HomeKnowledge BaseSSKU: How Stock-Keeping Units Work and How Businesses Can Use Them?

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

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:


  • Alphanumeric codes that can be as long or as short as desired.
  • Created by individual companies for internal use.
  • Can be assigned to both physical products and intangible assets.
  • Free to create and use.
  • Printed on store shelves, retailer tags, or used internally.
  • Can represent various product details or characteristics.


  • Standard across all retailers.
  • Consist of a 12-digit numeric code.
  • Partially assigned by the GS1 (Global Standards One) organisation responsible for maintaining business communication standards globally.
  • Used only for physical products.
  • Must be licensed through the GS1 to be considered valid.
  • Printed on product packaging.
  • Represent scannable barcodes.

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.


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.

Suite E 111
Midlands Office Park East
Mount Quray Street
Midlands Estate
9:00 - 18:00
Follow us on
© 2024 BCS Markets SA (Pty) Limited ('BCS Markets SA').

BCS Markets SA (Pty) Ltd. is an authorized Financial Service Provider and is regulated by the South African Financial Sector Conduct Authority (FSP No.51404). BCS Markets SA Proprietary Limited trading as BROKSTOCK.

The materials on this website (the “Site”) are intended for informational purposes only. Use of and access to the Site and the information, materials, services, and other content available on or through the Site (“Content”) are subject to the laws of South Africa.

Risk notice Margin trading in financial instruments carries a high level of risk, and may not be suitable for all users. It is essential to understand that investing in financial instruments requires extensive knowledge and significant experience in the investment field, as well as an understanding of the nature and complexity of financial instruments, and the ability to determine the volume of investment and assess the associated risks. BCS Markets SA (Pty) Ltd pays attention to the fact that quotes, charts and conversion rates, prices, analytic indicators and other data presented on this website may not correspond to quotes on trading platforms and are not necessarily real-time nor accurate. The delay of the data in relation to real-time is equal to 15 minutes but is not limited. This indicates that prices may differ from actual prices in the relevant market, and are not suitable for trading purposes. Before deciding to trade the products offered by BCS Markets SA (Pty) Ltd., a user should carefully consider his objectives, financial position, needs and level of experience. The Content is for informational purposes only and it should not construe any such information or other material as legal, tax, investment, financial, or other advice. BCS Markets SA (Pty) Ltd will not accept any liability for loss or damage as a result of reliance on the information contained within this Site including data, quotes, conversion rates, etc.

Third party content BCS Markets SA (Pty) Ltd. may provide materials produced by third parties or links to other websites. Such materials and websites are provided by third parties and are not under BCS Markets SA (Pty) Ltd.'s direct control. In exchange for using the Site, the user agrees not to hold BCS Markets SA (Pty) Ltd., its affiliates or any third party service provider liable for any possible claim for damages arising from any decision user makes based on information or other Content made available to the user through the Site.

Limitation of liability The user’s exclusive remedy for dissatisfaction with the Site and Content is to discontinue using the Site and Content. BCS Markets SA (Pty) Ltd. is not liable for any direct, indirect, incidental, consequential, special or punitive damages. Working with BCS Markets SA you are trading share CFDs. When trading CFDs on shares you do not own the underlying asset. Share CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. A high percentage of retail traders accounts lose money when trading CFDs with their provider. All rights reserved. Any use of Site materials without permission is prohibited.