What Is a Stock Keeping Unit (SKU)?

In this article, learn about: 

• What a SKU is 

• Where SKUs are located 

• The benefits of using SKUs

• How do UPCs and EANs differ from SKUs?

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A SKU or Stock-Keeping Unit is the unique identifier assigned by a retailer to each product in their catalog. A SKU is specific to the business and can include key information like the product category, brand size, color, or even location. It is not a standardized code like many other codes are.

For example, a SKU for a shoe could look like this FG-SHOE-300-BLK-10.  

This instantly identifies the item's product type, size, and color within the inventory system of the company, making it easier for the store associates to track down the item and the customers to get exactly what they need. Most SKUs are alphanumeric and organized according to the categorization preference of the retailer using the code.

Where are SKUs Located?

SKUs can be found in a variety of places, both in-store and online. They could be located on physical store price tags, product labels, and shelf placements, or, for online products, they could be on product pages under details or specifications. They also appear on receipts and invoices to help with case returns and sales tracking. 

The SKU visible to customers may differ from the internal SKU a brand uses to organize products for storage and restocking. Retail employees usually access SKUs through inventory management or a POS system to make sure that pricing is correctly stated and that stock is in good control. In warehouses, SKUs are used to label bins and shelves for quick retrieval, and suppliers include them in catalogs and databases for easy ordering.

When are SKUs Used?

SKUs are used in almost every aspect of retail and inventory management, from stocking to sales and more. The following are some of the key areas where SKUs play a pivotal role:

Inventory Management 

Having the proper amount of stock on hand is crucial for any enterprise. SKUs allow the business to know precisely what it has in stock and where it is kept. Consequently, retailers and warehouses can avoid problems such as overstocking, which leads to excessive storage costs, or understocking, which then leads to not being able to take advantage of an available sale. 

Sales Analysis and Forecasting 

Businesses study the trends of sales over time. They group products with unique SKUs to understand what is selling well in their stores and possibly needs to be marked down. This insight further enables businesses to make data-based decisions about inventory replenishment, seasonal stock, and marketing efforts.

Point of Sale Systems 

Using SKUs means faster checkouts, more efficiency, and reduced human errors due to quick scans and verifications of SKUs. Retailers can track scanned SKUs to create valuable data profiles that reveal purchasing habits and highlight trending items.

SKUs also simplify logistics between brick-and-mortar stores, online sales, and warehouses by improving accuracy and efficiency at each stage of a product's life.

The Benefits of Using SKUs

Implementing SKUs offers a number of advantages across different areas of retail and inventory management. For starters, SKUs provide a level of customization that allows companies to fully utilize the storage facilities, minimize losses due to searching for merchandise, and speed up restocking. As a result, SKUs play a foundational role in any retailer's operations as they support decision-making around which products should be in stock to meet customer demand.

Because SKUs are customizable to each business, it also allows retailers to organize their inventory in ways that reflect unique categories, such as color, size, and seasonal or limited-edition items.

Here are some more key benefits of using SKUs:

Efficient Inventory Management

SKUs allow for much easier tracking of inventory levels, allowing retailers to instantly identify how much inventory of a particular item is in stock, where it's located, and when it needs to be reordered. 

Improved Sales Analysis

Assigning SKUs to each product makes tracking sales trends and customer preferences easier for businesses.

Improved Customer Service

Whether in-store or online, SKUs have given store associates or even customer service teams the ability to quickly locate what exactly their customers are asking for. SKUs also ensure customers get the right product during order fulfillment, reducing potential errors and returns.

Facilitated Online Store Management

E-commerce platforms rely heavily on SKUs to manage large inventories efficiently. Using SKUs means a business can distinguish between similar items and update real-time in-stock quantities. It does this by allowing for easy searching and grouping, making it easy for the customer to navigate across online stores by filtering for just what they need. 

Streamlined Point of Sale (POS) Operations

While at the checkout, SKUs simplify scanning and verification, allowing for faster and more accurate transaction processing. Where SKUs are linked to the POS system, a business can monitor sales at each location, real-time inventory adjustments, and even seasonal demand patterns. 

More Accurate Marketing and Promotions

Analyzing the data at the SKU level will allow businesses to target their campaigns for marketing and promotion far more effectively. SKU insights make it obvious which products are in demand, thereby allowing a business to drive campaigns around such products or to bundle such products with other items. If a business runs promotions or discounts, the SKUs will help them keep track of what items are included, helping them refine future promotions.

How Do UPCs and EANs Differ from SKUs?

While SKUs are essential for internal product tracking, other codes like UPC (Universal Product Code) and EAN (European Article Number) serve more standardized purposes. These codes have been developed to promote uniformity in how products could be recognized, scanned, and priced consistently across different retailers and regions.

UPCs are standardized 12-digit numeric codes developed by GS1. A single UPC is assigned for every product that is in use across all retailers, enabling consistent identification of a product. Most importantly, this universality is crucial in large retail chains and grocery stores, where products from numerous suppliers are sold. For example, a UPC for a certain brand of toothpaste will be the same at all outlets whether it is sold at a big retailer or a smaller store. A barcode with the UPC can be used to scan through checkout and bring up the price of the product in an instant without having to be inputted manually, minimizing errors in the process.

The EAN, or European Article Number, is an international code. This is a 13-digit code that is also assigned by GS1 and is used outside North America in places like Europe, Asia, and Australia. Like the UPC, the EAN has allowed consistent methods of identifying products worldwide. The EAN supports international commerce in that a product will have only one identification number universally. Like the UPC, the EAN allows products to be scanned from country to country, which makes it more practical for businesses to sell products in multiple countries yet retain consistent pricing and inventory information.

Source: GS1Us.org > Home > UPC, Barcodes & Prefixes, EAN Numbers and UPCS 

Using SKUs, UPCs, and EANs Together

All three of these systems --- SKUs, UPCs, and EANs --- serve different but complementary roles in retail and inventory management. SKUs give flexibility and specificity for internal business operations, while UPCs and EANs provide standardization and ease of identification across multiple retail platforms and geographic regions. By using all three, businesses can optimize their operations at a local and global level in such a manner that products will be easy to find, sell, and manage both in-store and online.

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