What does a Stock-Keeping Unit Mean?

A Stock-Keeping Unit, generally known as SKU, is a unique alphanumeric code that serves as a scannable barcode or QR code. SKUs are primarily printed on product labels and are used by sellers for automatically tracking inventory movement. Each SKU consists of eight or more characters that encode essential information about the product, including its price, manufacturer, Point-of-Sale (POS) and other details. SKUs are not limited to tangible products and can also be applied to services, warranties, or units of repairing time in various industries.

Explaining Stock-Keeping Unit

SKUs serve as a vital tool for tracking inventory levels and are utilised by various entities such as shops, catalogues, e-commerce sellers, service providers, warehouses, etc. With the help of scannable SKUs and a POS system, managers can define with ease which items should be restocked. When a customer buys a product, the SKU is scanned at the POS, and the system automatically updates the inventory records, removing the item from available stock and capturing relevant sales data. It's important to note that SKUs shouldn’t be confused with model numbers, though model numbers can be embedded within SKUs to provide additional information.

Why are Stock-Keeping Units Significant?

Here are the primary reasons why SKUs are important:

a) Inventory Tracking: SKUs enable businesses to accurately track their inventory, ensuring they have a clear understanding of the quantity of each product available. By implementing threshold limits, businesses can proactively identify when it is necessary to initiate purchase orders for restocking.

b) Customer Experience: SKUs play a crucial role in enhancing the customer experience. Brick-and-mortar stores can strategically arrange product displays, highlight best-selling items, and group similar products together based on SKU information. Online businesses can leverage algorithms that utilise SKUs to suggest similar items to customers and indicate product availability. These practices improve customer satisfaction and boost sales.

Where are Stock-Keeping Units Utilised?

Stock-Keeping Units find applications in a wide range of industries and business operations. Here are some common scenarios where SKUs are utilised:

a) Retail: Retail stores employ SKUs to track and manage inventory levels efficiently. Each product variant will have a unique SKU associated with it. 

b) E-commerce: Online retailers heavily rely on SKUs to streamline their inventory management processes. SKUs help categorise products, identify popular items, suggest related products, and manage stock levels across multiple sales channels.

c) Service Providers: SKUs are not limited to physical products. Service-based businesses, such as auto body shops, can assign SKUs to units of repair time or warranties. This allows for efficient tracking and billing processes.

d) Warehouses and Fulfilment Centres: SKUs are crucial in warehouse and fulfilment centre operations. They enable efficient organisation, accurate order picking, and seamless inventory management, ensuring products are readily available for distribution.

How to Construct a Stock-Keeping Unit?

To construct a SKU, follow these steps:

Identify the item: Determine the specific item or product for which you want to create a SKU. It can be a physical product, service, or intangible item.

Determine attributes: Identify the relevant attributes that distinguish the item from others. These attributes can include characteristics such as manufacturer, description, material, size, colour, packaging, and warranty terms.

Establish a naming convention: Define a consistent naming convention or structure for your SKUs. This convention should be logical and easily understandable for efficient inventory management.

Create the alphanumeric code: Generate an alphanumeric code that represents the item and its attributes. The code can be a combination of letters, numbers, or both, depending on your naming convention. It should be unique to each item.

Consider scannable barcodes: You can associate a scannable barcode with the SKU for easier scanning and tracking. Barcodes can be used to automate inventory movement and facilitate tracking.

Maintain consistency: Ensure consistency in assigning SKUs across your inventory. Consistency helps avoid confusion and facilitates efficient tracking and management of inventory levels.

It's important to note that SKUs are not regulated or standardised. That means that when a firm obtains products from a seller, it has the option to maintain the vendor's SKU or create its own.

SKU contra UPC 

Here are the key distinctions between SKUs and UPCs:

SKUs:

UPCs:

SKUs are customised internal codes generated by businesses to track their products and assets, while UPCs are standardised codes used for external purposes across all retailers. SKUs offer more flexibility in terms of length, alphanumeric composition, and representational details, while UPCs provide consistency and enable efficient scanning and tracking in supply chains.

Bottom Line and Key Takeaways

SKUs enable efficient inventory tracking, enhance the customer experience, and facilitate sales forecasting. By utilising scannable codes, businesses can optimise their operations, make informed restocking decisions, and improve overall profitability. Understanding the significance of SKUs empowers businesses to streamline their inventory management processes and deliver superior customer service.

FAQ

1. Can SKUs be used for intangible products or services?

Yes, SKUs can be applied to intangible products or services, such as units of repair time in auto body shops or warranties.

2. How do SKUs benefit sales forecasting?

By associating SKUs with point-of-sale (POS) systems, businesses can collect data on sales. This data allows businesses to generate reports, analyse trends, and make informed decisions regarding restocking and product line investments.

3. Are SKUs only used in retail settings?

No, SKUs are utilised in various industries and operations, including retail, e-commerce, service providers, warehouses, and fulfilment centres. They enable efficient inventory management and tracking across different sectors.