SKU: How Stock-Keeping Units Work and How Businesses Can Use Them

What Is a Stock Keeping Unit (SKU)?

A stock-keeping unit (SKU) is a number that allows vendors to automatically track inventory in their stores. The number usually consists of eight alphanumeric digits and a scannable bar code and is most often printed on products in a retail store. The characters make up a code that tracks the price, product details, manufacturer, and point-of-sale.

SKUs may also be applied to intangible but billable products, such as units of repair time in an auto body shop or for warranties.

Understanding Stock Keeping Units (SKUs)

SKUs are used by stores, catalogs, e-commerce vendors, service providers, warehouses, and product fulfillment centers to track inventory levels. Scannable SKUs and a POS system mean that it is easy for managers to determine which products need to be restocked. When a customer buys an item at the point-of-sale (POS), the SKU is scanned and the POS system automatically removes the item from the inventory as well as recording other data such as the sale price.

SKUs should not be confused with model numbers, although businesses may embed model numbers within SKUs.

Businesses create unique SKUs for their goods and services. For example, a store that sells shoes creates internal SKUs that show a product’s details, such as color, size, style, price, manufacturer, and brand. For example, the SKU for purple Ugg boots in the Bailey Bow style, size 6, may read "UGG-BB-PUR-06."

Why Are SKUs Important?

SKUs are making the shopping experience more efficient than ever before. When shoe shopping in the past, clerks would have had to visually scour the back stockroom and hunt for a specific model of shoes in the correct size and color.

Today, many retailers are equipped with portable scanners enabling salespeople to check back-of-the-store inventory by simply scanning a floor sample. Moreover, online shopping logistics are greatly improved and enhanced via SKUs.

SKUs also let shoppers compare the characteristics of similar items. For example, when a shopper buys a specific sneaker, online retailers might display similar sneakers purchased by other customers based on SKU information. This method may trigger additional purchases by the customer, thereby increasing a company’s revenue.

SKUs also allow data to be collected on sales. For example, a store can see which items are selling well and which are not based on the scanned SKUs and the POS data.

Stock Keeping Units vs. Universal Product Codes

Because companies internally create SKUs to track inventory, the SKUs for identical products vary among businesses. Different SKUs help retailers design advertising campaigns without interference from other vendors.

For example, if a company provides the SKU to advertise a certain discounted refrigerator, shoppers cannot easily view the same refrigerator at other sellers based on the SKU alone. This stops competitors from matching advertised prices and poaching customers. In contrast, universal product codes (UPCs) are identical regardless of which business is selling the items.

The Bottom Line

Businesses need to track inventory to know how much they're selling, how often to restock, and how fast items sell, among many other reasons. Using an SKU simplifies the inventory process, allowing for a significant amount of automation. This is particularly useful for large retailers that sell thousands of products.