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 product inventory management process when you use and create SKUs.
SKU numbers are important to have in any retail store. They keep track of inventory and are useful to have for POS systems.
Here’s the SKU meaning, how SKUs are constructed, and the benefits of using them.
SKU Meaning: What Does SKU Mean?
SKU stands for "stock keeping unit" and it's a unique code assigned internally to a product. SKUs are useful whether a company does warehousing, dropshipping, or both. It's helpful for product tracking 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 with an inventory management system.
SKU numbers consist of numbers and letters. They are typically between eight to 12 letters and numbers, and every single character in them means something. Creating a SKU may seem hard, but it doesn't have to be. You can make several SKUs for your business with a free SKU generator.
When you create 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 one SKU number looks like:
SKUs are often located above barcodes, as in the image above.
What Does SKU Stand For?: SKU Meaning Explained
SKU stands for “Stock Keeping Unit.” SKUs assist businesses in tracking product inventory. That's because each product is associated with a unique SKU code. It's important to have a SKU architecture in place and create your SKUs in an organized fashion so you and your staff aren't confused by varying SKU methodologies later on.
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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 specific items. 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 also communicates the order in which the inventory was acquired and processed. Along with the total number of inventory items present.
2 SKU Number Examples
Let’s take a look at building an example SKU number.
Consider a coffee roaster.
Each SKU 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:
Other SKU identifiers may include store information, location information, or department information. Or really anything that will make it easier to categorize your products.
SKU Number vs. UPC Codes
Unique numeric identifiers for individual items?
“Wait a minute, that’s a UPC code. Nice try, BlueCart! You almost had me.”
Not so fast! When it comes to SKU vs UPC code, there are a few differences to keep in mind. They’re similar, you’re right, but they’re used for different purposes.
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.
Why Use SKU Numbers?
Using SKU numbers is a product inventory management technique that allows businesses to handle a multitude of things that would otherwise be much more difficult.
- 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 brick and mortar or online retailers 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. 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 items 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 restaurant 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 products inventory levels and movement. Using that product data, companies know which products have the highest inventory turnover ratio. Calculating turnover is possible with the inventory turnover formula. 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 going to go 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.
SKUs and POS Systems
A POS System is also known as a Point of Sales system. The average retail store use these POS systems for tracking their products inventory and process payments. You can grow your business with such a system since it simplifies inbound and outbound inventory tracking. This is especially true with the use of a SKU number.
As you sell products, the SKU will be scanned. The SKU is also one of the model numbers of your product making it easier to identify. Once you sell the product and scan it, it will automatically come out of your products inventory.
Need a better SKU process for your own business? Grab our free SKU generator template here.
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 products inventory and sales through SKU management.
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 associated with it. These numbers are assigned based on the product characteristics including color, style, size, type, manufacturer, and price. The product 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.
Where Is SKU Number Located?
SKUs are located on tags attached to every product in a store or warehouse's inventory. A SKU (Stock Keeping Unit) is a system used by lots of businesses it makes it easier to track inventory. A customer might refer to your “sku number” if they’re asking for the number on a product tag or label.
Is SKU number same as model number?
In one sense, yes. A model number is used to differentiate versions of the same product. Therefore, a model number represents a variation of one specific product. For example, a product can come in Standard, Deluxe, and Premium versions. All of these variations are given the same model number. Both SKU and model number are used by either staff or a customer to identify products, but their purposes are different. The model number identifies the product. The SKU identifies the product’s location or warehousing shelf within a store.
Is the SKU the serial number?
The SKU number and the product’s serial number are two different things. The SKU is a code that can be used to identify a product. The serial number is an individual identifier for a specific unit of that product, and aside from reviewing purchase records, only a customer has access to a serial number. The serial number is assigned to each specific unit as it is manufactured, while the SKU code is assigned to the product at the time of inventory or sale. If your company uses serial numbers, it’s important to keep the two nomenclature systems separate so that you don’t confuse one for the other. If you’re unsure what your serial number is, check with your manufacturer before creating your SKU system or products inventory process.
Do I need a SKU number?
If you’re in retail, yes. With a few exceptions, like food and car parts, all products should have a unique identifier, and that identifier should be included on all sales orders. If you’re in the business of making products, you have a few options. You can create your own system, you can use an existing numbering system, or you can use a third-party vendor’s numbering system. That last one is generally easier and less of a hassle. In fact, you can use an existing numbering system. But if you don’t, you should start with the first option. Before choosing a numbering system, make sure you understand both how your customers buy your product and information that's useful when you sell it. Know your supply chain’s limitations. Keep in mind that the numbering system you choose will remain with your product for the rest of its life.
Are SKU numbers universal?
To an extent, yes. But there are limitations. The Universal Product Code (UPC), which is the barcode number that is printed on most retailers' products, was designed to be used with North American industry practices. The European Article Numbering system (EAN) and the Global Trade Item Number (GTIN) are used in other parts of the world. For example, the UPC system uses 9 digits, while the EAN system uses 12 digits. So even though the systems are similar, they aren’t identical. But you can use the GTIN system to create a UPC barcode. So if you’re selling internationally, it’s important to find a system that allows you to use one number internationally.
How to find SKU online?
If you’re looking up a UPC or an ISBN, you can use one of many online databases to find it. It’s important to find the correct number, as there is often more than one product with the same number. With the GTIN, you can find the number in several different places. Find the number your manufacturer has been using for their product inventory. Find the number your wholesale distributor has been using for their inventory, or find the number your retail customers have been using for their inventory.
Do SKU numbers change?
No, they don’t. Once a product has been given a number, there’s no reason to change it. The only way a company might change a number is if they find out they’ve been using the exact same SKU as another company. That’s unlikely, though, if you’re following proper industry practices. If you come across a product with the same number as your product, it’s probably a different SKU or type of product. Some companies, like retailers, might use the same number for different types of products. If you find a SKU product with the same number as one of your products, it's best practice to check the database to make sure they haven’t made a mistake.
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 products inventory management. This is also crucial for SKU management.
Remember, SKUs are useful when performing internal tracking of 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 create and maintain the SKUs in your system even if you remove products from the warehouse in an act of inventory reduction. This will ensure you can help any customer who has issues with discontinued products.