not simply use the UPC?

Rather than set up and maintain a customized SKU system, some businesses prefer to use the Universal Product Code (UPC). This method is indeed very intuitive and may seem ideal at first glance; manufacturers already assign a code to each product for their bar code, so why not take advantage of it?

In reality, there are several problems with relying on the UPC, such as:

• A UPC is designed to be read and understood by a machine, not a person.
• The manufacturer can change a product’s UPC at any time.
• The manufacturer can assign the same UPC to several versions of a same product (colour, size, etc.).

By creating a SKU system specific to your business, you are developing a tool perfectly adapted to your circumstances, which enables you to accurately differentiate each item and depends only on you.

Keep it simple

Make sure that your SKUs are short, but not too short. You don't want the SKU to be confused with another value, such as quantity. Normally, an average business can get by with SKUs that have 4 to 8 characters.

There are several benefits to using short SKUs:

• They are easier for you and your employees to read and understand.
• It takes less time to enter them manually.
• It reduces the risk of error.

Take advantage of alphanumeric characters

Limiting yourself to 4 to characters can make it difficult to create unique SKUs that can be used to identify items quickly, especially if you only use numbers. However, by using letters wisely, you can get maximum use from your characters while creating SKUs that are potentially much easier to read.

A word of advice to reduce reading errors: Avoid letters that resemble numbers: O, I, etc.

Avoid special characters

It may be tempting to go beyond alphanumeric characters and use special characters. However, in some cases, characters like the asterisk, the slash or the ampersand can cause problems.

For example, if you export your inventory into a spreadsheet like Excel to produce a report, the slash could make the software believe that you are trying to enter a date. Moreover, if you ever go into e-commerce, the special characters may conflict with the code for your online store. To avoid these problems, stick to using alphanumeric characters.

And that's just the beginning

A well-designed SKU system is the starting point for sound and effective inventory management. You will also have to draft clear product descriptions, clearly mark the location of each item, etc.

Naturally, it all becomes much more pleasant and convenient to manage when you have a good inventory management application!