15 May 2007

Product identification numbers are the key to efficient inventory management. Assignment of unique part numbers are the most critical factor to automation, allowing any item or unit to be tracked for any purpose desired. In some cases, merchants use an existing manufacturer model number or UPC number as the product identification number for their database. In other cases, a SKU or “stockkeeping unit” is created by the merchant for internal use. The merchant may sometimes utilize the manufacturer model number or UPC to form all or part of the SKU.

Sometimes, there is no choice. Some products purchased through wholesalers may have no existing part number; they may simply be identified by description. If a merchant wishes to manage products and inventory by an alphanumeric system, they have no choice but to create a customized numbering scheme.

SKUs, UPCs or Model Numbers –Which to Use

Unlike externally assigned UPC numbers, which follow a standardized formula for encoding information, SKUs are internally created by each individual business. It is an important decision whether to use existing part numbers or to create custom SKUs. Creating custom SKUs can allow for company-wide consistency for its entire inventory. It can also pave the way for seamless integration into the company’s information tracking system. Designing a numbering system according to a company’s unique setup and needs means that it can be perfectly customized, even as the business grows.

The greatest disadvantage is the time and effort required in creating a customized method for numbering. The task can be overwhelming, particularly if many variables or levels of differentiation are involved. Trying to maintain consistency over time as inventory and circumstances change is also a great challenge. The effort is worthwhile though and a good methodology for customization is needed.

How to Create a SKU

One “method” is to not employ any method at all, but rather to simply assign a unique number without regard for any meaningful link to the specific item. The only critical factor in this method is that the number is unique. Once entered into the database, the assigned number will reference the item whenever it is scanned or hand entered. The other method is to devise and adopt a logical system for categorizing items, where the numbers or letters assigned have meaning related to the features of the item.

No standardized method for creating SKUs exists, however there are some important factors to consider when creating a system for assigning numbers.

• It is important to think about all your needs before creating the system so that consistency is maintained.  It is better to create a system at the outset that is flexible enough to remain usable as both the size and diversity of inventory increases.

• A SKU often encodes information by following a logical progression, moving from more generalized to more specific. For example, a SKU may first encode the type of clothing, followed by the cut, then the color, then the size. It is common to use what is called a “matrix” in many industries which must organize many levels of product information for a particular item.

• A SKU can be any length. Practically speaking, it should be long enough to contain all useful and necessary information, but not so long that it becomes cumbersome.

• A SKU can use any combination of numbers and letters. Whichever is chosen should be because it reflects the greatest meaning. If sequence or gradation, such as a size or model year is an important feature, numbers will be more useful. However if a descriptive association is important, such as a model name, letters may be more appropriate.

The key to efficiency in inventory management is in linking products with unique, meaningful product identification codes and consistently using those codes company-wide.