Fulfillment basics: What is an SKU and what benefits does it bring?

Every area of business has its own jargon, and it’s no different in e-commerce logistics. If you own an e-shop, sooner or later there will be a situation when you start to deal with effective inventory management. At this point at the latest, you will come across the abbreviation SKU. What does this term mean? How to define it, how to count it and what are the benefits of managing them?

What is SKU?

The term SKU stands for Stock Keeping Unit. It expresses a unique code for a specific product. It can vary based on type, size, color, material, brand, weight, volume, packaging, etc. SKU is the basis for your inventory management.

Unlike the more familiar and universal EAN code, you can define the SKU code according to your own needs. It is important that your employees, or the 3PLs of the companies you entrust with logistics, are particularly familiar with the nomenclature when setting up its structure. Another advantage over EAN codes and barcodes is that they are easy to read, without the need for reading devices.

How to define and count SKU?

If you want to quantify the quantity of your SKUs, you have to take into account all the differences in the range offered. Imagine you sell car fragrances that come in 2 shapes (tree and leaf), 2 scents (vanilla and citrus) and 3 sizes (small, medium and large). The number of your SKUs will look like this:

1. SKU: Tree – vanilla – small

2. SKU: Tree – vanilla – medium

3. SKU: Tree – vanilla – large

4. SKU: Tree – citrus – small

5. SKU: Tree – citrus – medium

6. SKU: Tree – citrus – large

7. SKU: Leaf – vanilla – small

8. SKU: Leaf – vanilla – medium

9. SKU: Leaf – vanilla – large

10. SKU: Leaf – citrus – small

11. SKU: Leaf – citrus – medium

12. SKU: Leaf – citrus – large

2 shapes x 2 scents x 3 sizes = 12 product variants, therefore 12 unique SKU codes in your online system.

Benefits of SKU system management

As already mentioned, the SKU system is the basis for inventory management. Its implementation provides detailed analytical information that can bring a number of benefits to your business, such as:

• Accurate overview of stock levels – a prerequisite for minimal product unavailability, which is linked to potential switching to competitors
• Determining the quantity threshold for re-ordering a given SKU from your manufacturer / supplier – based on seasonality sales forecasting
• Identification of best-selling SKUs – for highlighting and prioritizing products on sales channels
• Identification of the least selling SKUs – for possible removal of products from the offered portfolio
• Defining alternative products in case of unavailability of the product selected by the customer
• Setting up product variants for up-selling and cross-selling

SKU and fulfillment

The SKU system is also useful for cooperation with fulfillment service providers. You are asked about the number and characteristics of each SKU at the very beginning of the meeting. This information is a guide for an efficient idea of intralogistics operations, including defining the required warehouse space.

If you are looking for a complete logistics solution, please do not hesitate to contact us. Get absolute visibility and control over your SKU management in a user-friendly application.