SKU (Stock Keeping Unit): Meaning, Use, and Effective Management in Logistics

What makes a company's processes more complicated? The most important ones are many and very different. When we look at the supply chain, the biggest problems are the variety and location of suppliers, the logistics and distribution issues, the type of product – moving fresh produce is very different from moving screws – and the fact that demand can change at any time.

The abundance of technical terms can easily overwhelm someone unfamiliar with the realm of online business. A key tool for ensuring proper order processing is the SKU, an abbreviation SKU that stands for Stock-Keeping Unit. 

A stock-keeping unit (SKU) is the identifier that stores use to make note of what they have in stock. Assigning stock-keeping units to products is crucial in e-commerce, since it helps businesses organize and manage their inventory more effectively. The stock-keeping unit is an integral part of your logistics and sales growth strategy. Reason enough to pay more attention.

The number of products a company sells is another thing that affects how complicated the process is. The more SKUs a company has to deal with, the harder it is to run. In this article, we discuss SKUs and how to manage them well.

What is an SKU (Stock Keeping Unit)? Definition & Meaning

The question “What is an SKU?” is frequently asked by those working in the logistics industry. Understanding the SKU meaning is crucial for efficient operations. In addition to being one of a kind, it displays the product's registration number. It is also referred to as an SKU code and an SKU number by certain people.

A stock-keeping unit is a number that is assigned to each individual item in an inventory. In their most basic form, they are a shortened manner of referring to a certain thing.

When it comes to keeping track of their product catalogs, it may be challenging for any company, regardless of whether they operate a physical store or an online store. When it comes to maintaining order and orderliness, stock-keeping units are of utmost significance.

Each SKU number is unique and different for each sales unit of a product. A sales unit is the least amount of a product that can be sold. For instance, a pair of shoes gets one SKU number because they are only sold as a pair.

Most of the time, the company's ERP system gives the SKU number. A number is given to each item that is put in the warehouse. With the SKU code, you can find out exactly where a certain item is or if there are enough of them in stock. This lets you keep an eye on and manage the stock in the warehouse.

Functions of an SKU number

To differentiate themselves from other methods of coding items, every company creates its own stock-keeping units. SKUs are used by retailers to assign a unique code to each individual item that is stored in their inventory management software. It is possible to modify them to fulfill the requirements of clients or vendors and to accurately monitor stock levels.

SKUs serve several key functions, including:

• Business analysts and merchandising managers: They can benefit from SKUs since they allow for the categorization of items according to their profit margins. Among other things, you may use this data to forecast sales and determine your profit margin.
• Inventory Management: By scanning SKUs, any organization may keep track of incoming and outgoing items, whether for sale or internal usage. As a result, companies can avoid having excess or obsolete inventory and make more informed purchasing decisions.
• Assisting Customers: Stock-keeping units can direct management to the correct location for returning a damaged item to the manufacturer or wholesaler or help an employee locate a customer's requested item on the shelf.
• Marketing and Advertising: Stock-keeping unit (SKU) data, including color, size, and other details, can help the marketing department determine whether goods are selling well and whether demand is fluctuating. If a product is offered in many locations inside the same shop, such as on end caps or at the register, a unique SKU might help you track where a consumer purchased it and refill it accordingly to maximize sales.
• Online retailers: They can use product recommendations to encourage customers to purchase more costly or complementary products by suggesting items with comparable SKUs or within a certain set of SKUs. You can increase your company's growth and profitability by doing this.

How do you create SKU numbers?

Stock-keeping units, often known as SKUs, can be produced using various approaches. It is common for organizations with fewer than one hundred employees to be able to generate their own stock-keeping units (SKUs) manually, although bigger businesses often choose to use automated systems.

Creating a coding system that is capable of accurately identifying all the numerous product kinds that are present in your inventory is required to generate SKU numbers. This is because you will need to generate SKU numbers. Because our in-house SKU generator enables you to add or remove data items, your inventory management, search, and analysis activities will be simplified. This is because you will have the ability to easily add or delete data items. Nevertheless, this is not the same as traditional codes such as UPCs or EANs. This is a significant difference.

Here are the steps to make SKU numbers:

1. Figure out what information you want your SKUs to have.

Before you make the numbers, think about what features are important for finding your products. Some things that are common are:

• For instance, SHRT is for shirts, and BOTT is for bottles
• Brand or supplier, such as NIKE or HM size (for example, S, M, L, or 250ML)
• BLK for black and WHT for white are examples of colors or styles
• A number or ID for the variant, like 001 or 002

2. Choose a format that doesn't change

Use a format that makes sure all of your SKUs are the same. A good SKU is usually 8 to 12 characters long and has dashes or underscores to make it easier to read.

3. Use codes that are short and easy to remember.

Stay away from characters that could be confusing (like O vs. 0) and use short forms that are easy to understand. Make sure your codes are the same:

T-shirt = TSH, Medium = M, Red = RD, Jacket = JCK

Make sure everyone uses the same short forms by keeping a list of codes or a dictionary.

4. Don't Use Spaces or Other Characters.

You can only use letters, numbers, hyphens (-), and underscores (_). Don't use symbols like /, #, or @ that might not work with databases, scanners, or online stores.

5. Create SKUs that can grow.

Make sure your SKUs can grow as your business does. Make sure your number sequences leave room for new sizes, colors, or categories. For example, use 001 instead of 1.

6. Create and keep a master list of SKUs.

Keep a central file or spreadsheet with all the SKU numbers and other details about each item. This helps keep your system in order and stops things from happening more than once.

Example of an SKU

This is an example of a complete SKU format made just for one business. For example, let's say it's a business that sells bags and backpacks in a range of colors and styles.

One possible SKU code is “JWA-9315-SR.”

This code tells you what product it is:

• The first three letters, "JWA," stand for the brand and the type of product
• The next four numbers, 9315, tell you what kind of product it is
• Finally, the last part of the number, SR, has to do with the color of the product

If your business sells many different things from different brands, the brand name might be a better choice for the most general feature. For instance, if the company sells backpacks from Fjällräven and Eastpak, the SKUs could start with "FJA" or "EAS.”

When looking at the SKU code, it's best not to use the letter "O" because it can be mistaken for the number 0. If you want to use lowercase letters in the SKU code, you can't use an "I" like "Ida" or a lowercase "L."

Where can I find the SKU number?

You can usually find SKU numbers in these places:

• The packaging for a product usually has the manufacturer's stock-keeping unit number on it. You might be able to tell what it is by looking for a small label or number that is printed on it.
• When you sell something, you can put the SKU number on the receipt that goes with the item description. 
• The price tags that are used in traditional brick-and-mortar stores often have the stock-keeping unit numbers on them.
• Ways to manage stock levels: Every item you sell will have a SKU in your point-of-sale (POS) or inventory management system. 
• These are the things that are in doubt right now: Most online stores that sell their products on sites like Amazon and eBay include SKU numbers in the product data section of their listings.

What is the difference between SKUs and other identification codes?

Both traditional stores and online stores use Stock-Keeping Unit codes to keep track of their inventory. Most of the time, they tell you about the product itself.

European Article Numbers, or EAN codes, are barcodes that are used all over the world and have thirteen digits. By giving each item in their inventory a number, EANs help retailers see the full range of products they offer.

A Universal Product Code (UPC) code is given to every header product and every item that is bought through a point-of-sale system. A number is in a barcode, and this code is a number. Most of the time, UPCs are used in North America's retail sector.

Comparison Table: SKUs vs Other Product Identification Codes

Summary:

• Businesses use small-scale units to keep track of things in their inventory. The SKU meaning lies in these codes, usually containing important information like what kind of product it is, how big it is, or where it is.
• GS1 oversees making sure that UPC and EAN codes are used correctly. These codes are used all over the world to identify items at the point of sale.
• An ISBN is a special name for books that helps publishers and stores keep track of and distribute books.
• When you buy something, it gets a serial number so you can keep track of warranties, repairs, or ownership.

If you're responsible for keeping track of things in your own business, use SKUs. If you sell your goods in stores or around the world, you will also need UPCs or EANs. For books, it's the ISBN. Using serial numbers makes it possible to keep track of certain items.

Ways to create SKUs

It takes both art and science to make SKUs. You need a system that makes sense, can grow with your business, and is easy for your team to use. You should be able to keep track of, organize, and report on your inventory efficiently with SKUs. Here are some helpful ways to make SKUs, along with a chart that shows how they compare.

Automated SKU creation

A lot of the time, inventory management and point-of-sale (POS) systems make item numbers for their users.

If you have many products and your business is growing, you should use inventory management software. It makes it much easier to add and manage products.

Frequently, manufacturers assign stock-keeping units to their items. As long as you sell the products of other manufacturers, you can utilize their stock-keeping units (SKUs) for your own firm.

It is also possible to create SKUs via various websites and mobile applications. Additionally, several of these applications include other services that are connected to the primary function, such as the ability to create labels and assistance with shipping.

Manual SKU creation

For small businesses that don't have many products, you can make and add SKUs by hand. In this case, you should follow some rules for making an SKU.

Being short

Make the SKU short. Most of the time, you should try to keep it under 10 or 12 characters. This makes the SKU work with most inventory management systems and makes it easier to change if you need to.

Easy to understand

When it comes to SKUs, one of the nicest things about them is how simple it is to utilize them. You should avoid making your various SKUs very convoluted; instead, you should utilize only letters and digits.

Furthermore, it is essential to ensure that stock-keeping units do not begin with a zero, as this might make it difficult to monitor inventory using straightforward inventory tools such as Excel. This is also true for special characters such as "*," "@," and "#." You ought to steer clear of them since they are susceptible to being misunderstood.

Uniformity

In addition to this, uniformity is an essential component of SKUs. The stock-keeping unit often begins with the characteristic of the product that is the most universal. Take, for instance, the possibility that this is the name of the product. Following that, the criteria are narrowed down even more to include things like the sort of goods, their size, and their color.

Being one of a kind

To avoid any problems, you should make sure that each of your SKUs is distinct. If you do not, you run the risk of experiencing the identical issues that stock-keeping units (SKUs) are designed to prevent: inventory mix-ups and shipment delays. 

If you adhere to these guidelines, you will be protected in the years to come. When your company expands and you want more sophisticated inventory management systems, stock-keeping units (SKUs) that are straightforward, consistent, and one-of-a-kind will ensure that your operations continue to function smoothly and allow you to expand as required. You may also use this method if you only want an additional set of SKUs.

Advantages of SKUs for e-commerce

When we have a better knowledge of what a stock-keeping unit is, we will be able to go on to examining the benefits that come with having one in your possession. There are a number of benefits that are gained by firms via the utilization of stock-keeping unit systems. A few examples of these benefits are an increase in the precision of inventory, an improvement in customer service, and the ability to analyze sales data and identify patterns in the market. Not only do these benefits improve the overall performance of logistical operations, but they also make the supply chain more efficient, which in turn leads to an increase in total efficiency.

Tracking Inventory

It is much simpler for a company to have an accurate and up-to-date picture of inventory levels when they use SKUs. This is true regardless of whether the company is monitoring automobiles, apples, hinges, sunglasses, paint cans, toilet paper, or anything else.

Easy Inventory Counts

It is possible for a company to rapidly take stock of everything it has on hand for physical inventory counts by providing members of the team with a physical or digital list of items organized by SKU information.

Finding Shrinkage

If you know which SKUs are disappearing, you can figure out what's wrong and fix it. This could mean changing security plans or ordering fewer items that are likely to get lost.

Replenishing Inventory

If someone wants to buy something from your business, you need to have it in stock. You can tell when an item is running low by keeping an eye on SKUs. This way, you can place an order for more before you run out. If another SKU is selling more slowly than you had hoped, you might want to wait or cut back on the size of your order.

Identifying Profitable Items

A business can quickly figure out where most of its profits come from by looking at the sales volume for different products and knowing the gross margin for each SKU. It can then look for new ways to sell these important items and may think about making a new version or color of these tried-and-true products.

Preparing for Seasonal Shifts

SKUs are critical for getting ready for seasonal changes because they let businesses keep track of and analyze how well each product does over time. Companies can figure out which items have seasonal demand changes by looking at SKU-level data. This helps them change their inventory levels, find the best places to store items, and plan their marketing strategies for the next peak season.

Best Practices for SKUs

Lastly, we'll discuss the best ways to keep your inventory management system efficient, scalable, and easy to keep up with. A good SKU strategy makes things run more smoothly inside the company and also makes sales reports more accurate, speeds up fulfillment, and makes customers happier.

Ensure Cross-Channel Consistency

Your SKUs must be the same no matter where you sell them, whether it's on your own website, on third-party sites like Amazon or eBay, or in stores. This consistency makes it easy to tell what each product is, no matter where it's sold.

This is important for:

• Keeping track of inventory correctly;
• Unified sales reports;
• Easier returns and exchanges;
• Simplified reordering and restocking.

Using different SKUs on different platforms can cause confusion, mislabeling, and inventory problems, especially when you sync your sales and fulfillment systems. Set up one place where you can keep track of all your SKUs and connect it to all of your online and offline channels.

Document Your SKUs

Keep detailed records for your SKU system, such as:

Your SKU structure is [Category]-[Brand]-[Color]-[Size]-[ID].

A list of codes and abbreviations that are used (for example, BLK = Black and MED = Medium).

How to add new SKUs, keep track of versions, and avoid duplicates?

This documentation serves as a reference guide that helps your team stay on the same page. It's especially helpful when:

• Teaching new workers
• Checking the stock
• Moving to a new system for managing inventory
• Fixing problems with stock differences

You can keep it on a shared drive or in an inventory management system, and you should update it often as your product catalog changes.

SKU Audits

When you add more products to your line, your SKU database can get messy with old, duplicate, or incorrectly formatted entries. Regular SKU audits (like every three or six months) help keep your system clean and running smoothly.

Here are some best practices for SKU audits:

• Finding SKUs that are no longer useful or are no longer available (like discontinued products)
• Combining duplicate SKUs
• Fixing names that aren't consistent
• Making sure that digital and physical stock are in sync

A well-organized SKU database not only speeds up operations, but it also stops stockouts, overstocking, and miscommunication between departments. Add SKU audits to your regular inventory management routine.

Common Mistakes in the Use of SKU Numbers

If not used correctly, SKUs can cause confusion and make things less efficient, even though they can be helpful. Some common mistakes are:

• Formatting that isn't consistent: It's difficult to read and keep track of SKUs when they have letters, numbers, and symbols in different patterns across categories.
• Too much detail in one SKU (like full product names or full color codes) makes codes too big and full of mistakes.
• Lack of standardization: The system becomes unreliable when each team member makes SKUs differently.
• Using SKUs again: Using an old SKU for a new product makes it very difficult to report, track, and audit.
• Not writing it down: It becomes guesswork to decode or make new SKUs without a central reference or dictionary.
• Errors made by hand: Typing mistakes when entering SKUs during order processing or stock updates can lead to wrong shipments or inventory mismatches.

To keep your SKU system working, growing, and free of errors, you should stay away from these mistakes.

SKU in Logistics

Because of their ability to provide exact monitoring, efficient storage, and correct movement of objects across the supply chain, stock-keeping units are an essential component in the field of logistics. Individual SKUs are used as a standardized identifier for the purpose of supporting logistics teams in matching items with purchase orders, shipping labels, and inventory information. This is done to facilitate the process of inventory management.

When it comes to the logistics business, the utilization of stock-keeping units (SKUs) offers a multitude of advantages, one of which is the promotion of a more expedient order selection and packing process.

• Distribution center routing that has been improved for more efficient operations
• Increased precision in the tracking of shipments
• A more accurate capacity to forecast demand and to replenish supply

Let's look at two of the most important areas of application.

Application in the Supply Chain

In the broader supply chain, SKUs serve as anchors for data integration. They are essential for:

• When it comes to supplier coordination, using precise SKU numbers is essential to preventing problems in both purchase orders and delivery schedules.
• Synchronization of inventory: Stock-keeping units, often known as SKUs, ensure that distributors, merchants, and manufacturers are all in accord with the items.
• Having accurate SKU data may be helpful when it comes to demand forecasting, since it can help determine which goods need to be restocked based on real-time patterns.
• One example of automated procurement is the utilization of stock-keeping units by inventory management systems to start reorders when stock levels reach a minimum threshold.

SKUs help connect upstream (manufacturers, suppliers) and downstream (retailers, customers) operations in a seamless flow of information and goods.

Application in Warehouse Management

In warehouses, SKUs are vital for:

• Maps of storage locations: Each stock-keeping unit is associated with a particular bin, shelf, or zone inside the warehouse.
• Inventory teams: They can swiftly verify on-hand stock by employing SKU scans, which allows for cycle counting along with audits.
• Pickers: They can use SKUs to guarantee that the proper item is packed, particularly in situations when goods appear to be quite similar to one another.
• Processing of returns: Items that have been returned can be confirmed and refilled in a short amount of time, depending on the SKU codes.

Using SKUs improves overall warehouse efficiency, minimizes human error, and shortens order fulfillment time.

Characteristics of SKUs on Online Platforms

When it comes to the organization of product data, the monitoring of listings, and the monitoring of inventories, online platforms rely heavily on stock-keeping unit numbers, often known as SKUs. Not only do the stock-keeping units (SKUs) that are utilized in digital contexts serve as internal codes, but they also serve as data anchors across a substantial number of different systems. Websites for online commerce, warehouses, and links for shipping are all included in these systems.

Key characteristics of effective online SKUs include:

• When it comes to compatibility with the platform, it is necessary for the SKU forms to be approved by the platform. For instance, when it comes to Amazon and Shopify, odd characters are not permitted.
• Each listing is needed to have a stock-keeping unit that is unique to it. This is done to prevent inventory from being duplicated or cross-contaminated with other items.
• There is a contrast between variations: to guarantee accurate stock monitoring, it is necessary to have individual SKUs for each size, color, and style.
• Having SKUs that are clear and informative makes it easier to debug listings and manage orders from consumers. This is because searchability is improved.

SKU on Amazon

To handle seller-side product listings, Amazon makes use of SKUs, which are also referred to as merchant SKUs. In contrast to UPCs and ASINs, which are used throughout the whole platform, SKUs on Amazon are individualized identifiers that are generated by the seller.

Important notes:

• Keeping units of inventory, also known as SKUs, are only available to the vendor, who is the only one who can view them.
• Individual sellers are responsible for assigning their own stock-keeping units, even when they are selling the same items as other merchants. This is the case even when the products are identical.
• When it comes to Amazon, a SKU needs to be different for each distinct description.
• Stock-keeping units, often known as SKUs, are the foundation of Amazon's inventory management system. These units are utilized to monitor and record information on sales, performance, and availability.

An effective SKU-Amazon might look like: TSH-BLK-M-AMZ2024

This can include product info, size, color, and channel identifier (e.g., "AMZ").

Integration of SKUs in E-commerce

In e-commerce operations, SKUs act as universal keys that connect:

• Product listings on multiple platforms (Shopify, Etsy, eBay)
• Inventory tracking systems (e.g., Cin7, TradeGecko)
• Shipping solutions and fulfillment software
• Analytics and reporting dashboards

Well-integrated SKU systems enable:

• Real-time stock updates across all platforms
• Centralized order management
• Accurate shipping and delivery info
• Seamless returns and restocking

Without SKUs, e-commerce businesses risk overselling, mismanaging inventory, or delivering incorrect products.

FAQ

Where to find the SKU on the product?

In most cases, the retailer or the manufacturer is the one who creates the SKU. The SKU may or may not be shown directly on the product packaging. The following locations, on the other hand, are where you will frequently locate it:

• On the label or tag of a product (which is often affixed by the vendor).
• Within your inventory management system or e-commerce platform (such as Shopify, Amazon, or WooCommerce), you will find more information.
• Located on the shelf label in traditional retail establishments.
• If you are responsible for administering an online store, you will find the product listing back end.

It is important to note that the SKU will not often be visible to customers unless it is purposefully put on a receipt or in the product description.

Is the SKU the same as the barcode?

No, SKU and barcode are not the same. They serve different purposes:

In a nutshell, the stock-keeping unit offers assistance in inventory management, while the barcode guarantees universal product recognition at the point of sale or in supply chains.

How to get the SKU number for my product?

You make your own SKU numbers; they aren't given to you by someone else. This is how:

• List the product's features, such as its type, color, size, and brand.
• Make sure that the format is always the same (for example, TSH-BLK-M for T-shirt, black, medium).
• Before putting it in your inventory system, make sure there aren't any duplicates.
• Use it on all of your platforms, like your website, warehouse software, and third-party channels.

Tip: Make sure your team can easily make new SKUs by keeping a master list and following a naming convention.

How to avoid having too many SKUs?

Too many SKUs can make your inventory system too busy and raise your holding costs. To keep from having too many SKUs:

• Limit variations unless there is clear demand (for example, don't offer 10 colors if only 3 sell well).
• Stop selling SKUs that aren't selling well to make room and save money.
• When possible, group items together to make each SKU less complicated.
• Check your product line often and get rid of any entries that are no longer useful or are duplicates.

Keep in mind that more SKUs means more work. Keep it simple and based on data.

How to prevent duplicate SKUs?

Duplicate SKUs can lead to stock mismatches, shipping mistakes, and corrupted data. Here's how to stay away from them:

• Use a centralized POS or inventory system that marks duplicates.
• Everyone should follow a clear SKU structure and naming policy.
• Use automatic SKU generators or templates that add-on ID numbers.
• To get rid of duplicates, you should do regular audits of your SKU database.

Your best defense against accidentally duplicating something is to be consistent and keep records.