What is a stock keeping unit (SKU)?

A stock keeping unit commonly referred to as a SKU is a unique code that is assigned to each product in stock

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What is a stock keeping unit (SKU)?


A stock keeping unit, commonly referred to as a SKU, is a unique code that is assigned to each product in stock. It is used to determine the price, manufacturer, and other information related to the product.
For any organization in the business of selling products, the SKU is an essential part of inventory management.
SKUs are internal product inventory codes, consisting of eight or more alphanumeric characters. It is unique to each store, warehouse, e-commerce seller, and fulfillment center. This means that the SKU of item A will be unique in different stores of the same retail chain.

How do SKUs work?

Each alphanumeric character in a SKU represents information about a product, such as price, size, style, color, and manufacturer.
Since the codes are unique to each company, they can be customized to suit business needs. For example, the information in codes can be based on what customers often ask.
C1 can be customized for sweaters, C2 can also be customized for sweaters. B1 can indicate red and B2 for blue. If S11 denotes small and S12 denotes medium, the SKU for small red cardigan will be C2B1S11.
The more detailed the information, the longer the number. This can become more confusing for the workforce, leading to an increased risk of shipping or packaging errors. Thus, retailers often stick to the most important product characteristics when creating SKUs.

What are SKUs?

SKUs make it easy to track inventory movement. Besides helping retailers manage their entire inventory, these codes can offer a few other benefits.

Classification of products

Retailers who have many variations of a particular type of product can use volume units (SKUs) to differentiate between each. By adding unique product codes, they can prevent confusion at all levels of the supply chain. This can help reduce costly errors.

Inventory Management

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

Stock replenishment

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

Determination of profits

SKU tracking can give entrepreneurs important business insights. They can quickly determine what type of product is selling. Likewise, they can determine which one is less popular. These insights can help companies make informed decisions that will 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 supplies based on expected customer behavior, allowing them to enhance profitability and customer satisfaction.

customer assistance

SKU scanning makes it easier for retailers to provide product information to consumers looking for alternative versions. This can increase customer satisfaction and improve sales efficiency.
In retail stores, salespeople won't have to go back as often to the supply room to check if some products are still in stock. They can simply scan a code with a portable scanner to verify that information.

Advertising and marketing

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

Create SKU:

SKUs contain simple business logic. It consists of letters and numbers that are unique to each product. Every company has a way of developing a SKU, with some of the usual practices that are included while creating a SKU are:
  • Each SKU must be unique. SKU reuse can lead to duplication and confusion.
  • Avoid special characters at all times.
  • Refrain from using letters that can be confused with numbers.
  • The goal should be to keep SKUs shorter.

Where can we use the SKU?


There is a use case that you must have noticed many times or at least once in a clothing or shoe store. When you buy a shoe and take it to the billing counter, you see the cashier scan a code and put your item in the bag. Inspection is performed by a barcode scanner, which captures your product details via SKU. For example, if you buy a pair of shoes, the SKU should bear its style, model, price, size, brand, and manufacturer details.

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