fbpx

What is a Stock Keeping Unit (SKU)?

Stock Keeping Unit (SKU)

Share This...

Stock Keeping Unit (SKU)

A Stock Keeping Unit (SKU) is a unique identifier, often an alphanumeric code, used by retailers, warehouses, and manufacturers to track inventory and stock levels. SKUs help businesses manage their inventory more efficiently and provide critical information at a glance about a specific product’s size, color, style, price, manufacturer, or other attributes.

Key Features and Functions of SKUs:

  • Uniqueness: Each SKU is distinct and corresponds to a specific variation of a product. For example, a red, medium-sized t-shirt from a particular brand will have a different SKU than a blue, large-sized t-shirt from the same brand.
  • Inventory Management: Retailers and warehouses use SKUs to monitor stock levels, reorder products, and identify sales patterns. For instance, if a particular SKU is frequently out of stock, it may indicate a high demand for that product.
  • Order Fulfillment: In e-commerce and traditional retail settings, SKUs help in picking, packing, and shipping the correct products to customers.
  • Data Analysis: By analyzing SKU data, businesses can gain insights into product performance, optimize inventory turnover, and develop marketing strategies.
  • Point-of-Sale (POS) Systems: When a product is scanned at the checkout counter, its SKU provides the POS system with information about the product, ensuring the correct price is charged and reducing the inventory count by the sold quantity.
  • Customization: While some businesses might use the manufacturer’s part number as an SKU, others create custom SKUs tailored to their specific inventory tracking needs.

Note: SKUs are different from Universal Product Codes (UPCs). While a UPC is a standardized 12-digit number used universally for products (often represented by a barcode), SKUs are typically specific to individual retailers or businesses.

Example of a Stock Keeping Unit (SKU)

Let’s use a detailed example to illustrate the concept of Stock Keeping Unit (SKU) in a real-world retail scenario:

Retail Scenario: “Ella’s Electronics Store”

Ella owns an electronics store where she sells various gadgets, including smartwatches from a brand named “TechTime.” The “TechTime Pro” model comes in two colors (black and silver) and two sizes (42mm and 46mm). Ella needs to track her inventory effectively to ensure she knows when to reorder and which items are the most popular.

SKU Creation:

To distinguish between the different variants of the “TechTime Pro” smartwatch, Ella creates unique SKUs for each combination:

  • TechTime Pro – Black – 42mm: SKU – TTP-B-42
  • TechTime Pro – Black – 46mm: SKU – TTP-B-46
  • TechTime Pro – Silver – 42mm: SKU – TTP-S-42
  • TechTime Pro – Silver – 46mm: SKU – TTP-S-46

Real-World Application:

  • Inventory Management: When Ella checks her inventory, she notices that she has only 5 units left of the TTP-B-42 SKU. Since this variant has been popular recently, she decides to reorder before it goes out of stock.
  • Sales Analysis: After analyzing a month’s sales data, Ella realizes that the TTP-S-46 SKU has the highest sales, so she plans a promotional campaign around it to further boost its sales.
  • Customer Service: A customer contacts Ella’s store asking if they have the “TechTime Pro” in silver and 42mm size. The staff quickly checks the inventory system using the SKU TTP-S-42 and confirms its availability.
  • Returns and Exchanges: A customer returns a smartwatch, claiming it’s the wrong size. By checking the SKU on the box (TTP-B-46), the staff can quickly ascertain it’s the 46mm variant and process the return, offering the customer the desired 42mm size instead.

Conclusion:

In this example, Ella’s use of SKUs allows her to manage her inventory efficiently, cater to customer needs swiftly, and make informed business decisions. By assigning a unique identifier to each product variant, she ensures accurate tracking and management of her store’s items.

Other Posts You'll Like...

Want to Pass as Fast as Possible?

(and avoid failing sections?)

Watch one of our free "Study Hacks" trainings for a free walkthrough of the SuperfastCPA study methods that have helped so many candidates pass their sections faster and avoid failing scores...