When you’re juggling hundreds or even thousands of products, SKU management isn’t just helpful — it’s essential. SKUs, or stock-keeping units, are unique identifiers for each product and variation you carry. They make tracking stock levels, managing reorders, and avoiding inventory mix-ups easier.
Smart SKU management helps teams move more efficiently. We’ll walk you through creating and implementing an efficient SKU system from scratch and cover some best practices for managing these identifiers efficiently.
What is SKU management?
SKUs are alphanumeric codes assigned to individual products and their variations. Each SKU number acts as a unique identifier, making it easier to track items across your warehouse(s), sales channels, and inventory system.
Say you sell work gloves in three sizes and two colors. You’d assign a different SKU to each combination, like large/black or medium/brown. That way, every item has a clear, trackable identity in the system.
SKU management is the process of creating and maintaining SKU codes to track inventory. You’re not just slapping random numbers on products — you’re building a structure that supports accuracy across your entire operation. The better the SKU setup, the easier it is to track products and make sure customers receive what they ordered.
4 benefits of SKUs
Effective SKU inventory management brings precision and reliability to every aspect of operations, from inventory control to order fulfillment. Here are four key advantages:
- Improved inventory accuracy: Giving each product variation a unique identifier allows you to track items more accurately. It’s easier to monitor stock levels, know when to reorder, and avoid discrepancies.
- Faster order processing: SKUs help you locate products in your warehouse fast, which speeds up the picking and packing process. This translates to quicker shipping and happier customers.
- Better reporting and analytics: Tracking SKUs offers insights into product performance and inventory turnover, giving you the information you need to make informed decisions and optimize your stock.
- Streamlined returns and exchanges: When a customer needs to return or exchange an item, SKUs make sure the exact product is easily identified in your system. This allows you to process returns and restock products quickly — without disrupting inventory accuracy.
How to create SKUs and implement them in an inventory system
Implementing a SKU system doesn’t have to be complicated, but it does require some planning to ensure consistency and efficiency. Here’s how to do it step by step:
1. Categorize stock
Start by sorting products into different groups. Categorize items based on type, size, color, model, or any other characteristic that makes sense for your inventory. Clear categories help you create a logical structure for your SKUs, making it easier to track products and retrieve information later on.
Say you sell power tools. You might categorize them by type (drills, saws, grinders, sanders), then by size or model (cordless, 18V, heavy-duty), and finally by color (red, black). This helps you organize your stock in a way that’s both logical and scalable, allowing you to easily locate and manage products as your inventory grows. Plus, you will be able to see which product variations sell better than others and adjust your ordering and sales efforts accordingly.
2. Choose descriptors and symbols
Select descriptors based on the product categories. Then, create symbols (combinations of letters and numbers) that represent each of these descriptors. The abbreviations should be concise and easy to understand. The goal is to create SKUs that make sense at a glance so your team can quickly identify products without needing to look them up or guess what they are.
For example, drill descriptors might include the type of drill, brand, voltage, and color. You could use abbreviations like “COR” for cordless, “18V” for voltage, and “BLK” for black.
3. Determine SKU format
Formatting matters. There’s no universally accepted format for a SKU, but in general, it’s a good idea to lead with the most important product information. For example, your team needs to be able to tell the difference between a sander and a drill, so you might decide that the first part of the SKU always represents the product type: “SD” for sander or “DR” for drill.
After that, insert product information into the SKU in descending order of importance — such as brand, size, voltage, and color. For instance, the SKU for a MegaTool 18V cordless drill in black might look like “DR-MT-18V-COR-BLK.”
Use the same formatting across all warehouses in your inventory system so everyone can read and interpret SKUs the same way. Consistency reduces confusion and avoids costly errors.
4. Create and test SKUs
Once you have a format, create SKUs for each product variation using the descriptors, symbols, and format you’ve defined. Then, test them to make sure they work in practice. Run a few test scenarios to check for potential issues, like confusing similarities between codes or difficulty identifying products quickly. Take the cordless drill above. You might want to add a corded version, realize “COR” isn’t specific enough, and decide to use “CLESS” for the cordless drill instead.
Along with your existing SKUs, test some hypothetical ones to ensure the system is scalable. For example, try adding new products with varying features and see if the format holds up. Testing ahead of time makes sure your SKU system can grow with your inventory without causing problems down the line. If you spot any issues, you can tweak the format or symbols before rollout.
5. Update records
After checking that each product variation has a unique SKU, finalize the system and update your records. Enter the SKUs into both your inventory management software and sales channels — synchronizing these allows for seamless tracking across all platforms.
This step is where SKUs pay off. Once entered into your systems, inventory items with SKUs become easier to track. With greater visibility, you can spot trends and make more informed decisions about reordering and order fulfillment.
6. Train staff
Make sure everyone on your team knows how to look up SKUs and interpret them correctly. Also, train warehouse staff on how SKUs are tied to materials management. If you use SKUs to organize items or optimize space, team members must understand how each SKU corresponds to storage locations, picking processes, and packing procedures.
The more confident your team is with the system, the fewer mistakes you will run into during fulfillment. Training also leads to more accurate records — when employees know how SKUs work, they’re more likely to scan the right item and input data properly. In turn, it becomes easier to spot trends and scale operations without chaos.
7. Iterate
SKU systems aren’t set in stone. As your product catalog evolves or your business grows, you may need to tweak the SKU system. Gather feedback from your team about any issues or inefficiencies, and be open to making adjustments as operations scale. Flexibility helps you stay ahead of challenges and maintain an organized inventory for years to come.
4 SKU best practices
Solid SKU management isn’t just about creating codes — it’s about streamlining inventory management. Follow these best practices to maintain and fine-tune your SKU structure:
1. Keep SKUs short and readable
Long or complicated SKUs slow your team down. Stick to just a few characters when possible, and use abbreviations that staff can understand intuitively. Avoid symbols that are easily confused with other identifiers — for example, using the letter “I” and the number “1” in the same SKU system can lead to mix-ups.
2. Audit SKUs regularly
Products will change, and SKUs should keep up. Regular audits help you catch duplicates and outdated codes before they cause inventory headaches. Schedule a routine review every quarter (or more often if your catalog changes frequently). During the audit, clean up old SKUs and confirm that every new product has a unique, consistent identifier.
3. Streamline your catalog with SKU rationalization
Over time, product catalogs get crowded. SKU rationalization allows you to trim the fat and make room for what sells. By collecting and analyzing data on your SKUs, you can identify and remove slow-moving, redundant, or obsolete products from your inventory. Stop wasting resources on underperforming items — instead, focus on stocking high-impact products that contribute more to your bottom line.
4. Use SKU-friendly inventory management software
The right inventory management software takes your SKU system from good to great. Look for inventory management systems like Fishbowl that allow you to create and customize unlimited SKUs to manage every item in your inventory.
Also, look for additional features that simplify SKU management, like real-time tracking, automatic reorder points, custom reports and analysis, and integrations with other software. These tools help you stay on top of stock levels and make data-driven decisions to optimize your business.
Simplify, organize, and optimize SKU management with Fishbowl
SKU management doesn’t have to be stressful. Fishbowl’s robust inventory management software lets you customize SKUs to fit your business needs, making sure your inventory system is both accurate and scalable. Schedule a demo to learn more about how Fishbowl optimizes SKU management and boosts operational efficiency.