{"id":84496,"date":"2020-08-18T08:04:23","date_gmt":"2020-08-18T15:04:23","guid":{"rendered":"https:\/\/oroinc.com\/b2b-ecommerce\/?p=84496"},"modified":"2023-09-19T04:13:21","modified_gmt":"2023-09-19T11:13:21","slug":"the-importance-of-the-sku-in-supply-chain-management","status":"publish","type":"post","link":"https:\/\/oroinc.com\/b2b-ecommerce\/blog\/the-importance-of-the-sku-in-supply-chain-management\/","title":{"rendered":"SKU in Supply Chain Management: Definition, Role, and Benefits | OroCommerce"},"content":{"rendered":"

This post has been written in collaboration with Marello<\/a><\/em><\/p>\n

Everyone in business tosses the term SKU (pronounced skew) around as casually as a baseball on a Saturday afternoon. From software programmers to warehouse managers and sales reps, it\u2019s one of those terms that many use, but also that many use improperly. When it comes to eCommerce and supply chain management<\/a>, SKU has a very particular meaning and application. Get it wrong and get chaos. No business can afford chaos when it comes to inventory and supply chain management, order processing, or marketing.\u00a0<\/span><\/p>\n

Therefore, you will need the right processes and the right solutions in place. Keep reading to get a better understanding of the importance of the SKU in supply chain management and how effective SKU use can improve business profitability.\u00a0<\/span><\/p>\n

So, What is an SKU?<\/span><\/h2>\n

SKU stands for\u00a0<\/span>stock keeping unit<\/span><\/strong>. At the most basic level, it is a digital way to track a product. You convert data about the product into a collection of letters and numbers that can be manipulated by a computer.<\/span><\/p>\n

\"sku<\/p>\n

[Source<\/a>]<\/p>\n

Don\u2019t confuse an SKU for a universal product code (UPC). Although the SKU can contain elements of the UPC, the numbers and their uses are extremely different.<\/span><\/p>\n

A UPC code identifies the product. An SKU identifies the product as well as the product\u2019s location. The UPC code is used by every company that sells the product. An SKU is individual to a company \u2013 it\u2019s an internal identifier only. But overall SKU architecture and SKU logistics play an important role in business.<\/span><\/p>\n

So, let\u2019s say you sell rubber gaskets and you maintain 3 regional warehouses that service 50 locations. A product\u2019s SKU is crucial to inventory management because you must track exactly where the product is located at any given time. You use SKUs to know in which warehouse the gasket is located and within the warehouse exactly where the product resides. Think of SKUs as GPS tracking for your inventory.\u00a0<\/span><\/p>\n

The difference between a UPC and an SKU may not be significant if all your products reside under one roof, all sit together in location, and come in from one supplier. But if you maintain multiple warehouses or storefronts, receive stock from multiple locations, or store products in multiple locations under one roof the SKU is critical to supply chain management and order processing. <\/span><\/p>\n

SKUs are used by inventory management solutions, B2B eCommerce<\/a> solutions, and your ERP to know what you have and where it is. Thanks to SKUs, commerce management systems like Marello<\/a> help track products between locations or give a snapshot of a product’s location in multiple places such as warehouses and stores.\u00a0<\/span><\/p>\n

How SKUs are Used<\/span><\/h2>\n

SKUs are used in supply chain management, order processing, data analysis, and even marketing.<\/span><\/p>\n

Order Processing<\/span><\/h3>\n

Let\u2019s start with the application of SKUs to order processing, because it\u2019s a pretty easy concept to grasp.\u00a0<\/span><\/p>\n

If you are a global, national, or regional distributor, wholesaler or manufacturer of physical products, your finished goods are scattered in various locations. When an order is placed, that inventory must ship from somewhere. So, the question becomes where?<\/span><\/p>\n

In most cases, you want to ship from the location that incurs the lowest freight cost. So, you\u2019ve got to know what inventory is in what location. <\/span><\/p>\n

For example, you may have warehouses in California, Missouri, and Georgia with the bulk of your inventory in California because it has the highest sales area. If you get an order from Florida and don\u2019t have enough inventory in Georgia, what do you do? Do you transfer inventory from California to Georgia, backorder a portion of the order, or ship from multiple locations?<\/span><\/p>\n

By expressing the inventory and its location as an SKU, you can create algorithms based on user-defined rules to determine how and where orders are shipped. Instead of a human making the order processing decision, the decision is digitized. Based on the data you gather, you may move inventory from location to location. Which leads us to the second most common use of the SKU.<\/span><\/p>\n

Supply Chain Management<\/span><\/h3>\n

SKU in supply chain management goes hand in hand. The SKU is how you determine inventory levels. When an SKU is plucked from the bin to fill a Sales Order, it is deducted from the on-hand inventory.\u00a0<\/span><\/p>\n

Inventory on-hand is as important to know as your minimum and maximum inventory levels. Based on lead times, it can trigger a low stock warning to prompt the purchase of more inventory. Inventory on hand is also a factor in when calculating the cost of goods sold.\u00a0<\/span><\/p>\n

SKUs can be used to track inventory on orders as well. In the order fulfillment example above, the scenario becomes different when you know that the product is on a truck in route to Florida and will be delivered the next day.\u00a0<\/span><\/p>\n

Periodically, for warehouse management, financial accounting, and tax purposes, the quantity of SKUs on hand is physically counted and compared to the digital record in the process called <\/span>taking inventory<\/span><\/a>. This usually happens once a year.\u00a0<\/span><\/p>\n

Data analysis<\/span><\/h3>\n

Where SKUs are particularly valuable is in helping a business be more profitable and productive. By analyzing SKU data you can:<\/span><\/p>\n