What is an SKU number and how to use it for inventory management

What is SKU?

SKU — short for Stock Keeping Unit — is a unique number assigned to every product in your inventory. Every brand, product, and specific version of that product across different sizes, colors, and styles will have a unique SKU number.

SKUs are used primarily to track and organize inventory in manufacturing, logistics, ecommerce, and brick-and-mortar stores. By using SKUs, your business can easily keep tabs on stock levels and identify best-selling items.

So is the SKU the serial number? While customers will use the two terms interchangeably, those are two very different things. A serial number is a unique number assigned to each and every copy of a product, while the SKU is the number that represents the product as a concept. For example, say your business produces a single product in three sizes, and your first order is for 1,000 of each size. You would then have 3 SKUs and 3,000 serial numbers.

The benefits of using SKUs

By making it simple to manage inventory, SKUs can help you boost productivity, save money, and make smart business decisions. Here's what SKUs can do for you.

Inventory management

SKUs help you track your inventory levels at a glance, so you know when it's time to reorder without having to go look for the product on the shelf. SKUs can also help you better identify if specific products are being targeted for theft or fraud so you can take action.

Customer checkout and service

When a cashier rings up a product for sale in your POS system, SKUs can help you instantly update your inventory management system. This is especially important for ecommerce, as it ensures that there are products available in the fulfillment center when the customer clicks the buy button.

Increase speed in warehouse processes

SKUs make it simple to organize and categorize a product into different sizes, colors, and varieties. As a result, workers in your warehouse can zero in on the products they need to fulfill orders instead of searching through all the variations of a single product.

Sales forecast and catalog reinforcement

SKUs help you understand which products and types are your bestsellers and which spend too much time sitting on the shelf. By using SKUs to power business performance analytics, you can adjust future orders to have more of what people want in-stock, so you avoid tying up capital in products that few people want.

The difference between UPC vs SKU

This is another example of two terms that people sometimes use interchangeably but are actually different. A UPC — short for Universal Product Code — is the barcode used to track items in store. An SKU is unique to the business that is tracking it. Two different retailers that sell the same product will likely have two different SKUs, but the product will have the same UPC.

SKU vs UPC at a glance

How to create SKU numbers?

There are two ways to create SKUs: manually or by using an SKU generator provided by your inventory management software. There are also online SKU generators like this one from Zoho that make it easier to manually create SKUs.

When creating SKUs, POS software provider Magestore recommends thinking logically. The first 2-3 characters should be a top-level identifier that indicates something like product category. The next few characters should help narrow it down by indicating color, size, or subcategory. A sequential number at the end can then help you track versions so you can identify if you have old stock still sitting on the shelf.

SKU examples

Let's look at an example of SKUs in action. For example, a shoe store might organize their SKUs using the following hierarchy:

• Department (Men’s, Women’s, Kids, etc.)
• Type (Fashion, Running, Hiking, etc.)
• Vendor (e.g., the brand)
• Shoe style (e.g., the shoe model or type of shoe)
• Color (Red, White, Green, etc.)
• Size (8, 9, 10.5, etc.)
• Model year (2023, 2022, 2021, etc.)

Using this system, the SKU for the latest Men’s Size 8 White 2023 tennis shoe might be MEN-TN-WH-8-23, while the same shoe in last year's model, blue, and size 10.5 might be MEN-TN-BL-10.5-22.

SKUs are a critical tool for managing an important aspect of your business: your inventory. By leveraging SKUs to their full potential, you can increase your employee productivity while uncovering new insights that might help you optimize your product mix.