If you sell a product of any kind, and even with services for that matter, product codes are crucial. Whether you call them SKUs or Item Numbers or PullCodes, a product code is the most critical factor in determining accurate and reliable inventory, organization, sales tracking and quality control.

I’m writing this article in two parts. This first one is an exploratory summary of why product codes are so important. The second article is a look at why it’s important to choose your product codes logically to be as effective as possible when handling hundreds or thousands of products.

Product codes are important for the following reasons:

• Inventory control – The single biggest reason why item numbers are important is it’s impact on inventory. At any given point, using item numbers and item classes, you can tell how much of something (or a group of somethings) you have in stock, set reorder points or production points for them and see how many raw materials you have to produce finished goods.
• Manufacturing/KIT production – The second biggest reason is for those of us who manufacture an item. Because dozens to thousands of parts may go into a final product code, the application of KIT manufacturing and processing of orders using product codes allows for the tracking of waste and efficiency within a process, the use and misuse of product parts in production the true cost of manufacturing. Without codes, the whole system would be reliant on guesses and checks, and this is a horrible inefficient way of doing things.
• Sales Control – Because prices are set on items and a product code won’t change, a sales force can be quickly mobilized to sell products with little to no experience with the actual item. By providing black and white information that is held together with product codes, a sales person can generate leads, process quotes, process order and send them to production or shipping based on that product code. By having a common code to hold everyone together in the process, there is very little margin of error.
• Quality Process - This goes hand in hand with the sales control point made above. By having the product code accounted for in inventory, produced with it’s associated product codes in manufacturing or ordered from vendors by the product code associated with the item and then packaged and sent to the customer using a product code that they’re familiar with, the chance of a mishap such as an incorrect item being shipped is low.
• Billing – Since a product code allows you to always charge the same price for the same item, you can easily bill your clients appropriately and quickly without having to go by notes or a guess, as you would without item numbers to connect to billable products.
• Job Costing - Whether you are building something or outsourcing it to another company, having a product code allows you to job cost this process. By putting product codes together with inventory, sales revenues and the costs of production or procurement, you can determine margins and profitability over time because the product code will not change.
• Special Order Tracking – If you’re in the custom order business like we are, you no doubt have customers coming back wanting to reorder a previous product. How do you know what it was? what it was made from? what the colors were? dimensions? how do they know what to ask for when ordering it? a product code eliminates all of this by providing a simple way to re-order their custom part.
• Marketing Analysis – Though it may seem a far stretch to say that product codes have anything to do with marketing, it’s a point that needs to be made. How do you know what to market and how much to spend if you have no idea what sells and to who? Product codes allow you to take individual items and their variations easily to determine what works. Lets say you have a t-shirt you sell with on design, but in a dozen colors and in 8 sizes. Which sells best? Which areas need more help with marketing? which can you remove from your product line because the marketing hasn’t worked for them? If you could easily determine all of this information through research on well defined product numbers, you would be a better marketer.

Now that you understand why product codes are important, stay tuned for the next article where I talk about the importance of using intuitive product codes.