Stock Keeping Unit (SKU)

What Is a Stock Keeping Unit (SKU)?

A stock-keeping unit (SKU) is a scannable bar code, most often seen printed on product labels in a retail store. The label allows vendors to automatically track the movement of inventory. The SKU is composed of an alphanumeric combination of eight-or-so characters. The characters make up a code that tracks the price, product details, manufacturer, and point-of-sale.

SKUs may also be applied to intangible but billable products, such as units of repair time in an auto body shop or for warranties.

Key Takeaways

  • A stock-keeping unit (SKU) is a scannable code to help vendors automatically track the movement of inventory.
  • SKUs often appear as bar codes or QR codes.
  • Each item along with where it is sold will have its own unique SKU (but should not be confused with UPC barcodes)
  • SKUs help vendors determine which products require reordering and provide sales data.
  • SKUs are also used for units of repair time units, services, and warranties.
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Stock Keeping Unit (SKU)

Understanding Stock Keeping Units (SKUs)

SKUs are used by stores, catalogs, e-commerce vendors, service providers, warehouses, and product fulfillment centers to track inventory levels. Scannable SKUs and a POS system mean that it is easy for managers to determine which products need to be restocked. When a customer buys an item at the point-of-sale (POS), the SKU is scanned and the POS system automatically removes the item from the inventory as well as recording other data such as the sale price.

SKUs should not be confused with model numbers, although businesses may embed model numbers within SKUs.

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Image by Sabrina Jiang © Investopedia 2020 

Businesses create unique SKUs for their goods and services. For example, a store that sells shoes creates internal SKUs that show a product’s details, such as color, size, style, price, manufacturer, and brand. For example, the SKU for purple Ugg boots in the Bailey Bow style, size 6, may read "UGG-BB-PUR-06."

By adding SKUs to every product, store owners can easily track the quantity of available products. Owners can create threshold limits to let them know when new purchase orders must be made.

Why Are SKUs Important?

SKUs let shoppers compare the characteristics of similar items. For example, when a shopper buys a specific DVD, online retailers might display similar movies purchased by other customers based on SKU information. This method may trigger additional purchases by the customer, thereby increasing a company’s revenue.

SKUs also allow data to be collected on sales. For example, a store can see which items are selling well and which are not based on the scanned SKUs and the POS data.

Stock Keeping Units vs. Universal Product Codes

Because companies internally create SKUs to track inventory, the SKUs for identical products vary among businesses. Different SKUs help retailers design advertising campaigns without interference from other vendors.

For example, if a company provides the SKU to advertise a certain discounted refrigerator, shoppers cannot easily view the same refrigerator at other sellers based on the SKU alone. This stops competitors from matching advertised prices and poaching customers. In contrast, universal product codes (UPCs) are identical regardless of which business is selling the items.

SKUs Today

SKUs are making the shopping experience more efficient than ever before. For example, when shoe shopping in the past, clerks would have had to visually scour the back stockroom and hunt for a specific model of shoes in the correct size and color. Today, many retailers are equipped with portable scanners enabling salespeople to check back-of-the-store inventory by simply scanning a floor sample. Moreover, online shopping logistics are greatly improved and enhanced via SKUs.

Is a Barcode a SKU?

While SKUs are often depicted as barcodes, they are not always used for the same purposes. Barcodes on products at a store (known as UPCs), for example, are meant to identify products of the same type regardless of where they are sold. SKUs, on the other hand, will also uniquely identify the seller or vendor as well. In addition, UPC barcodes will typically feature only numbers, while SKUs are alpha-numeric and can vary in length.

How Can I Get an SKU for My Product?

SKU numbers will typically appear on a product along with its UPC barcode. Because SKU numbers are intended for the producer to keep track of items, they are not universally standardized - they are company-specific. That means that you can make up any SKU system that fits your needs for your products. Typically, you will want to create a system that maintains a consistent logic, starting with top-level identifiers followed by more unique product- and vendor-specific codes.

Why Would I Want an SKU Code on a Product?

Having an SKU code allows you to track products and sales more easily. This helps with inventory and supply-chain management. With an SKU it is less likely that the wrong item will ship to customers, and also assists in returns if needed.