SKU (Stock Keeping Unit) is a unique alphanumeric code assigned to a product to help businesses track inventory, sales, and logistics efficiently. SKUs are used by retailers, warehouses, and fulfillment centers to distinguish products based on attributes like size, color, style, or model.

Unlike barcodes, which are standardized across industries, SKUs are customized by individual businesses to fit their inventory management systems. They help with inventory tracking, restocking, and order fulfillment by ensuring products are easily identifiable and organized.

Many retail stores and e-commerce companies utilize SKUs over the traditional barcode or UPC method. 

UPC stands for Universal Product Codes, meaning that there is no variation or distinction between the numbers. They are random. But with a SKU number, you can distinguish the product size, color, and brand name if needed. 

SKUs’ integration in the fulfillment and inventory management world caused an influx of e-commerce companies, more than we have ever seen before. They are now a vital part of every online, retail, or e-commerce business out there. 

Key Characteristics of an SKU

1. Alphanumeric Structure
   • SKUs consist of a combination of letters and numbers, which can represent specific product attributes like size, color, type, or style.
   • The alphanumeric structure allows businesses to create codes that are meaningful and organized for inventory tracking.
2. Unique Per Business
   • Unlike globally standardized barcodes like UPC (Universal Product Code), SKUs are unique to each business.
   • Each business can create its own SKU system based on its product range and inventory management needs.
3. Customizable to Fit Different Business Needs
   • SKUs can be tailored to suit different industries, product lines, and business models.
   • Businesses have the flexibility to adjust SKU formatting, adding elements like brand, category, or location codes to suit their operational requirements.

These characteristics make SKUs an essential tool for businesses to organize their inventory, track products, and optimize supply chain operations.

SKU vs. Other Identifiers

Why Use a SKU?

So, what’s a SKU number? SKUs are known as a Stock Keeping Unit, which are unique to every company that uses them. It is a series of numerical and alphabetical sequences. The SKU’s meaning is that it can help retail and e-commerce businesses trace their products. Tracking business inventory helps these businesses keep track of products they need to order and what they have in store or warehouse. 

SKU took over barcodes or UPC because it was far more convenient and easier to manage. A rise of several companies regarding e-commerce use SKUs for its various businesses, including personalization of codes to keep all the employees and employer on one accord. 

The development of SKU has caused an intense surge in the e-commerce business in the past ten years. It makes it easier to calculate all of your inventory. It also makes keeping track of product shipment coming and going within the warehouse easier and more organized.

How to Create an Effective SKU System (Step-by-Step Guide) 

Creating a SKU does not require a complicated system or formula like one may think. It can seem confusing at first, but SKUs vary from business to business, because as stated before, SKUs are made unique and personal to every company and their products. The most critical part of creating a SKU is to make it unique to your business. 

Every business using SKUs should strive to make their SKUs easy to read and understandable to everyone within their company, from the employee in the warehouse to the company’s CEO.  

E-commerce businesses are now able to outsource their warehouse and fulfillment positions to third-party logistics companies. This reasoning is because even third-party warehouses utilize SKUs to keep all their products and inventory organized. 

Here’s a step-by-step guide to help you set up a well-organized SKU system:

Step 1: Decide on a Logical SKU Format

• Categorize Products: Start by grouping your products into broad categories (e.g., electronics, clothing, accessories).
• Add Product Attributes: Include specific details such as brand, size, color, style, material, or other relevant attributes.
• Create a Consistent Structure: For example, use a format like:
  • Category-Brand-Size-Color (e.g., ELEC-SAMS-32IN-BLK for a 32-inch black Samsung TV).
• Ensure that each SKU clearly represents the product characteristics for easy identification.

Step 2: Keep It Consistent Across Systems

• Synchronize Across Platforms: Your SKU system should be consistent across all systems (e.g., Point of Sale (POS), warehouse management, website, inventory software).
• This consistency ensures smooth inventory tracking and reduces errors, making it easier to manage stock, orders, and sales.
• Make sure all stakeholders (warehouse staff, sales team, and e-commerce platform) follow the same SKU conventions.

Step 3: Avoid Confusing Characters

• Clarity is Key: Avoid characters that can be easily confused, like the letter “O” and the number “0”.
• Keep the structure simple and legible, ensuring that each SKU is easy to read and interpret.
• Use a consistent character set (e.g., avoid using both uppercase and lowercase in the same SKU).

Step 4: Make It Scannable for Quick Identification

• Optimize for Barcodes: Ensure your SKUs can be easily converted into barcodes or QR codes for quick scanning during inventory checks and order fulfillment.
• Keep the SKU length manageable and avoid overly long strings that could complicate scanning or entry.
• A well-structured SKU allows for quick product identification without errors, saving time and improving efficiency.

Step 5: Ensure Scalability

• Plan for Growth: Your SKU system should be scalable to accommodate new products, variants, or categories as your inventory expands.
• Leave space for adding more attributes or numbers in the future. For instance, if you are starting with 5 product categories, ensure your system can support additional categories later.
• Use a numbering or letter system that easily accommodates new items without disrupting the existing structure.

Example SKU Formats

The Overall Unique Benefits of SKUs 

In the past, stores and businesses used (UPC) or regular barcodes to track their products and manage their inventory. It worked for the time, but a few inconveniences made it harder to fulfill and handle their product list. This knowledge helped create the idea and prospects behind SKUs, also known as the stock keeping unit. 

In contrast to UPC, SKU barcodes are not universal. They are unique and vary between each business to better accommodate their needs and wants when managing and tracing products within their inventory. 

Services like Shopify can help you identify and develop your businesses’ own personalized SKU system to simplify your business runs and manage their products. 

Shopify, a famous e-commerce company, goes further to explain this as well. They state that this also benefits companies that carry similar products, like boots, yoga pants, or wallets.

SKUs make the life of retail employees and businesses much more manageable. They have revolutionized the industry and influenced many entrepreneurs to join the e-commerce market. 

Working with SKUs is now invaluable for many businesses, from the largest to the smallest. It simplifies fulfillment and inventory management on an entirely different scale. Learning what SKUs are and how they can help business owner propel their business forward and aid their employees in stocking and onboarding certain products much faster. 

How To Calculate the SKUs Needed? 

SKUs have also made it easier than ever to calculate what is in a business’s inventory. To compute all of this correctly, you need to be aware of all the variations you have of one product and create a personalized SKU for each one to keep track of it. 

For example, if you are a small clothing store that sells pants. You can separate them into categories based on color, style, and size. Let’s say you have two styles: straight leg and skinny, two colors: blue and black, and you carry sizes XS-XXXL., which means you have seven sizes available. 

You will then simply multiple all of the variations and factors within your products to see how many SKUs you will need. For the example given, you will multiply 2x2x7, which means you will need twenty-eight SKUs to label and mark every pair of pants within your inventory. 

The Rise of E-commerce & SKUs

E-commerce has been on the rise because of this relevant new idea of using SKUs over just barcodes and UPCs. E-commerce is known as electronic commerce or internet commerce.

With everyone purchasing things from Amazon or any other online store, e-commerce has had a significant surge in the past decade. SKUs help you trace the inbound and outbound logistics of what you sell and ship out. 

Summary

In the past, people used barcodes and UPC to try and trace all the products. It was more challenging because the information on these was not as individual and unique to each characteristic of the varying products. 

What is SKU? SKU numbers have made the organization and tracking of inventory much more simple for businesses and companies. The world of inventory and logistics can be quite hard, but it does not have to be anymore. With SKUs’ use, inventory is streamlined into a few simple steps to allocate all of a business’s products. 

At YourLogisticsCorp, we can fulfill any logistics need. We safely secure your inventory in a warehouse with our organized SKU shipping system to quickly and efficiently get your products from point A to point B with concern and care. We can help expand your business reach with our conveniently placed facilities. This also helps save shipping services costs, making it a great option for you and your customers.

If you’re looking for a fulfillment service that you can trust, request a quote today.