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How to Efficiently Approach Inventory Management by SKU

Inventory management is one of the most important ways you can eliminate costly mistakes and maximize profits.

Here's a quick reminder of how SKUs and UPCs serve online business owners and how you can better manage SKUs to optimize our warehouse efficiency practices.

What does SKU stand for?

When bringing on newbie warehouse workers, you may be asked, what is SKU?

A SKU -- or Stock Keeping Unit -- is that alpha-numeric number assigned to each distinct type of item you sell.


But do you end the conversation there?

Or do you go a little deeper and help your employees understand what a SKU really means to your online business?


Try thinking about SKUs and inventory management like this:

SKUs help you track inventory by attributes, price, manufacturer, and more so that you always know what you have and where it is. SKUs are also used to decode repair times and services, warranties, reordering, and sales data. They even help eCommerce merchants craft internet marketing campaigns without outside vendor interference.


What does UPC stand for?

New warehouse employees might also ask you - what's a UPC?

UPCs -- or universal product codes -- are similar in function, but they consist of 12 digits and no letters. You typically don't need a UPC unless you're entering your product into a physical retail space.


What is SKU proliferation?

SKU proliferation happens when you increase the number of products you offer your customers. For example, if you carry a blouse in five sizes and five colors, each will have a different SKU. When you add a new brand, a new color, or other options, SKUs multiply accordingly.

SKU proliferation is a natural part of running an online business. It can be stressful, but it's a common pain point among eCommerce merchants, especially for life-cycle management.

Despite the stress, you don't want to eliminate SKU proliferation. The idea is to intelligently regulate your growing inventory. By thoughtfully adding value, you'll avoid damaging your ability to anticipate and meet customer demands.


Can I use SKUs to improve my inventory management?

Ultimately, your SKUs are vital to your inventory management system. Use the 80/20 rule to keep track of your different SKUs.

What is the 80/20 rule?

It's an eCommerce strategy dictating that 20 percent of your SKUs account for 80 percent of your sales. This means that most (at least 80 percent) of your SKUs will be slow movers. These cost you warehouse space, which ups your operating cost, particularly in rent.


Examine your SKUs every year for velocity, number of days on hand (or inventory turns), storage, seasonality, and storage needs. You'll walk away with a better understanding of exactly how your SKUs impact your online business on several levels.


Can I use SKUs to kit and bundle inventory?

Kitting is just the basic process of bundling products into ready-to-ship sets. Bundling allows you to sell multiple items at once as part of a kit as well as individually. By using your SKUs in this way, you'll maximize your profits without missing out on vital sales.

Want to know the best part?

You can group your available kits together in your warehouse. This process is called "assembled products". It means you can assemble kits on demand. This will improve your picking process, which saves you time and money.


Can SKUs influence my warehouse layout?

While kitting will benefit by placing individual items and kits in the same space, batch picking is a warehouse-wide layout strategy. Batch picking works for warehouses experiencing SKU proliferation and multi-product orders.

Your warehouse layout can be designed based on locations rather than orders. This means your most commonly ordered SKUs can be distributed evenly and closer to the sorting station.

Rather than handling each order individually, warehouse workers will pick multiple orders from a single instruction sheet. The items are then brought to a sorting station where the individual orders are sorted, assembled, and shipped.


What will this look like in your warehouse?

Instead of making three separate trips to pick the small red blouses, workers will pick all three at the same time and then take them to be sorted. It may add time overall because of the added sorting step, but you can utilize advanced warehouse management systems to improve your picking methods.

When you use the batch method for layout and picking, you'll maximize pick volume, have fewer sporadic picks, need fewer people or drones moving through the warehouse, and drastically reduce bottlenecks. That means you'll save on time and optimize efficiency in a meaningful way.


The Best SKU Solutions for Your Online Business

It's easy to forget that our SKUs are more than just a scannable number. They can be utilized to visualize meaningful proliferation as the company grows to meet customer demands for more options.

SKUs can be analyzed to better assess your inventory and identify the best way to make it work for you. They can be bundled intelligently -- both in your WMS and physically in your warehouse -- to limit cost and optimize efficiency. You can choose batch picking by SKU to manage bottlenecks and reduce order-picking times.



Michelle Lievense is a long-time business and marketing consultant who enjoys helping businesses and brands, particularly through her writing, craft and implement successful business strategies. When she isn't tapping her keyboard, she's hiking the Colorado Rocky Mountains with her dog, snuggling next to her cat with a favorite book, volunteering, skiing, or scuba diving.


Photo credits: Christian Guthier & Seika


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