A Stock Keeping Unit, or SKU, is an internal alphanumeric code used by businesses to track and manage their inventory. This code serves as a unique identifier for every distinct product variant. A well-designed SKU system is foundational to efficient operations, enabling accurate sales analysis, streamlined reordering processes, and precise inventory control. Creating a logical and systematic code structure maximizes accuracy and operational speed.
Understanding SKUs Versus Other Product Codes
SKUs are fundamentally different from global product identifiers like the Universal Product Code (UPC) and the European Article Number (EAN). A company creates and uses SKUs solely for internal operations, meaning the code is unique to that specific business and its inventory management system. By contrast, UPCs and EANs are standardized, fixed codes purchased and licensed for external identification and retail scanning across all companies selling the product.
The UPC (a 12-digit numeric code) and the EAN (a 13-digit numeric code) are regulated by the global standards organization GS1 and remain constant regardless of the retailer selling the item. These codes are primarily used at the point of sale for quick identification and pricing, offering no inherent information about the product’s attributes. SKUs, however, are alphanumeric, variable in length, and intentionally built to convey descriptive details like color, size, or material directly within the code itself.
Foundational Rules for Designing Effective SKUs
Designing an effective SKU system requires adherence to strict constraints that prioritize human readability and system functionality. The code length should be manageable, with a widely accepted range falling between 8 and 12 characters. This length ensures enough capacity to encode relevant product attributes while remaining short enough for quick data entry and scanning accuracy.
Use only alphanumeric characters (capital letters and numbers), avoiding special characters like dollar signs, hashtags, or apostrophes. Designers should also exclude letters easily confused with numbers, such as “O” (zero), “I” (one), and “L” (one). Maintaining a consistent, standardized format across all product lines ensures that the codes are instantly recognizable and easily processed by inventory software and employees.
Building the Core Structure of Your SKU
The structure of a well-designed SKU should flow logically from the broadest product identifier to the most specific variant detail. The initial segment must represent the Product Family or Category Identifier, providing an immediate, high-level classification of the item. This segment typically uses two to four characters to denote the product type, such as “TSH” for T-shirts or “ELC” for electronics.
Following the general category, the subsequent segments encode the Product Attribute or Variant Codes, which capture the physical characteristics that differentiate one item from another. These codes might use two or three characters each to represent specifics like size (“SM,” “LG”), color (“BLK,” “BLU”), or material (“COT,” “PLR”). The order of these attributes should be consistent across the entire product catalog, moving from the most important differentiating factor to the least.
The final component is the Sequential Identifier, a unique number assigned to that specific variant within the product line. This segment ensures that even if two different products share the same category and attribute codes, their SKUs remain completely distinct. For example, the first unique variant created might end in “001,” the next in “002,” and so on, providing an unambiguous tracking number for the specific item in stock.
Practical Examples of SKU Code Creation
Consider a simple product like a men’s t-shirt that comes in blue and black, and in sizes large and medium. The category might be “TSH” for T-Shirt, followed by the color code “BLU” or “BLK,” and then the size code “LG” or “MD.”
The resulting SKUs would look like TSH-BLU-LG-001 for the blue large shirt and TSH-BLK-MD-002 for the black medium shirt, with the sequential number differentiating the product variant. For a more complex product, such as a professional grade 3D printer, the code requires more segments to capture technical specifications. The initial segment might be “3DPR” for 3D Printer, followed by a material code like “PLA” or “ABS” for the compatible filament, and then the model year “24” for 2024. A potential complex SKU could be 3DPR-PLA-24-045, where the final three digits are the unique sequence number for that particular model and configuration.
Implementing and Maintaining Your SKU System
The design of a logical SKU structure must be followed by implementation and ongoing maintenance to ensure its utility. SKUs require a centralized inventory management system (IMS) or enterprise resource planning (ERP) software that can process and track the codes. The chosen system acts as the central repository, linking the SKUs to inventory levels, sales data, and ordering information.
Establishing strict documentation rules is equally important, ensuring that all teams (purchasing, warehousing, and sales) adhere to the standardized coding sequence. The documentation must clearly define the codes used for each product family and attribute, preventing the creation of inconsistent or redundant SKUs by different personnel. Future-proofing the coding sequence involves leaving ample space in the sequential identifier (using three or four digits) and ensuring category identifiers are broad enough to accommodate new product lines without requiring a complete system overhaul. This approach ensures the system can scale with business growth and evolving product offerings.
Common Mistakes to Avoid
A frequent error in SKU creation is starting the code with the number zero, as many spreadsheet programs automatically drop leading zeros, corrupting the unique identifier. The use of special characters or symbols is also a pitfall, as they can interfere with database queries and scanning equipment.
Businesses should resist the temptation to use a manufacturer’s part number (MPN) as their own SKU. This ties the internal tracking system to an external source that the company cannot control. If the manufacturer changes their MPN, the retailer’s inventory records are instantly invalidated.
Finally, failing to thoroughly document the SKU system ensures that new employees or product managers will create inconsistent codes, undermining the system’s ability to provide accurate data.