Consultations with business experts about successful online commerce often revolve around topics like mindset and motivation. However, the greatest secret to success lies in learning how to please your customers.
While it may seem counterintuitive, this begins with the proper organization of inventory. Without a standardized system for product numbers (SKUs), your business could easily face challenges and disappoint customers.
Here’s how you can prevent such scenarios through effective tracking, management, and analysis of your inventory.
What Is a Product SKU?
You probably didn’t open your store with just a few products available. It’s likely that you have a variety of items ready to catch the interest of your customers.
If you’ve previously managed a small shop or market stall, you know that organizing products can be a challenge, even with limited inventory. And when it comes to larger, more serious businesses, these difficulties grow exponentially.
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Imagine running a fashion brand that has expanded significantly. You’re handling hundreds of orders daily.
At this stage, you probably have several hundred different products in your warehouses. On top of that, you’re responsible for their design, production, and daily transport.
What’s the best way to track and organize all these products and their variations? How can you ensure you don’t send a customer a shirt in the wrong color or size?
This is where product numbering (SKUs) comes in. In English, SKU stands for “Stock Keeping Unit” – a unique number assigned to every product.
With the help of these unique product identifiers, you can easily track and manage your inventory while performing a range of functions, such as managing stock levels that update in real time on your e-commerce site and tracking order fulfillment.
The SKU format itself varies. It’s often a sequence of letters and numbers but can also take the form of a barcode or QR code. You’ll see this number in your inventory management system, order data, and even printed on stickers attached to the packaging of the items you sell.
Why Product Numbering Matters in E-commerce
Inventory management is sometimes an overlooked aspect of e-commerce, but it shouldn’t be.
Without a functional system for classifying products, your store’s operations will be slow, and human errors can occur. For example, you might send a product in the wrong variation or forget to include something in a multi-item order.
Don’t worry! You can avoid these issues by implementing SKU standardization into your workflow.
By developing a proper system, you can apply industry best practices. In the following sections, we’ll explore the specific benefits of standard product numbering and how it can help your online store succeed.
Improving Data Accuracy
There’s nothing more important than having accurate data when managing an online store. Only with reliable information can you make informed decisions for your business.
Many issues can arise if your system displays incorrect stock levels, incorrect products, or inaccurate calculations about your warehouses.
Properly labeled products significantly reduce errors. You can rely on much more precise information, improving the decisions you make for your business. That’s why it’s crucial to use standard SKU numbers.
Here are some best practices to consider:
- Standard Formatting: Use a uniform format for all product numbers to avoid duplication or confusion. Decide on the SKU structure in advance, considering product characteristics such as categories, subcategories, colors, sizes, or other distinguishing details.
- Periodic Audits: Regularly conduct audits of your product numbering data to identify potential issues before they become serious. Look for outdated numbers, duplicates, products without SKUs, and other discrepancies to improve inventory management.
- Employee Training: Train your staff periodically to minimize errors. Provide instructions or organize training sessions so they understand how to create SKUs, record them correctly, and avoid common mistakes.
- Automate Where Possible: Use software to eliminate human errors in data entry or processing. Some programs support multiple inventory management functions. Test different options to find the right product for your needs.
Accurate data is vital for your business. Without reliable numbers, you can’t make sound decisions, and worse, you may harm or disappoint customers by displaying incorrect stock levels or letting them order out-of-stock products.
SKU numbering ensures that your inventory data is available across all the software platforms associated with your store. This simplifies inventory management, sales processes, and customer service.
Operational Compatibility and Integration
SKU numbering makes your inventory data accessible across all software platforms associated with your store. This facilitates inventory management, sales processes, and customer service.
As a result, you can:
- Easily track product availability,
- Process orders more quickly,
- Manage business data across different platforms without inconsistencies.
This improves the reliability of information across your processes. When there is clear communication between your systems, everything works seamlessly. But how can you achieve this?
SKU numbering ensures excellent operational compatibility. Here are some of the best practices to follow:
- Use Universal Standards: Apply easily recognizable SKU formatting standards to ensure compatibility across different systems.
- Centralize Your Database: Maintain a centralized database for storing SKU information. This allows your systems to access the same up-to-date information.
- Update Your System Regularly: Regularly make necessary updates to your systems to ensure ongoing compatibility and avoid communication issues between different software.
If your systems are not compatible or properly connected, transferring information between them becomes challenging.
For example, inventory data may not reflect in your sales software or vice versa. When systems are not linked, errors such as delivering incorrect products or missing items in an order can occur. To avoid this, ensure you use compatible systems that automatically update and synchronize data.
Efficient Order Fulfillment
Order fulfillment is the most critical part of your operations as an online retailer. It is your responsibility to perform it in the best possible way.
This includes all steps from when a customer places an order to the moment they receive it. The stages in this process include picking products from the warehouse, packing and shipping them, and in some cases, accepting and processing returned products.
Increasing efficiency in this process enhances customer satisfaction. Fast and accurate order fulfillment leads to happy customers, which translates to more future sales.
Here are the best practices for ensuring efficient order fulfillment:
- Clear SKU Markings: Ensure every product has a unique, clearly visible number. This prevents confusion when picking products from the warehouse and speeds up workflows.
- Organized Inventory: Optimize your stock layout by grouping similar items. This reduces the time needed to locate products during order fulfillment.
- System Integration: Use barcode scanners and inventory management software. Barcode scanners recognize SKU numbers, streamlining product movement. Technology also helps reduce human error.
On the other hand, if your SKUs are not standardized, delays and errors may frustrate customers. No one likes delayed shipments, especially if caused by human error. Mistakes in orders lead to more returns and higher transportation costs.
While these may seem like minor issues, even small errors can accumulate and severely impact the customer experience. Dissatisfied customers may damage your store’s reputation with negative feedback.
Simplifying Accountability and Analytics
This aspect of your business involves collecting, organizing, and interpreting data to evaluate your store’s performance. For example, this might include sales trends, customer preferences, and other metrics. Analyzing all this becomes much easier if your products have standardized SKU numbering.
Effective data analysis allows you to gain deeper insights into your store’s operations and make strategic, informed business decisions.
For instance, knowing which products sell the most gives you an advantage. You can prioritize them in inventory management, marketing strategies, and pricing schemes, which will boost your sales.
To make this easier, it is best to have a centralized data system.
Using a unified system ensures that all employees work with the same numbers and data. This simplifies real-time reporting and analysis.
Conversely, failing to implement a clear system with transparent accountability may lead to poor decisions that harm your business.
For example, you might accidentally overstock unpopular items or miss out on a trend that could have increased sales. In other words, poor data analysis can cost you dearly.
It is essential to establish a standard for data processing. This will prevent many potential errors.
Scaling Your Business
Most online stores aim to expand their operations. Who doesn’t want to sell more products to more customers and enjoy higher revenue? However, business growth must not come at the expense of the customer experience.
Many businesses fail precisely when scaling. Larger scale often brings lower production or service quality, delays in orders, and other problems.
The truth is that you can maintain high-quality service—or even improve it—while scaling your business. However, this requires upgrading your infrastructure, processes, and systems to keep pace with growth.
This is where SKU standardization is critical. When your products are logically numbered, it’s easier to create a clear database architecture that can adapt to your business’s growth. The numbering will remain valid no matter how much the company expands, without losing information.
If you don’t standardize product numbers, scaling your business becomes more complicated. With a larger inventory, you may encounter:
- Inconsistencies,
- Incorrectly labeled products,
- Difficulties integrating old data into a new system.
These problems can entirely halt your store’s operations. As a result, your customers will feel the negative effects and may become dissatisfied.
Thus, product numbering standardization is crucial for scaling your business effectively.
Challenges and Considerations
Standardizing product numbering is essential but not always easy. This is especially true if your business has already grown, but you’ve delayed this part of optimizing operations. You may encounter challenges that don’t have quick or straightforward solutions.
Before it gets to that point, you need to understand the main difficulties associated with SKU standardization. Recognizing them can help you address them before they create issues for your store.
Here’s what you should consider:
- Complexity of Product Range: If you have a wide assortment of products without existing numbering, creating SKUs can be challenging. It requires time, effort, and resources. That’s why it’s better to introduce such a system from the beginning of your business.
- Integration with Existing Systems: Is your new SKU standard compatible with your existing inventory management and POS systems? If you introduce SKUs at a later stage, you may need to modify various programs.
- Training and Adoption: Another challenge is training your staff on the new product numbering system. It can be difficult to ensure everyone understands and applies the system correctly, especially with a large team.
- Data Migration: Transferring product data from an old naming system (if you had one) to SKUs is not always straightforward. At the very least, it’s time-consuming and opens the door for errors. However, with proper planning, you can manage it. Don’t let the fear of migration mistakes harm the customer experience.
In other words, you might face some challenges when implementing an SKU standard. However, the advantages of having a unified system far outweigh the potential difficulties, especially if you establish a numbering system from the start.
Tools and Technology
Standardizing product numbers is closely linked to the software tools your business uses. Your commercial activity—from warehousing to order fulfillment—depends on an ecosystem of hardware and software.
You can’t fully standardize your system without the right tools. Additionally, your productivity may suffer without automation, not to mention the potential for errors.
Here are some of the technological tools you should have:
- Inventory Management Software: Programs that track product availability, orders, sales, and deliveries in real-time.
- Barcode Scanners: These tools automate the receipt and movement of goods. Scanning barcodes eliminates a high percentage of human errors and speeds up processing.
- Database Management Programs: Platforms for data management that monitor inventory storage and ensure SKU numbering accuracy.
- Integration Platforms: Software that ensures your SKU system works seamlessly with other business software, such as CRM or ERP systems.
- Data Analytics Tools: Software that allows you to analyze SKU information to make better decisions. For instance, you can track inventory movement, compare sales strategies, and monitor customer preferences.
Investing in the right technologies will make SKU standardization much easier. You’ll enjoy faster workflows, more reliable data, and better scalability, ensuring your business’s future growth.
Recommendations for Implementing SKU Numbering
Now that you’re familiar with the specifics and advantages of standard numbering, it’s time to look at some best practices for implementation.
When making significant improvements like this, you should consider not only the immediate benefits but also how they will help your business in the long term.
Here are some practices to focus on:
- Prepare a Logical and Intuitive System: Use a logical numbering system that reflects key product attributes, such as category, type, size, color, and more. Organize the numbers hierarchically. This allows staff to quickly locate products and reduces errors.
- Use Numbers Without Additional Meanings: Avoid embedding extra information, such as prices or warehouse/store numbers, in SKUs. These details can change over time, rendering the numbering system obsolete and creating more work in the future. Stick to logical numbers for a system that lasts longer.
- Limit SKU Length: Ideally, SKU numbers should be between 8 and 12 characters long. This is sufficient for unique numbering without making the SKUs overly long. The longer the number, the greater the potential for errors.
- Apply Standardization Across All Channels: If you work with data across multiple channels and systems, use a unified SKU system to prevent unnecessary confusion. Ensure that all sales channels (website, app, social media) adhere to the same system for better tracking.
- Integrate Barcodes: Connect your SKU numbering to your barcode system. This automates stock tracking and reduces errors in product data entry. Barcodes are an efficient way to monitor inventory and speed up order payments.
- Conduct Regular Reviews and Updates: Establish a schedule to review and improve your SKU system as needed. This includes removing outdated numbers and adding new products to the system.
By following these practices, you can ensure your system is not only standardized but also user-friendly, scalable, and fully aligned with your future business goals.
Examples of Successful SKU Implementation
Successfully introducing product numbering isn’t just about choosing the right system. It also involves learning from companies that have effectively implemented such practices.
If you’re building a house, for example, you probably wouldn’t start laying bricks right away, even if they’re of the highest quality. You’d need construction plans inspired by existing structures.
Building a successful business isn’t much different.
When you observe how other stores have succeeded, you can avoid common mistakes and create a functional system from day one. Successful examples are excellent guides.
- Clear and Consistent Rules: SKU numbers should follow a consistent logic that employees can quickly understand.
- Scalability: A good numbering system can adapt to a growing business. It should allow easy addition of SKUs for new product categories and lines.
- Ease of Reading: Numbers should be easy for staff to read. Along with numbers, include letters in SKUs to denote brands, sizes, colors, etc. (in abbreviated form).
In the next sections, we’ll examine how some companies have successfully applied these practices.
Companies with Excellent SKU Systems
Learning from successful businesses can help you discover techniques to advance your own business. These examples often contain practical insights and strategies for overcoming real challenges that other brands have faced and successfully resolved.
By understanding how other stores implement SKU numbering, you can avoid significant mistakes and build a functional system from day one. Let’s look at these examples and see how they can benefit you.
Zara’s SKU System with RFID Technology
The Spanish fashion company Zara has over 2,000 stores in 96 countries, including Bulgaria, and well-developed local e-commerce websites.
Due to rapidly changing fashion trends, Zara continually develops new lines and products. The brand must maintain a massive inventory and a consistent system that works in all the countries where the company operates.
This is why Zara introduced an SKU system with RFID technology. Each SKU number is marked with an RFID chip, allowing real-time tracking of all stock. The inventory data is linked to sales, enabling automatic restocking or ordering of new items.
Additionally, Zara uses cloud-based technologies for business management systems. This allows employees to manage inventory from anywhere.
Thanks to this SKU system, Zara sells its collections faster and avoids leaving stores understocked. The company records excellent sales at the end of each year and has established itself as a global leader in fast fashion.
IKEA’s Simple but Effective SKU System
Swedish furniture giant IKEA sells everything for the home. In addition to furniture, its stores offer numerous items for interior design that reflect Scandinavian aesthetics.
With such a vast product range and global presence, IKEA clearly needed a system for effective stock management. That’s why the company introduced an SKU numbering system that includes the product type, size, and color.
IKEA uses specialized software to manage its inventory system and track product availability in real time.
After implementing this product numbering system, the company improved warehouse operations and reduced delivery errors. Smooth and timely restocking allows customers to find their desired products without long waits for restocking. This, in turn, enhances the store’s reputation.
Conclusion
At first glance, a warehouse inventory system may not seem particularly important. After all, there are many other exciting aspects of commerce for businesses to focus on.
However, without an adequate system for organizing and tracking inventory, your store could suffer over time. Your operations might fall victim to disruptions, outdated systems, and employee errors.
This will inevitably affect your customers. They won’t be satisfied if their orders are delayed, their favorite products are consistently out of stock, or they receive incorrect items in their shipments.
Don’t let this happen to your business. Standardize your product numbering system now—the effort will pay off later. You’ll be able to watch your business grow seamlessly thanks to a well-established system and trained staff.
Frequently Asked Questions
What is an SKU number, and why is it important for my online store?
An SKU is a unique code made up of letters and numbers assigned to each product in your store. This type of numbering provides an efficient way to organize inventory. It simplifies many processes, such as sales and trend analysis, demand forecasting, restocking physical stores, order fulfillment, and more.
How does SKU standardization affect inventory restocking?
With proper numbering, restocking and transportation within the supply chain are significantly streamlined. As a result, your store will experience clearer communication, preventing confusion and other errors.
What are the most common mistakes to avoid when implementing SKU standards?
Many store owners make their numbering system overly complex. For example, they include critical numbers (like the price) in the SKU, but over time, these numbers become inaccurate (e.g., when prices change or new, more attractive items are introduced), requiring SKU updates, which creates extra work.
How can I implement an SKU system in an existing store?
You can do it, but you’ll likely need to completely replace the existing product numbering system. If you’re using an e-commerce platform, it will be easier to update SKU numbers.It helps if the platform already includes inventory management features, such as those offered by NEXT BASKET. In this case, you’ll only need to organize product categories and choose a method for naming SKUs that reflects their characteristics in a concise format.
George Radivoyevitch
