Stock Keeping Unit (SKU)

A stock keeping unit, which is commonly referred to as SKU, is a unique code that is assigned to each product in a stockroom. It is used to identify the price, manufacturer, and other product-related information.


What Is a Stock Keeping Unit (SKU)?

For any organization that is in the business of selling products, an SKU is an essential part of inventory management. 

SKUs are internal product inventory codes, which are made up of eight or more alphanumeric characters. They are unique to every store, warehouse, e-commerce vendor, and fulfillment center. That means that an SKU for Item A will be unique at different stores from the same retail chain.


How Do SKUs Work?

Each alphanumeric character in an SKU represents product-related information, such as price, size, style, color, and manufacturer. 

Since the codes are unique to every company, they can be customized to fit the needs of the business. For instance, the information in the codes can be based on what customers ask mostly about.

C1 could be assigned to wool sweaters, while C2 could represent cotton ones. B1 could refer to the color red and B2 for blue. If S11 referred to a small and S12 to a medium, then a small red cotton sweater’s SKU would be C2B1S11.  

The more detailed the information is, the longer the figure gets. This can become more confusing for the workforce, leading to a greater risk of shipping or packing errors. Thus, retailers often stick to the most important product characteristics when they’re creating SKUs.


What Are SKUs for?

SKUs make it easier to track the movement of inventory. Besides helping retailers manage all their inventory, these codes can offer a few other advantages. 

  • Classifying products

Retailers with several variations of a particular type of product can use SKUs to differentiate each one. By adding unique product codes, they can prevent confusion at all levels of the supply chain. This can help minimize costly errors. 

  • Inventory management

SKUs can be used to monitor and manage inventory. Managers can use these codes to make sure there is no inventory shrinkage. Products tend to get damaged or missing at any point in the supply chain. Having SKUs makes it easier for managers to pinpoint the items. They can also use the codes to determine if theft is involved. 

  • Replenishing inventory

Managing large quantities of inventory can be overwhelming for businesses of all sizes. But with SKUs, managers can easily determine the quantity of the products they have on hand. They can re-order when stock gets low to ensure that they never run out of product, especially the most popular ones.

  • Identifying profits

Tracking SKUs can give entrepreneurs crucial business insights. They can determine which product variation sells out fast. Similarly, they can identify which ones are less popular. These insights can help businesses make well-informed decisions that would make them more profitable.

  • Sales trends

Retailers can collect data from their SKU system to determine seasonal trends based on different customer segments. This enables them to replenish their supply based on expected customer behavior, allowing them to boost profitability and customer satisfaction.

  • Customer assistance

Scanning SKUs makes it easier for retailers to provide product information to consumers who are looking for alternative versions. This can increase customer satisfaction and improve sales efficiency.

At retail stores, salespeople won’t have to go far back to the supply room to check if certain products are still in stock. They can simply scan a code using a portable scanner to verify that information.

  • Advertising and marketing

Retailers can use the data they gather from SKU systems to determine the advertising and marketing methods that generate the most sales. 


SKU vs. UPC: What’s the Difference?

An SKU is a type of code, but it is different from a universal product code (UPC). Here are their main differences.

  • Internal vs external

An SKU is an internal inventory code, while a UPC is an external product code. That means the latter is the same across various stores. 

  • Alphanumeric vs numeric

SKUs can contain letters and numbers, while UPCs can only contain numbers. 

  • License

E-commerce stores, fulfillment centers, and the like can create their own SKU. UPC numbers, on the other hand, have to be bought and licensed.

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