Stock Keeping Unit (SKU)

Definition

Stock Keeping Unit (SKU) is a unique alphanumeric code that identifies each distinct product and service that can be purchased. SKUs are used by retailers to track inventory and to distinguish items for sale, each having specific characteristics such as price, product options, and manufacturer. In e-commerce and brick-and-mortar retail and warehousing, SKUs are critical for inventory management, enabling businesses to keep track of stock levels and sales with precision.

A Stock Keeping Unit (SKU) is an identifier for each unique product and version that can be purchased. It is often associated with a barcode scanned at the point of sale, helping to automate the tracking of inventory levels. Each SKU is typically composed of an alphanumeric combination of eight or more characters, each of which represents attributes of the item, such as color, size, style, price, manufacturer, and brand.

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Importance in Inventory Management

The SKU plays a vital role in inventory management by helping businesses:

  • Track Inventory: Monitor which items are in stock, low on stock, or out of stock.
  • Analyze Sales: Determine which products are selling well and which are not, aiding in demand forecasting.
  • Optimize Stock Levels: Manage overstock and understock situations to maximize sales and minimize carrying costs.
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SKU vs. UPC

SKUs are often confused with Universal Product Codes (UPC), but they serve different purposes:

  • SKU: Generated internally by a company to track inventory and sales analytics. It is unique to the company.
  • UPC: A standardized 12-digit barcode used universally by retailers and manufacturers across the global marketplace. Unlike SKUs, UPCs are not unique to a particular store or company.
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Benefits of Using SKUs

Implementing an effective SKU system offers several advantages:

  • Efficiency in Sales Processes: SKUs help streamline the point of sale (POS) process, making it easier and faster to ring up items.
  • Improved Customer Experience: Accurate inventory tracking ensures that customers receive their products on time and can also help in locating items quickly within the store.
  • Enhanced Reporting: Detailed SKU data allows for more sophisticated analysis of sales patterns, inventory needs, and customer preferences.
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Challenges

However, managing SKUs can present challenges:

  • Complexity in Management: The more SKUs a company has, the more complex it becomes to manage them, especially if many products are similar but need to be differentiated.
  • SKU Proliferation: An excessive number of SKUs can lead to inventory bloat, increased storage costs, and reduced sales per SKU.
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Best Practices

To effectively manage SKUs, businesses should:

Stock Keeping Units (SKUs) are essential tools in the arsenal of modern inventory management, enabling precise tracking and management of product varieties, enhancing operational efficiency, and improving sales analytics. As such, SKUs are indispensable in the retail industry, particularly in environments with extensive product ranges and significant inventory levels.

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Resources

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