What is a SKU and How to Use It?

Effective product management starts with unique SKUs. Retailers and wholesalers have a good amount of money invested in the overall stock sitting at the centre of purchasing, sales, and subsequent inventory processes. This helps keep a careful track of the stock as the essentials of the business continue growing in its ongoing journey. 

The SKU (Stock Keeping Unit) is a unique identifier for each product that makes it easier to track inventory. SKUs are important tools for wholesalers and retailers that allow them to find products and keep track of stock levels across channels and systems. The success of any retail or wholesale business depends on effective product management, and proper product management depends on SKUs.

What is the SKU Number?

The SKU or Stock Keeping Unit is an alphanumeric code that is assigned to the available inventory. The code helps retailers track the existing stock, analyze sales by category and products, design flow and store layouts, and improve the overall shopping experience. The codes are designed by retailers and wholesalers on the basis of the particular criterion they consider as important.

Retailers create their own SKU codes on the basis of several characteristics of the merchandise. Usually, SKUs are categorized into classifications. For example, a typical home improvement store features different sections like lawn, garden, hardware, and so forth. Therefore, the SKUs are designed around garden and lawn classification. They feature letters or numbers depicting products as classifications. 

How do the SKUs Work?

SKUs work towards differentiating products from one another. It is difficult to track the overall inventory and sales without their classification on the grounds of the model, make, size, colour, type, or other characteristics. 

The SKU is eventually fed into the inventory management system and linked to the POS or Point of Sale system. The retailer can then track sales and inventory with the help of detailed reporting. The SKU system also enables retailers to form data with respect to their inventory, sales, and customers.

The SKU is capable of doing more than only identifying a product or tracking inventory. With the collection of information, retailers are provided information that can be analysed for gauging the efficiency or profitability of the entire business.

  • Inventory Management: This is the core function of a SKU system. With SKU, retailers are capable of tracking inventory levels, flow, and turnover. They are able to set timeframes and inventory levels with information collected from sales. This information acts as an initiative for starting or stopping inventory-based orders.
  • Analysis: SKUs also enable retailers to gather data  that allows them to conduct an in-depth analysis when determining product popularity or viewing cyclic and seasonal sales trends. The analysis report offers them the opportunity to stock inventory coinciding with the trend in consumer-centric behaviour. 
  • Customer Assistance: SKUs can be scanned by sales associates to instantly find out what is in stock for customers, which helps boost customer satisfaction and sales efficiency. 
  • Marketing and Advertising: The utilization of SKUs in the field of advertising and marketing is a modern technique. With the highly competitive online retail landscape and matching prices, the SKU enables the inventory to look unique. It also helps in identifying specialized marketing techniques that are creating sales on the basis of specific product identifiers. Most retailers advertise their SKUs rather than the model number of the manufacturer.

Due to this, it becomes difficult for the consumer to come across the exact model at some other store. This decreases the chance of competitors that match pricing strategies with similar information. It is also helpful in reducing the chances of customers visiting different stores to compare prices for products they wish to purchase online instead.

  • Product Recommendations: Organizations also make use of the SKU codes for improving customer interactions on online sales platforms. For instance, Amazon is capable of selecting items for display in the form of ‘suggestions’ when customers shop with SKUs. The e-commerce giant has linked a unique SKU, with all the characteristic traits, to every product. For instance, when you are searching for a blender, the platform will offer access to information about other similar blenders for your ease of shopping. 

Generating SKU Numbers

The most productive SKUs are not just a series of random numbers but instead are comprised of different units of small-sized information. They usually start with a 2-3 character identifier for displaying information like the category or department with which the item has been associated. The succeeding characters correspond to data like sub-category, colour, or product size. The final characters in the SKU code are some sequential numbers. 

When SKU codes are generated using this approach, the SKU remains unique to the business. It also helps in embedding meaningful information within the SKUs. For instance, if every SKU coincides with a department code, it becomes easier for an employee to have a look at the SKU to determine where to return a misplaced item. 

As SKUs are expected to be unique to every product within the inventory, it is not realistic to create them manually. However, businesses can make use of a dedicated Point of Sale or inventory management system for generating SKUs automatically. 


SKU numbers help businesses in organizing, tracking, finding, and identifying inventory with the help of a system that is meaningful to the business and its employees. When done correctly, SKUs help in merchandising the sales floor, serving customers better, and maximizing sales. Having a well-maintained and thoughtful inventory management system can make any business more profitable and highly efficient. 

Pairing some meaningful SKU code with a reliable POS offers access to every tool needed for maintaining inventory and sales channels effectively.

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