What Is SKU? | SKU Number and Meaning

Scott Schulfer
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Your inventory is one of your company's most valuable assets. Second only to its invaluable human labor. When you have a tidy SKU number system behind your inventory, it gets even more valuable.

That’s because you reduce your sitting inventory. You eliminate the pesky backorder. You sharpen up your purchase orders. In short, you smooth your entire inventory management process.

Here’s the meaning of SKU, how SKUs are constructed, and the benefits of using them.

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SKU Meaning: What Does SKU Mean?

A SKU number is a unique code assigned internally to a product. It helps track it as it moves through the inventory pipeline. SKUs enable organizations to search and identify stock from inventory counts. As well as cycle inventory, invoices, and purchase orders. SKUs are widely used in the field of inventory control and inventory management.

SKU numbers are typically between 8 and 12 numbers and every single character in them means something. Creating a SKU isn’t hard. You can make several SKUs for your business with a free SKU generator.

When generating SKUs, keep in mind that SKUs are not universal. They are only used internally and each organization that uses SKUs is responsible for its architecture.

Here’s what a SKU number looks like:

SKU number and barcode
Image from Shopify

SKU numbers are often located above barcodes, as in the image above.

What Does SKU Stand For?: A SKU Definition

SKU stands for “Stock Keeping Unit.” SKUs allow businesses to accurately track inventory. That's because each product is associated with a unique SKU code.

What Is SKU Number? Parts of SKU Number

SKU numbers are made of three distinct parts. The top-level identifier, the middle numbers, and a sequential number at the end.

The top-level identifier of a SKU number is the first two or three alphanumeric characters. These represent the broadest possible categorization level. They could represent a department within a store, a category of goods, or a supplier. It provides the most basic information about the product. From there, the numbers begin to represent more specific information.

The middle two or three numbers represent the product’s unique features. This is the mid-level identifier. It typically refers to the item type, gender, brand, color, size, or some other subcategory.

Finally, the last two to three numbers are sequence identifiers. Let’s say we’re adding SKUs to large blue teddy bears. The first large blue teddy bear would end with a sequence modifier of 001. The next 002, and so on. That way the SKU number also communicates the order in which the inventory was acquired and processed. Along with the total number of inventory items present.

SKU Number Examples

Let’s take a look at building an example SKU number.

Consider a coffee roaster.

Category Top-Level Identifier Item Type Mid-Level Identifier Sequence Identifier SKU Number
Whole bean 004 Arabica 22 001 00422001
Whole bean 004 Robusta 23 001 00423001
Whole bean 004 Robusta 23 002 00424002
Ground 006 Arabica 22 001 00622001
Ground 006 Robusta 23 001 00623001

Each SKU number in the far right column is a collection of the three different identifiers. This is the most basic SKU number structure out there.

It can get a touch more complicated if you’re using different identifiers.

An identifier like supplier, for example:

Supplier Code Category Top-Level Identifier Item Type Mid-Level Identifier Sequence Identifier SKU Number
Thorndale Farms TF Whole bean 004 Arabica 22 001 TF00422001
Thorndale Farms TF Whole bean 004 Robusta 23 001 TF00423001
Pruitt Estates PE Whole bean 004 Robusta 23 002 PE00424002
Thorndale Farms TF Ground 006 Arabica 22 001 TF00622001
Pruitt Estates PE Ground 006 Robusta 23 001 PE00623001

Other SKU number identifiers can include store or location or department. Or really anything that will make it easier to categorize your products.

SKU Number vs UPC Codes

Unique numeric identifiers for individual products?

“Wait a minute, that’s a UPC code. Nice try, BlueCart! You almost had me.”

Not so fast! There’s a difference between a SKU and a UPC code. They’re similar, you’re right, but they’re used for different purposes.

SKU (Stock Keeping Unit) UPC (Universal Product Code)
Internal use External use
Between 8 and 12 characters 12 characters
Alphanumeric (letters and numbers) Numeric (only numbers)
Identified the traits of a product Identifies manufacturer and item
Retailers determine their own SKU architecture UPC codes issued by Global Standards Organization

The primary difference is internal and external use. SKUs are only used internally for inventory management purposes. They’re not used externally (with customers) and scanned at checkout like a UPC is.

SKUs and UPC numbers should complement each other and not be identical. The SKU should identify the product traits. On the other hand, the UPC should identify the manufacturer, in general. A UPC code lookup website will allow you to search for different UPCs or Universal Product Codes.

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Why Use SKU Numbers?

Using SKU numbers is an inventory management technique that allows businesses to handle a multitude of things that would otherwise be much more difficult.

SKU numbers:

  • Help businesses track inventory. From a producer’s end, finished goods inventory can be tracked for accurate counts. It also simplifies SKU rationalization, which is the process of assessing which high demand products to keep and streamlining warehousing data. From a retailer’s end, inventory on-hand ready for sale is readily available when SKU numbers are scanned upon arrival. They’re updated in real-time via perpetual inventory.
  • Make inventory counts easier. Taking physical counts of inventory becomes much easier when every unique item and product variation has a unique SKU number. That’s because inventory categorized by SKU is better organized and more easily identified.
  • Enable companies to identify shrinkage. Inventory shrinkage affects everyone’s bottom line, often quite substantially. However, its effects can be diminished. When SKU neatly categorizes inventory, areas of the pipeline with lost, damaged, and obsolete products can be isolated. Once you’ve pinpointed the weak spots in your inventory management, you can set about fixing them. You can also set about instituting new inventory management tips and methods. These include ABC inventory analysis, just in time inventory, dropshipping, consignment inventory, or product kitting. Some methods may work better or worse based on how you operate your supply chain, including food supply chain, and pipeline. Overseeing your SKUs is one way to find out.
  • Assist in setting an accurate reorder point. Using SKU numbers introduces a granularity into your inventory management that makes gauging stock levels easier. Every product variation will have its own SKU and accurate inventory counts. That makes setting different reorder points for different types of inventory easier. In turn, that allows you to get inventory when you need it, but also avoids ending up with excess inventory when you don’t.
  • Aid in calculating—and boosting—revenue and profits. Using SKUs provides companies with detailed insight into their inventory levels and movement. Using that data, companies know which products have the highest inventory turnover ratio. Down to the very minute product variations. That means an inventory control manager can leverage that data when making purchasing decisions. Maybe bulk shipping is a better option based on your sell through rate. Companies can lean into focusing on the product variance with the most demand.
  • Related products. If a product is out of stock or if you’d like to recommend a similar product to someone, you can use SKUs. By changing the mid-level identifier of a SKU, you’ll get similar products but with slight variations. Blue instead of green, for example. Small instead of large. Deluxe instead of standard. Essentially, these are all products that would be grouped together in a line sheet. Use the natural and logical categorization of SKU numbers in the interest of discoverability. They will be useful on your online marketplace or digital storefront.
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SKU the Results in Your Favor

Useful SKU numbers are the result of organizations that put time into creating meaningful SKU architecture and organization. You can even find some companies' SKUs online by conducting a SKU number lookup. The more logical and informative your SKU numbers are, the easier it’ll be to leverage them for smoother inventory management.

Remember, SKUs help track specific products, and they’re not universal. It’s up to each business to uniquely integrate them into their business. They’re a tool, so they’re only as good as the person using them. 

Put some effort into creating your SKU system up front, and you’ll be sitting pretty down the line. You'll also want to make sure to keep them in your system even if you remove products from the warehouse in an act of inventory reduction. This will ensure you can help any customers who have issues with discontinued products.

SKUs and POS Systems

A POS System is also known as a Point of Sales system. The average retail store uses these POS systems in order to track their inventory and process payments. You can grow your business with such a system since it makes it easy to keep track of inventory going in and out. This is especially true with the use of a SKU number.

As you sell products, the SKU number will be scanned. The SKU is also one of the model numbers of your product making it easier to identify. Once the product is scanned and sold, it will automatically come out of your inventory.

It’s simple to automate this process when you connect your Point of Sale (POS) system with your inventory management software. This way, you can easily track inventory and sales. 

Frequently Asked Questions About SKU Number and SKU Meaning

What Is SKU Number?

A SKU number is also referred to as a “Stock Keeping Unit” and it’s a number that businesses use to track specific products. Each product will have a unique SKU number associated with it. These numbers are assigned based on the product characteristics including color, style, size, type, manufacturer, and price. The inventory tracking process is much simpler with SKUs. 

How Do I Find a SKU Number?

A SKU number can be found on the product’s packaging, typically above the barcode. The SKU code is an alphanumeric code whereas the UPC code or Universal Product Code is a 12-digit numeric code. 

Is SKU the Same As a Product Number?

SKUs are not the same as the product number. Manufacturers assign product numbers whereas SKUs are used for identification purposes. They're used by different marketplaces, warehousing companies, eCommerce fulfillment centers, eCommerce sites, and a digital catalog.

BlueCart is a comprehensive eCommerce software solution for wholesalers, small businesses, dropshippers, and hospitality establishments. We offer a complete set of tools including unlimited digital catalogs, shipping and delivery route management, integrated payment processing, and SEO-ready digital storefronts. Book a demo now to see how BlueCart can save you money and streamline processes today. Note that product demos are a walkthrough of our software, not a source of business advice.

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