min read

A Guide to SKU Tracking

As a business grows, often it introduces more products, and managing inventory starts to require a more thorough approach that goes beyond merely counting physical inventory. One effective strategy for managing stock availability is SKU tracking.

In this article, we delve into the topic of SKU tracking, what it is, and how it can benefit businesses.

What is a SKU?

Let’s start with the basics. A Stock Keeping Unit or SKU (pronounced “SKEW”) is a unique identifier code that is used to track and manage inventory. It is a combination of numbers and letters that identifies a specific product, variant, or version of a product. Each SKU is unique to the product it represents.  

How do you track a SKU?

There are two ways to keep track of SKUs that come in and out of a warehouse.: using an inventory scanner or implementing inventory management software in which SKUs are input. The initial step is to determine the best way to classify inventory by its characteristics (such as color, size, etc.) and establish an alphanumerical code system. After creating SKUs for each product, you can attach barcodes to your items so that they can be scanned and recognized. Often warehouse managers will create stickers with the barcode/SKU for ease of processing.  

To keep track of inventory using SKUs, the commonly agreed-upon best practice is to implement an inventory tracking tool, like a WMS, that integrates with any eCommerce marketplaces that are being used to sell products. By implementing a software system like a WMS, businesses can track inventory across you’re their supply chain through a centralized system.

What are the benefits of SKU tracking?

Careful tracking of a business's inventory is vital to identifying and responding to issues and always keeping the right inventory on hand. Some of the benefits of SKU tracking include:  

  • Forecasting future needs
  • Simplifying inventory tracking  
  • Avoiding excess inventory
  • Preventing instances of ‘out-of-stock'

Forecasting future needs

SKU tracking allows businesses to understand exactly what products sell and when they sell. Items sell at different times with seasonal changes and consumer preference trends and using SKU tracking data can help businesses identify fast-selling and slow-selling items. This data can also be used to identify ways to expand a business’s product catalog.  

Simplified inventory tracking

SKUs are a great tool for accurate inventory tracking because they track variations in the products offered. For example, if a t-shirt is a business's #1 selling item, it’s important to know what color sells the best and if there are seasonal trends in which the t-shirt sells best.  

Additionally, by implementing SKU tracking, businesses can simplify inventory management during the year-end accounting process. With a proper SKU tracking system in place, you can obtain precise figures for the remaining quantity and cost of goods sold (COGS) for each SKU when it's time to assess your ending inventory balance and its value. This streamlines inventory accounting and ensures more precise calculations at the end of the year.

Avoiding excess inventory

Excess inventory, also called ‘dead stock’, refers to products sitting on warehouse shelves that are not currently selling or are selling more slowly than other products. Using SKU tracking, businesses can identify slow-selling items that are at risk of becoming obsolete. Having this visibility allows businesses to make proactive, rather than reactive, decisions to discontinue certain SKUs until the product on hand is sold. This helps reduce wasted space within the warehouse, reduces associated carrying costs, and saves businesses money.  

Preventing instances of out-of-stock

In addition to avoiding overstocking, SKU tracking helps prevent instances of items going out of stock. Having items that are back ordered or totally out-of-stock can damage customer relationships, especially in the eCommerce industry, as consumers can simply move on to the next retailer. SKU tracking can help minimize these instances by providing businesses with real-time data on inventory levels.  

SKU tracking is a highly effective strategy for managing inventory that can provide numerous benefits for businesses. Businesses can implement SKU tracking using inventory management systems, inventory scanners, and even integrate with their eCommerce marketplaces and warehouse management system.  

Curious to learn more about SKU tracking and how to find a WMS that fits your needs? Create a ShipCaddie account for free and try out features that make up some of the industry’s newest standards, like virtual warehousing.

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