SKU: What It Is and How to Create It Correctly
What is an SKU?
Let’s dive into what an SKU is and why it's important.
Similar to the widely used barcode, SKU plays a key role in product identification. However, unlike barcodes, which are used to track products at all stages of the supply chain, SKU is an internal system of the company. SKU is created based on the specific product characteristics that are most important for its efficient sorting, accounting, and management within the company. For example, in relation to clothing, an SKU may encode data such as brand, type of clothing (t-shirt, jeans, shirt, etc.), color, size, additional features (hood, pockets), and more.
SKU structure
The SKU code is generated arbitrarily and usually consists of letters, numbers, or other symbols. For example, an SKU may contain information about the manufacturer, release date, size, model, color, and other characteristics.
- Manufacturer brand: YX (Yonex).
- Racket model: V70.
- Racket type (adult/children’s): A (Adult).
- Racket weight: 300 (grams).
- Handle material: Gr (Graphite).
Where SKUs are used
SKU or UPC
SKU and UPC (Universal Product Code) are two product identification systems used for inventory management. Let’s explore how they differ.
What they are used for
Key features
Where they are used
Where they are placed
Despite their differences, SKUs and UPCs complement each other in the supply chain and sales processes. SKUs provide accurate internal inventory tracking, while UPCs simplify product identification and processing during sales.
Creating and decoding SKU
This product identifier does not adhere to strict universal standards. Each company independently decides what information and in what format to include in this code. However, there are general guidelines. Typically, an SKU code contains the following details:
Product manufacturer.
Product size and material.
Type of packaging.
Number of product units.
Product location.
The list of characteristics included in an SKU is not limited. Depending on the specifics of the product and the inventory management goals, additional information can be added, such as expiration date, volume, weight, color, variations (e.g., with or without pockets), and any other data useful for inventory and warehouse operations optimization.
Example of an SKU
Let’s assume an electronics store sells smartphones from five different manufacturers. In this case, the SKU code may include the following information:
- A letter representing the manufacturer. For example, S — Samsung, A — Apple, X — Xiaomi, H — Huawei, L — LG.
- Type of device. 1 — smartphone, 2 — tablet, 3 — smartwatch.
- Memory capacity. For example, 64 — 64 GB, 128 — 128 GB, 256 — 256 GB, 512 — 512 GB.
- Color. 1 — black, 2 — white, 3 — silver, 4 — blue, 5 — pink.
- Warehouse location. For example, S2-Y3-P1 — second shelf, third row, first position.
- Number of remaining units. The SKU must be updated after each restock or sale.
How to use SKUs correctly
When working with product identifiers, it’s important to consider several nuances to increase their effectiveness. Here are a few recommendations:
- SKU uniqueness. It's essential to avoid assigning the same code to two, even very similar, products. This simplifies inventory management by eliminating confusion and errors.
- SKU readability. Use simple fonts and clear abbreviations to ensure the SKU is easy to read. If no one can understand your SKU, it won’t be useful—employees will get confused or spend too much time trying to decipher it. Where possible, create SKUs with visual meaning. For example, use the first letters of the supplier or brand name. Such codes are easier to remember and process manually.
- Consistency across all systems. If you maintain the same SKU across all internal systems, whether it's for cross-channel analytics, an online store, or a marketplace system, you’ll avoid confusion during order processing. Customers will receive exactly the product they wanted.
- Add sequential numbering. Using sequential numbers (001, 002, etc.) helps track products easily. This allows you to quickly locate old and new items.
- Train employees on SKU interpretation. All staff involved in sales and inventory management should be able to easily read the information encoded in the SKU. Without this, SKUs lose their practical value.
- Avoid using zeros or special characters. Some inventory management software ignores zeros in SKU codes, and employees often confuse them with the letter "O," which leads to input errors. Similarly, using special characters like !, @, or & often causes problems with some software, so it’s better to avoid them in SKUs.
Conclusion
SKU is not just a unique code; it is the foundation of efficient inventory management. It acts as a kind of passport for a product within a company, containing all the necessary information, from the manufacturer and product characteristics to its location in the warehouse. The use of SKUs provides brands with several key advantages.
First, it ensures accuracy in tracking and control. With the code, you can instantly monitor product availability at any stage, from arrival to sale.
Second, it optimizes warehouse logistics. The code allows you to quickly locate the required item and reduce the time spent on order fulfillment.
Third, it enables effective analytics. Using SKU, you can easily identify popular products, detect underperforming items, and adjust your inventory accordingly.
Thanks to the SKU coding system, companies not only reduce costs but also improve customer service by processing orders more efficiently.
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