Stock Keeping Unit

Stock Keeping Unit (SKUs): Meaning and Benefits 

Stock keeping units are a metric used in inventory management. Learn how SKUs are used in retail and how they differ from universal product codes.

Businesses that sell products need to keep a detailed inventory of the items that they sell. Moreover, they need a system through which they can track the movement of their inventory to ensure sound performance.

For this purpose, they use identification codes for each item in stock. These identification codes are known as Stock Keeping Units.

What is a stock keeping unit (SKU)? What information does it contain? What benefits do they offer? Find out in this article.

What is a Stock Keeping Unit?  

Stock keeping unit (SKU) is a unique identification code used to track and manage inventory in retail and e-commerce businesses. The code is scannable and is often found printed on labels of products. Vendors use this code to track the movement of items in their inventory automatically.

An SKU is a combination of letters, numbers, or symbols that identifies a specific product, variant, or item in a company's inventory management system. Each product in a company's inventory can have a unique SKU, even if the product is similar to other products in the inventory.

Companies generate SKUs internally. Thus, their SKU is specific only to the products in their inventory; another company selling the same products would have different SKUs. The SKU encodes detailed information about an item. For instance, the alphanumeric code contains details about the brand, manufacturer, product category, price, color, size and more. This is particularly helpful for businesses that sell a diverse range of products.

Stock Keeping Units (SKUs) vs Universal Product Codes (UPCs) 

Stock Keeping Units are often confused with Universal Product Codes, better known as barcodes. It could be because SKUs are often displayed on products as labels, leading people to mistake them for barcodes.

While both SKUs and UPCs can be used to optimize inventory, streamline the supply-chain, and assess sales data, SKUs serve different purposes than UPCs.

UPCs, as their name suggests, are universal. They are used to identify a product by its type. The seller does not figure in the creation of UPCs. This means that UPCs are used to identify products and remain consistent no matter who the retailer is, which makes them suitable for external use. UPCs are only numeric in type, with a defined length of 12 digits.

On the other hand, SKUs are used to identify products as well as the seller. Each seller can assign a unique SKU to each item in their inventory; the identifier is unique for the item and is always different even if the same product is being sold by other retailers. This makes SKUs suitable for internal use of companies. SKUs are generally alpha-numeric codes; their length can vary but the recommended limit is 8 to 12 characters.

Benefits of Using SKUs 

SKUs offer benefits for multiple ends of a company’s business operation, which is why they use SKUs. Some of these benefits are:

1. Efficient inventory management: SKUs enable companies to improve their inventory management. Through an internal system of categorization, they are able to sort and organize the items in their inventory efficiently. Digitally scannable IDs for each product enables businesses to track their stock levels at all times, which empowers them to prevent problems of stockouts or overstocking. The results boost customer satisfaction as well as cut down revenue loss.
2. Improved order fulfillment: With inventory sorted with effective use of SKUs, it becomes easier for companies to fulfill their orders on time. Since SKUs allow greater visibility into stock availability, companies can locate items ordered by customers quickly. This allows them to fulfill orders quickly and efficiently, thus boosting customer satisfaction.
3. Improve supply-chain management: SKUs allow businesses to enhance the traceability of their stock. With these identifiers, companies can not only track stock levels but also trace the movement of their stock along the supply chain – from planning to procurement to inventory and warehouse management to logistics. With this high-level traceability, businesses can gain greater visibility over their stock, improve quality control, and better manage product recalls.
4. Improves warehouse management: SKUs make product identification efficient, which significantly improves warehouse management. Through searching each product’s unique code, it becomes easier for staff to identify and locate items, as well as pick and pack them. This streamlines the stock-taking process, helps staff avoid errors, and saves time.
5. Integrate Technology: SKUs permit seamless integration with technological devices and software. Companies that want to search through their inventory quickly or analyze sales data can use SKUs. For instance, staff can use a portable scanner to find the availability of the right product in the right size quickly using its SKU. With such technological integration made possible by SKUs, companies can reduce manual intervention and automate their operations to achieve a smoother workflow.

Key Takeaways 

• Stock keeping unit (SKU) is a unique alphanumeric identifier assigned to each product in a company’s inventory.
• SKUs contain detailed information about a product such as its manufacturer, brand, category, price, and size. It is often printed as a label on the product, often alongside the barcode.
• SKUs differ from barcodes or Universal Product Codes (UPCs). While UPCs are universal codes that remain consistent for a product across various retailers, SKUs are unique for each product and retailer. UPCs are suitable for external, broad identification of products, while SKUs are helpful for internal use by a company.
• SKUs enable companies to optimize their inventory management. With SKUs, staff can gain quick visibility into their inventory and prevent stockout or overstocking.
• SKUs also help companies fulfill orders quickly, improve their supply chain and streamline their warehouse management. Since they are scannable codes, they also support greater technological integration into a business’ operations.