{"id":897,"date":"2021-06-21T06:00:00","date_gmt":"2021-06-21T11:00:00","guid":{"rendered":"https:\/\/www.shipbob.com\/uk\/blog\/sku-management\/"},"modified":"2026-04-20T21:14:23","modified_gmt":"2026-04-20T21:14:23","slug":"sku-management","status":"publish","type":"blog","link":"https:\/\/www.shipbob.com\/uk\/blog\/sku-management\/","title":{"rendered":"SKU Management Best Practices for Ecommerce Inventory Management"},"content":{"rendered":"\n

Table of Contents<\/p>

** Minutes<\/p><\/div><\/div>\n

What is a SKU?<\/a><\/p>\n\n\n\n

What is SKU management?<\/a><\/p>\n\n\n\n

Why is SKU management so important for ecommerce?<\/a><\/p>\n\n\n\n

SKU management best practices + processes<\/a><\/p>\n\n\n\n

How ShipBob allows for seamless SKU management<\/a><\/p>\n\n\n\n

SKU management FAQs<\/a><\/p>\n\n\n\n

<\/a><\/p>\n<\/div>\n\n\n\n

Let\u2019s imagine the following scenario:<\/p>\n\n\n\n

Say you run an online apparel store. You sell tops, pants, shirts, and dresses in different sizes, colours, and patterns. But different product variations quickly increase your SKU count, or total number of products, causing ecommerce inventory<\/span><\/a> to become harder to organise, track, keep in stock, and pull data on.<\/p>\n\n\n\n

Managing inventory<\/a> at the SKU level can be a time-consuming and challenging process. However, with the right resources, processes, and systems in place, you can more easily manage SKUs to better control inventory<\/a> and make better business decisions.<\/p>\n\n\n\n

In this article, you will learn the basics of SKU management in ecommerce, why it\u2019s important, and how a third-party logistics<\/a> (3PL) like ShipBob can help. <\/span><\/p>\n\n\n\n

What is a SKU?<\/h2>\n\n\n\n

SKU is the acronym for stock keeping unit<\/a>, which is an alphanumeric code made of both letters and numbers to uniquely identify and keep track of each product in your inventory. The code itself helps to categories items by features that differentiate it from similar products.<\/span><\/p>\n\n\n\n

What is SKU management?<\/h2>\n\n\n\n

SKU management is a subset of <\/span>inventory management that helps to identify, track, and categorize sellable inventory <\/span>using a unique alphanumeric code. SKU management helps businesses keep their inventory organised, as all information regarding a specific product can be pulled up quickly (such as how many units are in stock).<\/span><\/p>\n\n\n\n

For example, having a SKU<\/a> called \u2018248RSJGDFN\u2019 might seem like gibberish but it is actually may be more helpful than \u2018Red Shirt\u2019 since you can easily get that confused with similar shirts. In fact, you need a separate SKU name for each size of the same red shirt.<\/span><\/p>\n\n\n\n

Managing SKUs is essential if you sell more than one product. While it may start as an easy process (e.g., if you have all of your inventory at home), it becomes more critical as you grow, expand your product line, and sell more products, more quickly. <\/span><\/p>\n\n\n\n

Think about if you are working with a third party, like ShipBob or Amazon. Proper SKU management allows these companies to keep track of all inventory in their large fulfilment centres and easily locate each SKU, so they can be accurately picked, packed, and shipped as orders are placed. This can be done using a warehouse management system (WMS)<\/a>, which keeps track of their different SKUs, so pickers can easily pull up SKU details (e.g., photos and other info) and help ensure they have the right item. <\/span><\/p>\n\n\n\n

Why is SKU management so important for ecommerce?<\/h2>\n\n\n\n

SKU management is essential for ecommerce as it gives you specific details about every item in your inventory to significantly improve order accuracy<\/a> during the warehouse picking<\/a> and packing process.<\/span><\/p>\n\n\n\n

With proper SKU management, you can easily pull inventory performance data for each SKU to help you<\/span> forecast demand<\/a>, identify selling trends, and identify best-selling and slow-selling products, so you know how frequently to reorder each SKU. <\/span><\/p>\n\n\n\n

SKU management can be optimised by implementing the right technology and inventory management software<\/a>, even helping to prevent both stockouts and overstocking. <\/span><\/p>\n\n\n\n

Since inventory is constantly moving throughout the ecommerce supply chain<\/a>, inventory software makes it easier to view real-time inventory levels<\/a>, analyse SKU performance, update product information and details quickly, and reduce human error throughout the fulfilment process.<\/span><\/p>\n\n\n\n

SKU management best practices + processes<\/h2>\n\n\n\n

There\u2019s a lot that goes into managing each SKU. For large, established brands, an ERP inventory<\/a> system can be used to make the process easier and save you time, but it can be costly. For others, t<\/span>here are several ways to manage SKUs without investing in pricey software and technology. Below is an overview of the best practices and processes used by direct-to-consumer (DTC) brands<\/a>. <\/span><\/p>\n\n\n\n

1. Standardize your SKUs with a simple framework<\/h3>\n\n\n\n

Having a standardized method or naming convention for managing SKUs avoids confusion and makes it easier for your team and your logistics partners to work with. A simple SKU framework is the \u201cmanufacture-colour-size\u201d format. <\/span><\/p>\n\n\n\n

It\u2019s also important to keep the code short (about 8-12 alphanumeric digits). The shorter and simpler the code, the easier it is for your team to identify quickly. <\/span><\/p>\n\n\n\n

2. Set SKU-specific reorder points<\/h3>\n\n\n\n

Some items sell faster than others, so it wouldn\u2019t make sense to order the same amount of inventory for every SKU at the same frequency. <\/span><\/p>\n\n\n\n

There is a simple reorder quantity formula<\/a> you can use to determine points for each SKU. To calculate it, you simply multiply the average daily units sold by the average lead time:<\/p>\n\n\n\n

\n

Optimal Reorder Quantity for a SKU = Avg. Daily Units Sold x Avg. Lead Time<\/p>\n<\/blockquote>\n\n\n\n

Calculating reorder points helps optimise SKU levels and ensure you replenish inventory<\/a> in time. Though the calculating is simple, it can be a time-consuming process to manually calculate reorder points for a variation of SKUs.<\/p>\n\n\n\n

Many inventory apps<\/a> help you use historical data to determine an optimal reorder point for each SKU and automatically set <\/span>reorder points<\/span><\/a>. <\/span>This takes the manual work out of the equation, and you also will have data aggregated to pull for inventory reporting<\/a>.<\/span><\/p>\n\n\n\n

3. Group SKUs by similarities<\/h3>\n\n\n\n

Let\u2019s say you sell pots and pans in different colours. If a customer lands on your online store and sees the pan they want, you can also showcase the different colours that it comes in. That way, if the customer first sees it in blue, but would prefer it in black, then you can easily display the different colours that specific pan comes in.<\/p>\n\n\n\n

By grouping SKUs by a similarity (like size or colour), you can set up your online store to show the different options for a specific product.<\/p>\n\n\n\n

You can identify which types of products are in high demand, and even take it a step further by seeing which options most customers prefer for that specific high-demand product<\/a>.<\/p>\n\n\n\n

4. Avoid confusing letters, numbers, and spaces<\/h3>\n\n\n\n

When creating a SKU, do your best to avoid any confusion. For example, a lower case \u201cl\u201d and an upper case \u201cI\u201d look identical in many fonts. To prevent confusion when using letters, make sure every letter is capitalised. Be sure to never begin any product with a zero, \u201c0.\u201d These can also be mistaken for the letter \u201cO.\u201d<\/span><\/p>\n\n\n\n

Furthermore, do not include special symbols such as \u201c\/\u201d or \u201c%.\u201d The goal of the SKU is to be easily read, and it can be difficult deciphering a SKU when it looks like \u201cL\/%3EXCV55^&.\u201d<\/span><\/p>\n\n\n\n

5. Calculate your SKU ratio<\/h3>\n\n\n\n

A SKU ratio can help you determine how each SKU is impacting sales. The SKU ratio refers to the number of SKUs in a gross profit range divided by the total number of SKUs you have, and then multiply by 100 percent.<\/p>\n\n\n\n

You can easily determine SKU ratio using a spreadsheet. Here is a simple step-by-step overview: <\/span><\/p>\n\n\n\n

  1. In your spreadsheet, create four columns: SKU, Sales Price, Cost, and Gross Profit. <\/span><\/li>
  2. Ceate the gross profit ranges (e.g., less than $10, $10-$19.99, etc.). <\/span><\/li>
  3. Input the SKUs that fall into the different ranges to calculate the SKU ratio. <\/span><\/li>
  4. Multiply the number of SKUs in each gross profit by range 100% to get your SKU ratio.<\/span><\/li><\/ol>\n\n\n\n

    6. Compare SKU ratio to sales ratio<\/h3>\n\n\n\n

    After you calculate the <\/span>SKU ratio<\/span>, compare it to your sales ratio. Using the same gross profit data, you will need to create a new column with the number of sales units per gross profit range. <\/span><\/p>\n\n\n\n

    Then, divide that number by the total number of sales units. Finally, multiply your total by 100%. This comparison will determine your highest-selling SKUs versus your lowest selling SKUs. <\/span><\/p>\n\n\n\n

    7. Simplify and remove unpopular SKUs when possible<\/h3>\n\n\n\n

    While product line expansions helps businesses grow their businesses, holding on to items that don\u2019t sell can cut into your profit margins in the long run. <\/span><\/p>\n\n\n\n

    To stay profitable, it\u2019s important to optimise inventory<\/a> by determining slow-moving SKUs and possibly discontinuing them. <\/span><\/p>\n\n\n\n

    Otherwise, you may have continued costs associated with holding on to those SKUs such as:<\/span><\/p>\n\n\n\n