How is SKU management used in manufacturing?
Blog //05-06-2021

How is SKU management used in manufacturing?

by Andrew Pearson, SME Product Manager

If you’re in the manufacturing industry, you’re likely to have experienced SKU management at some point. However, many businesses won’t be gaining the full benefits that come with utilising SKUs.     

In this article, we explain how to generate an SKU effectively, why they’re so important for inventory management, and the different techniques used for capturing this information.

But, perhaps most importantly, we discuss how our software can enhance the way you manage this process.   

What is SKU inventory management?

SKU stands for stock keeping unit. It is a (sometimes scannable) code that distinguishes all your unique products from one another.

In manufacturing, it’s crucial to categorise items in this way. Without this strategy in place, your warehouse would be far more chaotic, and your business would not be able to achieve optimal efficiency.

SKU codes are largely associated with inventory management (and how they make this process easier), but they also help to facilitate other business improvements when used correctly.  

How to generate an SKU code

It’s ultimately up to you to create SKU codes that are relevant to the products you sell. The codes shouldn’t be too long, or too complex. They should be a simple sequence of alphanumerical characters.  

The easiest way to choose these characters is to relate them to the specifications of the item in question. By looking at the size, colour, age, weight (or any other attribute), it should be easy to generate a code that represents those factors.

No two products should have the same code unless they are identical. If two items are different in any way, they should be assigned a different SKU number.  

All members of staff should have awareness of these codes, as it’s crucial for consistency within the organisation. If separate departments were to use different SKUs for the same product, this could create an inaccurate representation of your stock and finances (which would negatively impact overall performance).    

Your SKU numbers should only be used internally. You shouldn’t use the same SKUs as any of your partners. They will have their own processes in place for monitoring this information. A common best practice is to generate a code as soon as a new product is added to your inventory. This way, the data surrounding the new item will be tracked straight away.  

What is the difference between an SKU, UPC and EAN?

SKUs can sometimes be mistaken for UPCs or EANs, but they’re different things, and shouldn’t be used interchangeably. UPC stands for universal product code, and as the name suggests, it is a code that is used universally (regardless of the company or country).

The UPC for two identical products should always be the same, all over the world. However, companies sell products at different prices (and use them in different ways), which is why SKU numbers are used to differentiate them.   

An EAN is a European Article Number (sometimes known as an International Article Number). It is very similar to a UPC but has a slightly different format. A UPC has 12 digits and is mainly used in the USA and Canada. Whereas an EAN has 13 digits and is usually used by the rest of the world.   

What are the benefits of using SKU codes?

Improved inventory control

SKU codes don’t just exist for aesthetic reasons. They provide tangible benefits for manufacturers. By being able to identify each distinct item within your portfolio, it’s possible to keep on top of inventory levels.

Without these codes in place, it would be a far more disorganised picture. Once you’re aware of your stock quantities, it’s easier to stay synchronised with customer demand. These codes can help with tracking items through the production process too.

Better customer service

SKUs allow manufacturers to offer a better customer experience. If a customer regularly purchases the same type of product, you can recommend items that have a similar SKU code, as this will likely be of interest to them. This should help to increase sales too, as your suggestions are informed.

The speed of customer service is also increased. All it takes is a quick search, in order to answer a customer enquiry about stock availability. This is a level of efficiency that promotes supply chain confidence.

Enhanced performance

SKU numbers also make it possible to analyse product performance. This type of data can be transformational if you use it in the right way. By tracking the most popular time of year for specific items, you can optimise stock and perhaps plan for marketing activity to fall in line with the seasonality.  

SKU rationalisation is when individual products are analysed in relation to their profitability. This is a method you could potentially use to discontinue items that aren’t performing well.

SKUs help to improve communication within your company too. If everyone is using the same language to identify products, it reduces instances of duplication and confusion. This, in turn, prevents costly issues such as overstocking and wasted goods.

What are the drawbacks of using SKUs?

There are no real drawbacks that come with using SKUs unless you don’t manage the process well. If you don’t generate SKU numbers rationally, keep the associated information up to date, or use consistent codes throughout your organisation, then the benefits discussed above will likely be reversed.      

What is the SKU management process?

There are different techniques a manufacturer can use for managing SKU codes, depending on the size, culture and requirements of their business. The natural evolution of management methods is usually along the lines of:  

  1. Pen and paper
  2. Spreadsheets
  3. Software

The more sophisticated the system, the easier it is to manage this process, and the greater the value that can be gained from your SKU codes.

Recording them on paper and spreadsheets may be appropriate for some businesses, and as always, you should weigh up what’s the best approach for your unique circumstances.

However, when using these methods, the likeliness of human error is undoubtedly higher. They can also be limiting if you’re looking to grow, as employees can get bogged down with repetitive tasks.   

Software, on the other hand, equips manufacturers with the tools needed to grow and thrive, by automating many of the processes related to SKU codes and inventory management.   

How can SKU management software help?

By keeping SKU codes in a smart solution, you can gain many insights that would have otherwise been invisible.   

Our Manufacturing Software has dedicated product code fields where SKUs can be stored. By having this information in one place, you increase consistency, but also have full visibility of the inventory levels associated with these SKU codes.

When the quantity of an item drops below a certain threshold, you can make an order with a supplier (or start another production run) straight away.  

This software does much more than just inventory control though. It’s an all-encompassing system, that has functionality around accounting, e-commerce, production planning, contact management, payroll and more. All your departments are united, providing better cohesion.

If a sale is made on your e-commerce platform, the inventory levels against the relevant SKU are updated. This data also filters through to your finances, so that your accounting team have an accurate snapshot of your financial health.

Manufacturing software has powerful reporting capabilities too. You can extract the sales and stock information related to a particular SKU code, and then analyse this data in any way you see fit. Not only can you scrutinise current performance, but you can use historic data to forecast future performance (based on previous customer buying habits).    

 

If you found this topic interesting, you may want to check out some of our similar articles below. If you're looking to get the most out of your SKU codes, and generally want to enhance your inventory management processes, be sure to read more about our Manufacturing Software

Blog Business Cloud Essentials Manufacturing
Andrew Pearson

Andrew Pearson

PUBLISHED BY

SME Product Manager

Joined with our Acquisition of Exchequer Accounting Software back in 2016, Andrew is product manager for our SME solutions ensuring that our roadmaps are representative of market requirements. Andrew has over 15 years of experience working with finance and ERP software from a technical, development and support capacity.

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