SKU Numbers: Definition, Components, Benefits, Creation, FAQs, and More

What is a Stock Keeping Unit (SKU)?

SKU stands for Stock Keeping Unit. It is an alphanumeric code, typically 8-12 characters in length, although the exact length can vary depending on the retailer’s system.

Retailers use SKU numbers to identify and track their products in inventory.

Consequently, a single product can have different SKU numbers as determined by different retailers. Even color- or size-based variants of a single product can have different SKUs.

An SKU number translates the following details about the product:

• Product category
• Price
• Size of the product
• Color
• Product brand
• Store location

Components of an SKU Number

The SKU number is a unique 8-12 character combination of letters and numbers, consisting of three basic components:

• Top-level identifier: The first two or three alphanumeric characters represent the broadest product categorization, such as a store department or goods category.
• Middle numbers: The middle two to three alphanumeric characters provide details about unique product features, such as item type, brand, size, color, etc.
• Sequential end number: The last two to three numbers represent the order in which a product is manufactured, processed, or stored in an inventory, along with the total items in inventory.

Note: The structure of an SKU number can vary between different retailers, and the example provided is just one common format.

What are the Benefits of Using SKU Numbers?

The benefits of using SKU numbers for your retail business include:

• Unique identification for each product, aiding in product differentiation.
• Tracking of products in inventory.
• Inventory management, keeping you aware of product quantities and when the stock will exhaust.
• Improvement in inventory turnover ratio.
• Forecasting of product demand and answering questions regarding product sales.
• Reduction of errors in warehousing and shipping.
• Facilitation of sales tracking.
• Enhancement of customer experience by allowing them to find products using SKU numbers online.
• Improvement of customer satisfaction by suggesting product alternatives based on SKU data.
• Facilitation of the integration of online and offline inventory management systems, enhancing omnichannel retailing.

How to Create SKU Numbers?

There are two ways to generate SKU numbers for products: manually and automatically. Let’s learn about them in detail.

Creating SKU Numbers Manually

Here is the step-by-step procedure for manually creating an SKU number:

1- Define Stock Categories

Start by defining product categories based on the size of your inventory and the types of products you are dealing with.

The complexity of your SKU numbers will depend on the size of your inventory and the diversity of your products.

For limited product ranges, SKU numbers can be relatively simple, whereas larger inventories may require more complex SKU structures.

2- Start with a Top-Level Identifier

Choose a top-level identifier for your product that reflects the broader product category, store department, or product supplier.

This identifier should provide a quick overview of the product’s main classification.

3- Assign Middle Numbers

Assign middle numbers to the product based on its sub-category.

Consider attributes such as color, size, material, season, and gender, and assign numbers that accurately represent these features.

4- Add a Sequential Number at the End

Finally, add a sequential number at the end of the SKU to distinguish the initial product from older ones with the same product features.

This sequential number is typically a 3-4 digit sequence that indicates the order in which products were purchased and processed.

Sequential numbers often follow the format of 000 or 0000, aiding in inventory management.

Example of Manual SKU Creation

For example, a retail store has clothing items for men, women, and children.

So, they can choose their top-level identifier to be WOM, MEN, or CH, representing women’s, men’s, and children’s clothing, respectively.

Now, they will add middle numbers or alphabets to represent product features such as product type (10 for shirts, 20 for jackets, 25 for jeans, 30 for shorts), season (S for summer, W for winter), and material type (CT or DM).

In the end, it’s time to finish it with the sequential number.

So, according to this format, the MEN10SDM001 SKU number will represent men’s denim shirts for the summer seasons from the initially processed batch.

Creating SKU Numbers Automatically

There are many different tools available for SKU generation. Most inventory management software and point-of-sale systems have SKU generation in-built features.

Best Practices While Generating SKU Numbers

Here are the best tips to create well-structured SKU numbers for your products:

• Aim for simplicity in SKU numbers while ensuring they contain necessary details.
• Start with important product features in the middle part of the SKU.
• Avoid using symbols such as @, &, *, %, etc.
• Avoid using letters that can be confused with numbers (e.g., O and 0).
• Don’t start SKUs with 0, as computer programs may perceive it as nothing.
• Ensure all SKUs are unique. Reuse SKU numbers only for permanently discontinued products after removing them from your system.
• Regularly review and update the SKU system to accommodate new products and changing business needs.

SKU vs UPC: What’s the Difference?

People often use SKU and UPC interchangeably; however, these two codes are quite different. Let’s explore some key distinctions between them:

• SKU Number: An alphanumeric code unique to each product and its variations, used internally by retailers. The length and structure can vary between different retailers.
• UPC Number (Barcode): A 12-digit number that is standardized and globally unique for products. It is used universally and issued by the Global Standard Organization (GS-1) for manufacturers.

FAQs

Q1: Can two products have the same SKU number?

Ans: No, each product and its variations should have a unique SKU number to ensure accurate tracking and inventory management.

Q2: Can we change an assigned SKU number?

Ans: It’s generally not recommended to change an SKU number once it’s been assigned to a product, as it can lead to confusion and errors in inventory management.

However, if absolutely necessary, changes should be carefully documented and updated across all systems.

Q3: How do I find the SKU number?

Ans: The SKU number is usually located on the product packaging, near the barcode or UPC number.

It can also be found in the product details section of an online listing or in the inventory management system of a retail store.

Q4: What is the importance of SKU numbers in inventory management?

Ans: SKU numbers are crucial for inventory management as they help in tracking and organizing products.

They enable retailers to monitor stock levels, identify sales trends, and reorder products efficiently.

Q5: Can SKU numbers be used for online stores?

Ans: Yes, SKU numbers are essential for online stores. They help in managing the inventory, processing orders, and providing customers with accurate product information.

SKU numbers also facilitate the integration of online stores with warehouse management systems and other logistical processes.