What Is a SKU?

Retailers and manufacturers use a variety of identification methods during inventory management. These codes help you organize products and maintain inventory accuracy, which is crucial for business success.

One example is a SKU. Inventory professionals use these frequently for various inventory operations. But what does SKU stand for, and how are they used in inventory management? Here is an overview of SKU numbers.

What Is a SKU Number?

First things first, the term SKU refers to a stock keeping unit. SKU numbers are unique for each product in stores, warehouses and other retail management systems. You can view stock keeping units on each product’s barcode. Typically four to eight units long, a SKU consists of numbers and letters. The order of SKU numbers varies by retailer preference.

Each alphanumeric symbol in a SKU represents a different product detail, such as:

  • Price
  • Manufacturer
  • Color
  • Size
  • Location
  • Gender

For instance, a SKU example for a green shirt with a 40-inch chest size might look like: SH-40-GRN.

Retailers can use SKU numbers to organize their products and track inventory. Businesses can quickly scan barcodes to read information about product availability and other important data. Because all SKU codes are unique to each business, they can organize and use them according to their preferences. Each business serves as a SKU generator, as they create their own.

How Are SKUs Used?

Businesses use SKUs for many different functions. They are extremely helpful for managing inventory and differentiating between products quickly. 

Here are other reasons that businesses use SKUs:

  • Organization: After training, retail associates and managers can use stock keeping units to understand more about an item. By scanning the number, they’ll have information on where the product belongs. They can group items with similar SKUs together, making it simpler to count, record and manage inventory overall.
  • Inventory management: A major part of the stock keeping unit definition is inventory management. Whether you work at a retail store or warehouse, inventory constantly moves in and out. Customers buy products, then return or exchange them as necessary. SKUs help you keep track of these products as they return to stores. These codes assist businesses with maintaining an accurate count of products on their shelves. Inventory accuracy is crucial for overall business success.
  • Customer service: Stock keeping units can also help with enhancing customer experience. If a customer enters your store and requests a specific item, retail associates can type in the SKU code to quickly search the in-store stock. Then, they can accurately inform the customer about the item’s availability. This process streamlines a customer’s experience, keeping them satisfied during buying. You can also keep your stock more organized in your backroom with SKUs, which makes it easier for associates to retrieve products and bring them to buyers. 
  • Distribution: SKUs are particularly helpful for warehouse and stock management. Employees can use SKU codes to maximize the organizational space. By scanning the barcode, they can signal that a customer has purchased an item and keep inventory accurate. Employees can also use SKUs to find items more quickly, accelerating the distribution process. 

What Is the Difference Between SKU and UPC Codes?

UPCs, or universal product codes, are also used frequently in retail. If you’re new to inventory management, you might be confused about the difference between SKU codes and UPCs. Both of these codes are included on barcodes and used for inventory tracking.

However, the two units have some key differences, such as:

  • Format: SKUs use letters and numbers to identify products, and they can vary in length between four and eight units. In contrast, a UPC only uses numbers. UPCs are always 12 numbers in length. You can clearly distinguish between the two types by checking to see if it uses letters and if it’s any other length than 12 numbers long.
  • Purpose: SKUs and UPCs also have different purposes. While businesses use SKUs to track internal inventory, UPCs have different uses. The UPC symbolizes the company that manufactured the product. They have more external use, such as tracking a product’s progress through the supply chain. Overall, UPCs are for sales, while SKUs are for inventory.
  • Uniqueness: Every SKU is unique, according to the retailer’s preferences. But UPCs are the same across every product. The GS1 issues barcodes for items, and they’re identical in every area of the supply chain. For example, a pair of Air Jordan in size 9 would have the same UPC code as a size 10 Air Jordans.

The Benefits of Using SKUs

When you implement SKUs into your business, you could experience many benefits, including:

  • See sales trends: When you use SKUs to keep track of inventory, you can closely view sales trends. SKUs allow you to see how frequently customers purchase certain products. In turn, you can order more products to fill up the inventory. You can also use these trends to influence future sales plans. For example, if a product with a particular add-on was successful, you could implement this add-on into new items, as well.
  • Make product recommendations: SKUs differentiate products subtly. This means similar products are typically grouped together. If a customer wanted a certain item but it was out of stock, you could recommend another one with a close SKU. When you have multiple product types available for customers, this can increase customer satisfaction overall.
  • Enhance the customer experience: SKUs are excellent for customer experience. You can provide accurate information on item availability, keeping customers from trying to purchase out-of-stock items. Associates can also retrieve items quickly due to the improved organization and distribute them to customers rapidly.

Tips for Using SKUs

While there is no industry standard for creating and using SKU, some techniques make them easier to manage. These are some tips for using SKUs in your business:

  • Use an adequate length: Most companies aim for a SKU length of four to eight units. Anything smaller than six numerals might be too small for recognition, while codes beyond eight could be too large to handle. Consider how much unique inventory you have to determine how long of a SKU to use.
  • Order them by importance: Another tip is to place the most important symbol first in the code. What is most important will vary by retailer. For instance, if the product’s location is most crucial to your business, you can place that number or letter first. Then, associates can easily identify the significant trait first. 
  • Keep formatting simple: Keep your SKUs as simple as possible. Using dashes can help with readability and organization. Stick to using capital letters and numbers to make it easier. You should also avoid starting the SKU with an O or a zero, as those are easy to confuse.

Manage Your SKU Codes With Finale Inventory

Stock keeping units are crucial tools for inventory management. With more inventory efficiency, you can increase profits and maximize customer reach. 

At Finale Inventory, we understand the importance of efficient inventory tracking. We offer a variety of inventory solutions, including our cloud inventory management software. This tool can help you manage SKU codes, along with many other aspects of inventory. Our solutions can fit any business model, and they can seamlessly align with marketplace platforms like Amazon and shipping software like ShipStation.

For more information, contact Finale Inventory or request a demo today.