Stock Keeping Unit

A Stock Keeping Unit (SKU) is a unique alphanumeric code assigned to each distinct product in a company's inventory to track and manage stock levels efficiently. SKUs serve as internal identification tools that help businesses monitor inventory movement, assess sales performance, and determine stock replenishment needs. Unlike Universal Product Codes (UPCs), which are standardized across the industry, SKUs are created by individual companies and can include details about product attributes such as size, color, style, brand, or storage location.

SKUs are essential for effective inventory management, allowing businesses to track specific product variants separately and make informed decisions related to purchasing, pricing, and stock allocation. A typical SKU might contain abbreviated information about the product’s category, brand, size, and color, creating a logical system that staff can easily understand and utilize. Well-designed SKU systems enhance operational efficiency, reduce errors in order fulfillment, and generate valuable data for sales analysis and inventory forecasting.

SKU stands for Stock Keeping Unit. It’s a unique identifier used by businesses to manage and track individual products or variations of products in their inventory. SKUs are essential for internal organization, helping retailers differentiate between items by characteristics such as size, color, model, or packaging.

While both SKUs and barcodes help identify products, they serve different purposes:

• SKU: An internal code created by a business. It is designed to organize and track inventory based on custom attributes such as size, color, or category.
• Barcode (UPC/EAN): A standardized code used across the retail industry for scanning at point-of-sale systems. It’s universal and often issued by a governing organization.

In short, SKUs are tailored to a business's internal structure, while barcodes are for external scanning and checkout systems.

Effective SKU creation follows a logical structure and reflects meaningful product attributes. A good SKU is:

1. Short and consistent – Avoid making codes too long or complex.
2. Descriptive – Use abbreviations that indicate product category, type, color, or size (e.g., TS-BLK-M for a black T-shirt, size M).
3. Unique – Ensure each SKU refers to only one product variant.
4. Scalable – Design the system so new SKUs can be added easily without disrupting the format.

The goal is to make it readable for staff and systems, while minimizing room for confusion.

SKUs are vital because they:

• Allow accurate tracking of stock levels by product variant
• Help reduce inventory errors and prevent stockouts or overstocking
• Enable quick identification of top-performing and slow-moving items
• Support smoother order fulfillment and warehouse operations
• Provide essential data for forecasting, purchasing, and pricing strategies

Without SKUs, managing large inventories with multiple product variations becomes inefficient and error-prone.