What is SKU? Definition, Examples and Benefits

What is SKU? In retail and inventory management, understanding what is SKU can greatly enhance inventory management and operational efficiency. In this article, we’re showing you what an SKU is, how it works and how you can use it to optimise and improve your business.

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What is SKU?

An SKU (Stock Keeping Unit) is a unique alphanumeric code that businesses use to track their products within their system. An SKU is assigned to a product to identify it and track inventory.

For example, a pair of running shoes might have SKU: RUN-RED-10, where "RUN" stands for running shoes, "RED" for red color, and "10" for size 10. These codes are created by businesses to represent specific details about a product, such as its brand, model, colour, size, or other distinguishing features. 

Examples of SKU Usage

Consider a clothing retailer managing various styles of t-shirts. Each variation of the product, be it size, colour, or design, would have its own SKU. For instance:

• A medium-sized, blue, V-neck t-shirt might have the SKU: M-BLU-VN.
• A large, red, crew-neck t-shirt could be assigned: L-RED-CN.
• A black smartphone might have the SKU: PHN-128-BLK, where "PHN" represents a phone, "128" indicates 128GB storage, and "BLK" stands for black colour.

This system allows the retailer to track each product variation for efficient inventory management accurately.

In an eCommerce setting, SKUs play a crucial role in order fulfilment. When a customer places an order, the warehouse staff can quickly locate the exact product by referencing its SKU, streamlining the picking and packing process. 

How SKUs Differ from Other Product Codes

While SKUs are internal codes created by businesses, other product codes like Universal Product Codes (UPCs) and barcodes serve different purposes:

• UPC (Universal Product Code): Standardised 12-digit numeric codes assigned to products for universal identification. UPCs are used externally and remain consistent across all retailers.
• Barcodes: Visual representations of data, typically in the form of parallel lines or patterns, that can be scanned electronically. Both SKUs and UPCs can be represented as barcodes to facilitate quick scanning and data entry.

5 Benefits of Using SKUs

Implementing SKUs in your business operations offers several advantages.

1: Improved Inventory Accuracy

Implementing SKUs enables precise tracking of each product variant. This reduces errors and discrepancies in stock levels. Businesses can monitor available inventory effectively to prevent both overstocking and stock shortages.

2: Streamlined Shipping

SKUs make the order fulfilment process more efficient by allowing warehouse staff to quickly identify and locate products. This, in turn, allows businesses to have faster picking, packing, and shipping. In the end, this reduces delivery times and minimises shipping errors.

3: Faster Picking in Warehouses

SKUs help organise products logically, making it easier for staff to locate and retrieve items quickly. This improves productivity and lowers labour costs.

4: Data-Driven Logistics and Decision-Making

SKUs also support a data-driven freight and logistics platform. By analysing sales data linked to specific SKUs, businesses can determine which products are selling well and which are underperforming. Owners can then refine their marketing strategies, inventory management and purchasing decisions from that data.

5: Enhanced Customer Satisfaction

Accurate inventory tracking lets customers receive the correct products promptly, reducing order errors and delivery delays. This smooth shopping experience boosts customer loyalty, encourages repeat purchases, and strengthens the business’s reputation.

4 Best Practices for Implementing SKUs

To maximise the benefits of SKUs, follow these best practices for consistency, clarity, and efficiency.

1: Use a Consistent Format

Having a structured format for SKUs makes inventory management easier. A system like [Category]-[Subcategory]-[Brand]-[Size]-[Colour] helps keep products organised and simplifies staff training. When employees can easily understand and apply SKU codes, inventory management becomes more efficient.

2: Avoid Confusing Characters

Avoiding ambiguity is another key factor in SKU management. Each SKU should be unique to prevent confusion. Similar-looking characters, such as ‘O’ and ‘0’ or ‘I’ and ‘1’, can lead to misinterpretation, potentially causing errors in stock tracking and order fulfilment. 

3: Keep SKUs Simple and Clear

It is also important to keep SKUs simple. While SKUs should include enough detail to identify products clearly, they should not be overly complicated. For example, a good SKU for a black men's running shoe in size 10 could be RUN-M-BLK-10. This SKU is structured, easy to read, and includes key product details.

In contrast, a bad SKU might be SHOE123456789BLACKMENSIZE10. This SKU is too long, lacks a clear structure, and is difficult to interpret quickly, making inventory management more challenging.

A short and meaningful code makes it easier for staff to use in day-to-day operations without unnecessary complexity. Striking a balance between detail and simplicity enhances efficiency and reduces errors.

4: Update SKUs as Products Change

Finally, businesses should regularly review and update SKUs to keep up with changes in their product range. As new products are introduced and older ones are phased out, SKUs should be adjusted accordingly. Maintaining an up-to-date SKU system ensures that inventory remains accurate and aligned with business needs.

By following these best practices, businesses can make the most of SKUs. Understanding what is SKU and implementing a structured approach to SKU management can significantly benefit retailers and eCommerce businesses.

SKU and How It Works

Understanding what is SKU and implementing it in your business is vital for effective inventory management in retail and eCommerce. If you are looking to improve your inventory management, start by evaluating what is SKU and how it can benefit your business. Embracing SKUs as part of your inventory strategy not only enhances operational efficiency but also contributes to improved customer satisfaction and profitability.

Boost Inventory Accuracy with Smart SKUs

Prevent costly stock mix-ups and shipping hold-ups. Partner with Couriers & Freight for effective SKU management and faster shipping solutions.

Get a Quote Now