Stock Keeping Unit (SKU)

What is a Stock Keeping Unit (SKU)?

Stock keeping units, or SKUs, are alphanumeric codes that retailers assign to track products. The information helps them identify specific inventory items, measure sales, and promote more efficient shopping experiences. 

Manufacturers can use SKUs (pronounced “skews”) to track product movement and other key performance indicators deemed to be necessary.

Unlike a universal product code, an SKU does not apply to different companies. Each business assigns a specific one to each inventory item – it is primarily an internal tracking code.

Retailers use SKUs to identify and track inventory. It is a unique code using numbers and letters that represent specific characteristics of each item.

In the business world, “stock” is a reference to a company’s current inventory.

The typical SKU contains information about the product’s manufacturer and brand, its style, color, and overall size.

Each company issues unique stock keeping units for the inventory it sells. That means if you have two leather jackets of similar style and materials from two different manufacturers, you’ll see unique internal SKUs for those products.

With the SKU format, companies can quickly account for each inventory item with accuracy. It is different from a model number, but a company could incorporate that information if desired.

Takeaways of Stock Keeping Units (SKUs) 

SKUs provide three distinctive advantages for companies when they use this system for inventory management.

  • It provides more standardized data. Companies can use stock keeping units to identify popular products, review seasonal trends, and maintain inventories on items that follow consumer trends.
  • Customers receive better service. Staff members can quickly find what products are in stock for consumers to create more efficiencies and satisfaction.
  • It delivers faster inventory management.Instead of manually counting each item daily, SKUs track turnover, flow, and current levels automatically (assuming software is being used).  

Ecommerce businesses can use a fourth advantage with SKUs. This data allows them to pick items as suggestions for upselling purposes.

Understanding Stock Keeping Units (SKUs)

Stock keeping units use codes to differentiate products. It allows for better classification by product trait to identify items kept in a warehouse, store shelves, or in a back room.

The creator of the SKUs can assign a specific code to a product that contains a letter and a number. If a company sells shelving, they might give “glass shelf” to the code A1.

Their inventory might contain tempered, transparent, and shatterproof glass shelving. Each one would receive a specific identifier in the code, which could be B1, B2, and B3, respectively.

Those shelves are also manufactured to different lengths.The company would assign a three-digit code here to identify each product variation.

 For the purpose of this example, let’s say that there are three lengths: 15 inches, 25 inches, and 40 inches.

The SKU could reflect that length by incorporating 015, 025, and 040 into the code, respectively.

That means a tempered glass shelf that is 25 inches long would have an SKU of A1B1025. 

When these codes are entered into inventory management systems, it’s much easier for manufacturers and businesses to knowhow much of an individual item is in stock at any time.

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