Pronounced as sku and a short form for Stock Keeping Unit, SKU is used by retailers to identify and track their inventory or stock. SKU is a unique code consisting of alphabets and numbers that identifies the characteristics of each product such as the manufacturer, brand, style, size and colour. Companies usually issue their own SKU codes specific to the product or service they offer
What is a Stock Keeping Unit (SKU)?
A stock keeping unit or SKU (pronounced “skew”) is a number that is assigned to a product for the purpose of inventory management and ease of tracking. In other words, a stock keeping unit is a unique identifier assigned to each product for easier and more efficient record-keeping.
The Importance of SKUs
Stock keeping units are highly important and commonly used by retail stores, warehouses and product fulfillment centers. Stock keeping units have many key uses, such as the following:
- Identifying a specific product
- Tracking inventory to know how many of a specific product is available
- Helping reconcile stock levels of products
- Identifying shrinkage in inventory
- Determining which products are the most profitable (through analysis)
- Helping identify reorder points for products
- Helping customers save time by enabling them to find products quickly
The inventory examination capability of SKUs has an exceptional contribution to a company’s revenue. Most often, customers make purchasing decisions after comparing the features of similar products. For example, when a customer purchases a baby car seat, online vendors may display similar items bought by other customers based on SKU information. This may lead to cross-selling opportunities, thereby increasing a company’s profit margin.
How Do SKUs Work?
Take this example: Jeff is the owner of a small grocery store that sells a specific brand of bread in addition to 10 other brands of bread. Jeff thinks that since his store is small, there is no need to use stock keeping units on each individual brand.
One day, a customer walks into the store asking whether the store has a specific brand of bread. Jeff recognizes the brand name and tells the customer that they do carry that brand of bread and leads the customer to where the bread aisle is. He then sees the store is out of stock of that brand of bread and apologizes to the customer.
The following day, Jeff sets up a meeting with his inventory manager, who says: “We should come up with a SKU for every single product in our store — it is inefficient for me to have to manually check whether we are low on specific products every day. Without an inventory system that incorporates SKUs, I have to manually subtract quantities that we have sold from our inventory system.”
Following the manager’s suggestion, Jeff employs a stock keeping unit for each specific product. With this setup, Jeff is now able to quickly check his computer system on every single product and their inventory levels.
Use of Stock Keeping Units
- It is used for inventory management. This scannable system makes it easy for managers to know when to restock.
- It allows consumers to compare characteristics of similar items. This enhanced service might promote additional purchases by the customer, increasing the overall sales of the company.
- It can also be used to collect data on sales and check the profitability of the business.
- SKUs enable retailers to design advertising campaigns without interference from other vendors.
- It has made the shopping experience more efficient than before in the presence of portable scanners and the like.
- It can even be used for advertising and marketing. Many retailers advertise their SKU instead of the manufacturer’s model number.
FAQs
Best Practices Concerning SKUs?
- Each SKU must be made unique.
- The attributes of the product must be incorporated into the SKU.
- SKUs must be kept short as long one might be difficult to process.
- Avoid the use of spaces and special characters.
- Refrain from using letters that can be confused with numbers for better readability.
Where are SKUs Commonly Found?
- Retail stores
- E-tailers
- Warehouses
- Catalogues – online and offline
- Product fulfilment centres