SKUs and you: an overview of SKU management for 2022’s peak season

By Regina Baily
Published in Solutions
November 16, 2022
3 min read
SKUs and you: an overview of SKU management for 2022’s peak season

No matter how long you’ve been involved in e-commerce, you have to have an accurate and efficient way of tracking your inventory. Without accurate inventory management, your pickers have to spend all that much more time digging around in box after box and bin after bin looking for the items that your customers are so excited to receive. There’s even a chance that they might even grab the wrong item by mistake, and who could blame them, since there would be no overarching management system in place? That’s where SKUs (pronounced “skews”) come into play. Ask anyone well-versed enough in warehouse and inventory management and they’ll waste no time telling you just how important a robust and intuitive SKU system is to making sure that the warehouse operates smoothly and efficiently. But what are SKUs, and how do you use them? Why exactly are they so important? This article explains everything you need to know about SKU numbers and how they’re useful to you and your business.

What are SKUs?

Stock Keeping Units, or SKUs for short, are 8-12 digit alphanumeric codes that help retailers search for, label, and keep track of their inventory. They’re most often designated to products based on attributes such as manufacturer, color, style, type, or size. SKUs are created and used across the retail industry to manage inventory in warehouses and shops and ensure stock levels aren’t somehow miscounted, leading to something called “phantom inventory”, where goods that aren’t actually in the warehouse or available for purchase are listed as present.

Now that you have a little bit of background information about SKUs, let’s define our terms a little more strictly. A SKU isn’t a serial number, a barcode, or a lot number. SKUs are only ever used internally, and therefore will be totally different depending on the retailer. Two different shops carrying the exact same item will have two totally distinct numbers representing said item. Once you have a robust inventory of SKU designations, you can begin using them to do a lot of neat tricks and calculations.

What is an inventory management plan?

Inventory strategy is all about maintaining the right level of stock to meet your customer’s needs. It’s a delicate balance act. Too little inventory and your customers go without and will often seek out another provider with a more robust and resilient supply chain. Too much inventory and you’re left paying hefty storage fees for inventory that may not sell anytime soon. Inventory forecasting goes a long way towards being able to predict customer demand before it hits, making sure that you’ll be able to have everything you need on hand ahead of time.

What is overstock?

As a rule, it’s ideal to have a relative balance, but supply and demand can be difficult to reconcile. Although you definitely have the option to skew more on the inventory side if you want to have a bit of a backlog or a bit towards the exclusivity side if you want your products to feel special and if you’d like to make a bit more profit, it’s best to keep these opposing but complementary forces in a tight dance. If you have too much product to serve too little demand, that means you have overstock inventory. That leaves you paying for the manufacture and storage of merchandise that you just can’t move quickly enough for it to be profitable. You might have to start downstocking, meaning that you box up all the items that aren’t selling well and ship them to a discount store or other alternate retailer.

How do you define stockout?

Stockouts represent the opposite problem. Too much demand for too little supply leaves your warehouses empty and your customers frustrated and wondering if you’ll be able to deliver consistently. In an increasingly tough industry, it’s difficult to justify items being out of stock for more than a couple weeks that won’t leave your customers looking for their fix elsewhere. Especially in this day and age, where consequences from the Covid-19 pandemic have left the global supply chain reeling, stockouts can sneak up on you. It’s important to maintain a healthy level of safety stock to avoid any issues.

Is there a way to know how to find average inventory for a given period?

Finding out how to calculate average inventory doesn’t have to be rocket science. Although there are a number of average inventory calculator programs (both standalone and integrated into a wider order management system) that can help you out if you don’t feel comfortable doing it yourself, it’s a simple enough equation that you could even do it by hand. Simply take your current inventory, add it to your previous inventory, and divide that number by the number of inventory periods you’ve considered. Like magic, that’s your average inventory formula.

In conclusion

You may be wondering exactly how to make sure you’re neither caught in an overstock order or out of product for weeks to come. Not to worry. P2Pseller’s got your back. Our information and inventory tracking software enables you to calculate the amount of safety stock you should have on hand at any given time, and automatically reorder product once you hit a certain threshold without overordering. Register a free account with us today to browse the full extent of our offerings, without any commitment required on your end. We’d love nothing more than to have you on board.


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