Product management gets more complicated as the e-commerce store scales up. The seller might be selling several hundred products, each one having several sizes, colors, models and vendors. It becomes hard to keep track of each item and its inventory. This is where SKU comes into play.
SKU, or Stock Keeping Unit, is an internally used product identifier developed by a company to manage its inventory. In contrast to globally accepted product codes like UPC and GTIN, the SKU is usually managed by the person who uses it.
What Is an SKU?
SKU is an abbreviation which stands for Stock Keeping Unit. It is a unique code assigned by a company to distinguish a particular product from another one.
For instance, an online clothing store would give:
TSH-BLK-M-001
This SKU stands for:
And then apply this code in its inventory system.
Unlike global product identification, an SKU is generated based on the specific requirements of the business.
What Is SKU Meaning in E-commerce?
The most basic SKU meaning is a code that a business uses to identify and manage a stock item.
In case of an e-commerce merchant, an SKU can tie a product to details such as:
This turns the SKU into a practical means for managing inventory.
For instance, a business selling shoes could allocate SKUs to:
SKU defines a unique stock-keeping unit.
Why do companies use SKUs?
Companies use SKUs because of the convenience of organising inventory within an enterprise.
Effective use of SKUs will help to:
Inventory Management
The company will be able to identify which products are in stock, sold or need to be ordered.
Product Management
An SKU will make it possible for the employees to distinguish between different products and their variants.
Order Processing
The employees from the warehouse will be able to identify the right product using SKU numbers.
Inventory Management
Reports on sales and inventory could be organised by each SKU.
Re-ordering
Companies will be able to identify products that require ordering due to the reaching of the minimum number of units on stock.
Multi-Channel Sales
E-commerce seller selling its products through its own website and several marketplaces could use SKUs to manage inventory across the different sales channels.
How Does SKU Work?
SKU works by developing the internal code for each stock-keeping unit.
Assuming that the online store sells coffee mugs in 3 colors.
Instead of naming every product Coffee Mug, the company will develop:
• MUG-WHT-001
• MUG-BLK-001
• MUG-BLU-001
When an order is placed, the inventory management system stores the SKU linked to the sale.
The quantity of stock can then be deducted from that specific item.
It offers a more accurate means of inventory management compared to using the product name only.
SKU Number VS SKU Code
Both SKU number and SKU code mean the same thing.
They are used to represent the internal code for each stock item.
SKU can have:
• Letters
• Numbers
• A combination of letters and numbers
Example: LAP-DELL-I5-16-001
This varies depending on the organization.
There is no standard SKU format for all companies.
How to Generate SKUs
Generating SKUs is made much simpler by having a standardized system within a business.
What is an SKU Naming Convention?
An SKU naming convention is a set of rules that regulates the formation of SKU codes by the company.
For example:
SHO-BLK-09-001
could mean:
• SHO = Shoes
• BLK = Black
• 09 = Size 9
• 001 = Item sequence
A proper naming convention ensures that the employees do not form SKU codes at their discretion.
The naming convention has to be:
The company should avoid making SKU codes complex.
Choosing the SKU Code Format
There are no universal requirements regarding the SKU code format.
The company chooses the code according to its inventory.
| SKU Format | Example | Suitable For |
|---|---|---|
| Sequential | 10001 | Simple inventory |
| Category + Number | SH-1001 | Multiple categories |
| Category + Variant | SH-BLK-09 | Products with variants |
| Brand + Model | SAM-A55 | Branded products |
| Detailed | SH-BLK-09-001 | Large product catalogues |
The appropriate structure is based on how the employees use the inventory system.
Best Practices for SKU Management
Efficient SKU management is even more necessary as the company grows.
Make SKUs Unique
Every stock keeping unit should have its own internal code.
Make Them Easy to Read and Type
Employees should be able to easily read them and type them in.
Avoid Confusing Characters
Avoid character combinations that are easy to confuse, for example:
• O and 0
• I and 1
• S and 5
Stay Consistent
If you decide to use 3-letter code for colors, do that for all products in your catalog.
Do Not Include Frequently Changing Data
The prices and costs of suppliers may frequently change. Adding them to the SKU will make the system unnecessarily complicated.
Do Not Reuse SKUs
Using the already allocated SKU for an entirely new product will result in complications in historical reporting.
Keep a SKU Guide Inside Your Company
Create an internal SKU reference guide for your employees.
Why SKUs Help Inventory Management
Appropriate SKU system will help your inventory management in a number of ways.
A business can use SKUs to:
For instance, if a company sells a T-shirt with 5 sizes and 4 colors, there will be 20 product variants. They all can have their own SKU number.
This would help to track inventory very precisely.
SKU for Product Variants
Product variants are the main reason why businesses need SKUs.
There are products that have:
4 colors x 3 sizes = 12 variants
All of them should be separately stocked and have their own SKU number.
| Colour | Small | Medium | Large |
|---|---|---|---|
| Black | BLK-S | BLK-M | BLK-L |
| White | WHT-S | WHT-M | WHT-L |
| Blue | BLU-S | BLU-M | BLU-L |
| Red | RED-S | RED-M | RED-L |
This makes it easier to know exactly which variation needs replenishment.
SKU vs UPC: What Is the Difference?
SKU and UPC are both used for product identification, but they serve different purposes.
A retailer can give its own SKU number to a product which already has a UPC number.
For instance:
UPC number: A globally issued product number
SKU: STORE-BLK-001
The same product can have different SKU numbers by various retailers.
SKU and GTIN
GTIN (Global Trade Item Number) is a globally recognized product number. SKU is an internally used product number.
Some GTIN formats include:
• GTIN-8
• GTIN-12
• GTIN-13
• GTIN-14
There is no globally recognized format for an SKU.
Thus, one can issue an SKU number without acquiring GTIN, although a global marketplace can require a GTIN or any other product number separately.
SKU and Barcode
SKU is a product identifier. Barcode is machine readable information about the product.
SKU can be issued in the form of a barcode for internal use of the warehouse, which does not make the SKU into a globally recognizable UPC or GTIN number.
For instance:
SKU internal number → Barcode sticker → Warehouse scanner
It can be extremely helpful in terms of inventory management even if there is a UPC number or GTIN separately for the product.
SKU vs EAN
EAN identification systems form a part of the worldwide GS1 product identification system and are widely used for products that are meant for retailing on a global basis.
An SKU, on the other hand, is an identifier generated and controlled by the business itself.
In this way, a seller can have both of them simultaneously:
EAN/GTIN → Product identification outside the business
and
SKU → Inventory management inside the business
Organizing SKU Numbers
Firms with huge product catalogs must keep a centralized database of SKUs.
This database can contain:
| Field | Example |
|---|---|
| SKU | TSH-BLK-M-001 |
| Product name | Cotton T-shirt |
| Category | Apparel |
| Colour | Black |
| Size | Medium |
| UPC/GTIN | Applicable product identifier |
| Supplier | Supplier A |
| Stock | 150 |
| Reorder level | 30 |
| Warehouse | WH-01 |
It is going to be one single source of truth regarding inventory.
When the business expands, dedicated inventory management and enterprise resource planning software will be able to automate SKU creation, inventory tracking, order fulfilment, and purchase orders.
Multiple Marketplaces SKU Management
The online business might sell through:
Every channel might have its own product listing format.
A central SKU will help the company map the product in several channels.
For instance:
Internal SKU – TSH-BLK-M-001
This central SKU will help the company relate the same product in all of its listings on the various channels.
Some Common SKU Errors
Conclusion
SKU is a valuable option for companies requiring efficient inventory tracking and stock management. When using unique SKU for each product and its variations, an e-commerce retailer can arrange its catalogue, manage stock and sales effectively.
A good SKU management system involves a consistent SKU naming convention, comprehensibility and scalability along with the development of the business. In addition, a company should clearly differentiate between SKUs and UPC and GTIN which are used externally.
SKU is intended for internal purposes, while UPC and GTIN provide a standardized way of identifying products within different companies and marketplaces. Therefore, all of these identifiers may be used simultaneously.
FAQs
The acronym SKU means Stock Keeping Unit. It is an internal number which companies apply to uniquely identify each product or variant thereof
It is a unique code that a business uses to identify their stock item. The SKU number may consist of either letters, numbers or their combination based on the company’s SKU format.
No. Generally speaking, SKU is an internal number while UPC is a standardized product number.
No. While GTIN is a product identifier on a global level, an SKU is an internal code of a particular company.
Sure. A company may encode its own SKU into a barcode for storage or inventory purposes. Still, this will not make the SKU UPC or GTIN.
