What is meant by stock keeping unit?

A Stock Keeping Unit (SKU) is an alphanumeric code created internally by sellers to identify, receive, and locate their product inventory. More commonly known as a SKU (pronounced "skew"), this unique code is essential for effective inventory management and tracking.

Understanding the Stock Keeping Unit (SKU)

A SKU serves as a unique identifier for each distinct product or variation within a business's inventory. Unlike universally recognized codes such as UPCs or EANs, SKUs are proprietary to each company, designed to suit their specific inventory tracking needs.

Key Characteristics of a SKU:

• Internal Creation: SKUs are developed by businesses themselves, not by external organizations. This allows for customization based on product attributes and business logic.
• Alphanumeric Format: They typically combine letters and numbers, often incorporating details like product type, size, color, material, and year of manufacture.
• Unique Identification: It's a best practice for businesses to assign a unique SKU to each one of their products, ensuring that every specific item variant can be precisely identified and differentiated.
• Purpose: Primarily used for tracking stock levels, sales data, and product movement within warehouses and retail environments.

Why Are SKUs Important for Businesses?

SKUs are foundational for efficient operations, particularly in e-commerce and retail. They offer several significant benefits:

• Precise Inventory Management:
  • Easily track current stock levels for each product variant.
  • Reduce errors in picking, packing, and shipping.
  • Identify fast-moving and slow-moving items to optimize stock levels.
• Improved Sales and Analytics:
  • Analyze sales performance down to specific product variations.
  • Forecast demand more accurately, leading to better purchasing decisions.
  • Streamline reordering processes by knowing exactly what needs replenishment.
• Enhanced Customer Service:
  • Quickly locate specific products for customers inquiring about availability or details.
  • Facilitate efficient returns and exchanges by instantly identifying the exact item.
• Operational Efficiency:
  • Speed up warehouse operations for receiving, shelving, and dispatching goods.
  • Integrate seamlessly with Point of Sale (POS) systems, inventory software, and e-commerce platforms.

Anatomy of a Good SKU

While there's no universal standard for SKU creation, a well-designed SKU is typically logical, consistent, and provides meaningful information at a glance.

Example SKU Construction:
Consider a men's large blue cotton T-shirt from the 2024 collection. A potential SKU could be: TSH-M-BLU-LG-COT-2024.

Best Practices for SKU Management

To maximize the benefits of SKUs, businesses should adhere to certain best practices:

• Keep it Unique: Every distinct product variation (e.g., different size or color of the same item) should have its own SKU.
• Make it Meaningful but Concise: While SKUs should convey information, avoid making them excessively long or complex.
• Use Consistent Logic: Establish a standard format for your SKUs and stick to it across all products. This aids in data entry, searching, and analysis.
• Avoid Special Characters: Stick to alphanumeric characters and hyphens for readability and compatibility with various systems.
• Don't Use Manufacturer Codes: Relying on supplier codes can lead to confusion if you work with multiple suppliers for the same product or if supplier codes change.
• Consider Future Growth: Design your SKU system to accommodate new products, categories, and variations as your business expands.

By implementing a robust SKU system, businesses can gain unparalleled control over their inventory, optimize their supply chain, and ultimately enhance profitability and customer satisfaction.