Stock Keeping Unit (SKU)

What is an SKU?

A stock-keeping unit (SKU) is a unique identifier—often an alphanumeric code plus a barcode—assigned by a retailer to a product (or a billable service). SKUs let businesses identify and track individual items across sales, inventory, and shipping processes.

How SKUs work

• Each SKU is unique to the business that creates it and encodes information the retailer chooses to include (for example: product type, color, size, location, supplier).
• At the point of sale (POS) the SKU is scanned; the POS or inventory system deducts the item from stock and records sale data such as price, time, and location.
• SKU data feed inventory systems used for restocking, order fulfillment, reporting, and analytics.

Note: SKUs are not the same as manufacturer model numbers; a model number may be part of an SKU, but businesses typically design SKUs for their internal needs.

Uses in inventory management

• Real-time stock tracking: Keeps inventory counts up to date when sales and returns occur.
• Reorder automation: Triggers reorder alerts when quantities reach predefined reorder points.
• Picking and fulfillment: Guides warehouse picking, packing, and shipping processes.
• Analytics and planning: Supports forecasting, sales analysis, and decisions about promotions or seasonal buys.

Benefits for vendors

• Accurate visibility into what’s in stock and where it is located.
• Easier planning for sales, promotions, and seasonal demand.
• Improved supply-chain transparency, including in-transit tracking.
• Reduced risk of stockouts and excess inventory through better reorder control.

SKUs versus UPCs

• SKU: Created by the retailer, often alphanumeric and variable in length; identifies both the product and the retailer’s internal attributes.
• UPC (Universal Product Code): A standard 12-digit numeric code that uniquely identifies a product across all sellers.
• Implication: UPCs enable price and product comparison across retailers; SKUs are best for internal inventory control and vary between companies.

Distinguishing an SKU from a UPC

• UPCs are always numeric (12 digits) and universal.
• SKUs commonly include letters and numbers, and their format and length differ by retailer.
• A product can carry both: the UPC for universal identification and the SKU for the seller’s inventory management.

SKUs in e-commerce

Online sellers create and use SKUs to track listings, sales, and inventory across channels. Marketplaces and platforms (for example, Amazon) allow sellers to assign SKUs to simplify order management, returns, and fulfillment.

Economic Order Quantity (EOQ) and SKUs

Economic Order Quantity (EOQ) is the ideal purchase size that minimizes total inventory costs while meeting demand. SKU-level inventory data and sales velocity inform EOQ settings and help automate reordering at the optimal time.

Bottom line

SKUs are essential tools for efficient inventory management. By assigning and using SKUs consistently, businesses can automate stock control, improve forecasting, streamline fulfillment, and reduce both stockouts and overstock.