What is a SKU?

Woman scanning SKUs

May 28, 2024

SKU stands for “Stock Keeping Unit,” a unique identifier used in retail and inventory management to track products. Each SKU is distinct and specific to a particular item, including variations such as size, color, and other attributes. SKUs are crucial for managing inventory, as they help businesses organize, locate, and monitor their stock efficiently.

Benefits of Using SKUs

  • Optimized Inventory Tracking: SKUs allow businesses to maintain accurate inventory records, making it easier to know the stock levels of each product.
  • Enhanced Efficiency: By using SKUs, businesses can quickly locate and identify products within their inventory, reducing the time and effort needed for inventory management.
  • In-Depth Sales Analysis: SKUs enable detailed sales tracking and analysis, helping businesses understand which products are performing well and which are not.
  • Streamlined Reordering: With precise tracking, businesses can automate reordering processes based on SKU data, ensuring that popular items are always in stock.

3 Key Characteristics of an SKU

  1. Uniqueness: Each SKU is a unique code that differentiates one product from another within the inventory system.
  2. Attributes: SKUs often incorporate information about the product’s attributes, such as type, size, color, style, and sometimes even the manufacturer or supplier.
  3. Purpose: The primary purpose of an SKU is to streamline inventory management, making it easier to track stock levels, manage reordering, and analyze sales performance.

How SKUs Differ from Barcodes

SKUs are unique to a specific retailer or manufacturer and are used internally for inventory management. They are essential tools that help businesses efficiently track, organize, and manage their products.

Barcodes are standardized and can be scanned at point-of-sale systems to retrieve price and product information. Barcodes can include a UPC (Universal Product Code) or EAN (European Article Number) and are used globally.

Creating an SKU for your product involves establishing a system to help you uniquely identify and organize your inventory. Here’s a step-by-step guide on how to develop SKUs for your products:

Step-by-Step Guide to Creating SKUs

Step 1: Define a Format

Decide on a consistent format for your SKUs. A suitable SKU format is usually alphanumeric and incorporates meaningful information about the product. It typically includes sections that denote categories, product attributes, and unique identifiers.
Example format: [Category]-[Subcategory]-[Brand/Model]-[Attributes]

Step 2: Identify Key Attributes

Determine the critical attributes of your products that you want to encode in your SKUs. Common attributes include:

  • Product category
  • Subcategory
  • Brand or model
  • Size
  • Color
  • Variant or version

Step 3: Create a Coding System

Develop a coding system for each attribute. Use abbreviations or codes that are easy to understand and consistent. Ensure that each code is unique within its attribute category.


  • Categories: TSH for T-shirts, JNS for Jeans
  • Colors: RED for Red, BLK for Black, WHT for White
  • Sizes: S for Small, M for Medium, L for Large

Step 4: Combine Codes to Form SKUs

Combine the codes for each attribute according to your defined format. Ensure that each SKU is unique and unambiguous.

  • TSH-RED-L (T-shirt, Red, Large)
  • JNS-BLK-M (Jeans, Black, Medium)

Step 5: Ensure Scalability

Make sure your SKU system can accommodate new products and variations. Leave room for expansion in each category to avoid future conflicts.

Step 6: Test Your SKUs

Before implementing your SKUs, test them to ensure they are easy to understand and use. Verify that they work well with your inventory management system and are easily scannable using barcode technology.

Example SKU Creation Process

Suppose you are creating SKUs for a range of t-shirts:

  1. Category: T-shirts (TSH)
  2. Color: Red (RED), Blue (BLU), Green (GRN)
  3. Size: Small (S), Medium (M), Large (L)

Based on this, your SKUs might look like:

  • Red, Small T-shirt: TSH-RED-S
  • Blue, Medium T-shirt: TSH-BLU-M
  • Green, Large T-shirt: TSH-GRN-L

Implementing SKUs in Your Inventory System

Update Inventory Records

Input the SKUs into your inventory management system, ensuring each product entry includes the correct SKU.

Train Staff

Educate your staff on how to use and interpret the SKUs. Ensure they understand the format and can apply it consistently.

Integrate with Sales Channels

Ensure your SKUs are integrated with your sales platforms (e.g., e-commerce websites, POS systems) to streamline order processing and inventory tracking.

Monitor and Adjust

Review your SKU system regularly for efficiency and make adjustments as necessary. Ensure it continues to meet the needs of your expanding inventory.

By following these steps, you can create a robust SKU system that helps you effectively manage your inventory and streamline your business operations.

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