SKU (Stock Keeping Unit) – what is it?

Stock Keeping Unit Definition

An SKU (Stock Keeping Unit) is a unique code assigned to each product or product variant in a warehouse management system, enabling easy identification, tracking, and inventory management. An SKU can contain a combination of letters and numbers, representing characteristics such as color, size, model, and other important parameters. Using SKUs allows companies to accurately monitor inventory levels, streamline logistics processes, and analyze product-specific sales, helping to optimize inventory and improve operational efficiency.

Application of SKU codes

SKUs are widely used in many areas of product management and sales . Here are some specific examples:

• Retail:
  • Brick-and-mortar stores: Facilitate product identification on shelves, during inventory and when handling returns.
  • Online stores ( Shopify Polska and Shopify Plus ): Used to manage the product catalog, integrate with payment systems, and track orders.
• Production:
  • Component tracking: SKU codes allow the identification of individual product components, which is especially important in mass production.
  • Quality Control: Facilitates tracking of defective products and determining the causes of problems.
• Logistics:
  • Warehouse management: SKUs are essential for organizing and locating products in the warehouse, as well as optimizing order picking processes.
  • Transportation: Allows you to track shipments and manage inventory across multiple locations.
• E-commerce:
  • Integration with marketplaces: SKUs are often required to publish products on platforms such as Amazon, Allegro or eBay.
  • Marketing: Helps analyze sales and the effectiveness of marketing campaigns.

How to create SKUs?

Creating an effective SKU (Stock Keeping Unit) requires careful attention to ensure the code is functional, unique, and easy to understand. Here are the steps for creating an SKU:

1. Determine the Structure : Decide how the SKU will be structured. This can be a simple alphanumeric code or a more complex system with multiple segments. A combination of letters and numbers is often used.
2. Identify Key Product Features : Identify the features you want to include in your SKU, such as product category, brand, size, color, material, or model.
3. Create a Format : Define the SKU format to be used. For example, you might choose a "Category-Brand-Size-Color" format (e.g., TS-NIKE-ML-BLACK for a Nike T-shirt, size M, color black).
4. Uniqueness : Ensure that each SKU is unique to avoid inventory management errors. Creating a system that automatically generates unique codes can be helpful.
5. Ease of Recognition : Create SKUs that are easy for people working in the warehouse system to understand and recognize. Avoid using overly complex or long codes.
6. Testing : Check how the SKU works in practice, make sure it is well integrated with the warehouse management system and that all employees understand its structure.
7. Documentation : Record the SKU format and its creation rules in your company documentation to ensure future consistency and allow for easy introduction of new products into the system.
8. Monitor and Update : Regularly review and update your SKU system to adapt to changing business needs, new products, or evolving categories.

SKU vs GTIN (EAN and UPC)

SKU, GTIN, EAN, and UPC are codes used to identify products at various stages of the supply chain. Although they serve similar purposes, they differ in their intended use and scope of application. The table below provides a detailed comparison of these codes:

Advantages of using SKUs

SKUs (Stock Keeping Units) offer numerous advantages that streamline inventory management and sales operations in retail. Here are the key benefits of using them:

1. Easy Inventory Management

SKUs enable precise identification of each product in a warehouse. With a unique number for each product variant (color, size, model), companies can track inventory and quickly locate specific products, making it easier to manage large inventories.

2. Accelerating the Inventory Process

SKUs make warehouse inventory faster and more accurate. Automatic SKU scanning using barcode scanners allows for rapid product counting and inventory updates, eliminating the need for manual checking.

3. Better Product Organization

SKUs enable better warehouse and store organization. Products are categorized by specific characteristics (e.g., category, brand, size), making them easier to sort and find. Warehouse workers can quickly identify where specific items are located.

4. Product Movement Tracking

SKUs enable the tracking of product movements—from the moment they arrive at the warehouse, through sales, and eventual returns. This allows companies to analyze data on the most frequently sold items, helping to forecast demand and optimize supply.

5. Better Customer Service

SKUs help retailers and customer service quickly identify product availability. If a customer inquires about a specific product, the SKU allows them to easily check its stock status, availability at other locations, or delivery times. This streamlines the purchasing process and improves the customer experience.

6. Operation Scalability

With SKUs, companies can easily scale their operations. As their product range grows, adding new products to the inventory system is seamless. SKUs facilitate management of a wide range of products, regardless of company size.

7. Sales and Promotion Optimization

Analyzing sales data by SKU allows companies to identify the best- and worst-selling products. This allows them to better plan promotions, phase out less popular products, and optimize offers to maximize profits.

8. Error Reduction

Using SKUs minimizes the risk of human error, such as errors in product identification, ordering, or shipping. Unique codes for each product allow for precise tracking and minimize errors that could negatively impact customer service.