A Stock Keeping Unit (SKU) is an internal, alphanumeric code used by businesses for inventory tracking and management. This unique identifier is applied to every distinct product and product variation a company sells. A well-designed SKU system allows for precise control over stock levels and product movement. Establishing a logical and consistent SKU format improves organizational accuracy and overall business efficiency.
Understanding the Purpose of an SKU
SKUs provide granular control over merchandise, facilitating quick inventory lookups. Staff can immediately identify product attributes without physically inspecting the item. This capability improves warehouse organization, streamlining picking and packing during order fulfillment, minimizing shipping errors, and speeding up processing times.
SKUs are also instrumental in detailed sales analysis, tracking the performance of specific product variants. Analyzing sales velocity helps determine best-selling items and identify slow-moving stock. This information enhances reordering efficiency, allowing managers to set appropriate reorder points to prevent stockouts and overstocking.
SKU Versus Other Product Identifiers
The Stock Keeping Unit is distinct from other identifiers, such as the Universal Product Code (UPC) and the Global Trade Item Number (GTIN). SKUs are created and controlled internally by the retailer or manufacturer. They are designed to be human-readable, containing meaningful information about the item’s characteristics, like color or size.
Conversely, UPCs and GTINs are standardized, external codes used for universal product identification across the supply chain. These codes are assigned by an international body, like GS1, and are required for products sold in retail environments and online marketplaces. A UPC is a 12-digit numeric code, while GTIN is the umbrella term for various global standards. The Manufacturer Part Number (MPN) is another external code, assigned by the original manufacturer, often used for specific components or replacement parts.
Designing the SKU Structure
A successful SKU system requires establishing a consistent structure that can scale with business growth. The structure defines the sequence of product attributes in the code, creating a predictable format. This hierarchy should place the broadest identifiers first, progressing toward the most specific details.
Effective SKU structures commonly include a top-level category, a vendor or brand code, and specific product attributes like material, color, or size. For example, a structure might follow the format: Category-Vendor-Style-Color-Size. Maintaining this uniform sequence ensures employees can immediately interpret the code’s meaning.
The structure must be flexible enough to accommodate new product lines without requiring a complete system overhaul. Establishing fixed-length segments for each attribute, such as three characters for color, ensures the structure remains consistent and easily parsable by inventory software. This design prevents ambiguity across unique product codes.
Step-by-Step Guide to Creating the Code
Define Essential Product Attributes
Creating an SKU begins by determining the three to five most important product characteristics that differentiate items. For a clothing retailer, these are typically product type (e.g., “T-Shirt”), size, and color. Focusing only on the most differentiating attributes prevents the SKU from becoming excessively long or complex.
Assign Alphanumeric Codes to Attributes
The next step is assigning short, descriptive alphanumeric codes to each specific attribute value. Codes should be logical abbreviations, such as “TS” for T-Shirt or “SM” for Small. Avoid using characters that are easily confused, such as the letter ‘O’ and the number ‘0’, or ‘I’ and ‘1’.
A consistent mapping key must be maintained, ensuring that “BLU” always represents the color blue and prevents conflicts where a code like “RD” stands for multiple attributes. Using capital letters for all segments enhances readability and reduces data entry errors.
Combine and Standardize the Code
The final step involves linking the individual attribute codes to form the complete SKU, following the established architectural structure. A delimiter, such as a hyphen, can visually separate the code segments, making the SKU easier for humans to read and software to parse. For example, combining codes for a blue, small t-shirt sold by vendor ABC might result in $\text{ABC-TS-SM-BLU}$.
Maintain a consistent total character length across all SKUs, even if padding with a sequential number is required to ensure uniqueness. This standardization ensures the code is uniformly handled by inventory management systems and point-of-sale software.
Best Practices for SKU Implementation
To maintain integrity and usability, follow these implementation practices:
- Limit the overall length of the code, generally recommending eight to twelve characters for optimal readability and data processing speed. Longer codes are prone to transcription errors.
- Avoid beginning any SKU with the number zero, as many spreadsheet and database programs automatically drop leading zeros, causing data corruption.
- Refrain from using special characters, such as slashes or asterisks, as these can interfere with software functions and database queries.
- Integrate the SKU system into specialized Inventory Management Software (IMS) or Enterprise Resource Planning (ERP) tools for automating tracking and reporting.