Learn what SKUs are, how businesses use them to track inventory, and why they’re essential for managing stock efficiently in retail and e-commerce.
Ever wondered how stores keep track of everything on their shelves? Every time a product is scanned at checkout, a unique code updates the inventory in real time. That code is a stock keeping unit (SKU) — a product identifier that retailers and e-commerce stores use to organize and track inventory.
But how do businesses create SKUs, and why are they so important? In this guide, we’ll explain what SKUs are, how they work, and why they’re essential for efficient inventory management.
What Does SKU Mean? SKU Meaning
A SKU is a unique code that businesses use to organize and track their products. Every SKU contains important details about an item, such as its brand, price, manufacturer, and location in a store or warehouse. Many SKUs also include barcodes, which allow businesses to scan products quickly and update inventory records automatically.
SKUs help businesses manage their inventory by tracking stock levels, processing orders, and preventing shortages. Without SKUs, it would be much harder to organize and locate products, especially for retailers and online stores that sell a large variety of items.
Primary Use Cases for SKUs
From keeping track of how much of a product is currently in stock to deciding how many units to order based on past sales, businesses use SKUs in several ways:
1. Managing Inventory
SKUs allow businesses to keep track of how many products they have and where they are stored. Employees can scan SKU codes to check stock levels instantly, making it easier to restock shelves and avoid running out of popular items. This also prevents overstocking, which happens when a business orders too many of a certain product and has trouble selling them all. By monitoring SKU data, businesses can decide when and how much to reorder.
2. Suggesting Items
Many online stores use SKUs to group similar products together, which allows them to suggest alternative or related items. For example, if a customer is shopping online for a leather jacket, the SKU system might recommend other options in similar colors, materials, or styles. This makes shopping easier for customers while also helping businesses sell more products.
3. Forecasting Sales
Businesses use SKUs to analyze sales trends and plan ahead. For example, if a store notices that a particular backpack sold out during last fall's back-to-school season, it can order more in advance next year. Sales forecasting helps businesses avoid running out of popular products while also reducing the chance of excess inventory from going unsold.
4. Improving Customer Experience
SKUs also make it easier to locate products in stores, warehouses, and online inventories. Instead of searching shelves manually, employees can scan an SKU or check a database to see if an item is in stock and, if so, how many and exactly where to find it.
How to Create SKU Numbers
Before using SKUs for your products, you first need to create them. The process is simple with most inventory management systems or point-of-sale (POS) platforms, as they often include built-in tools for generating SKUs.
Here are the key steps to follow:
1. Create a Standardized Code
SKUs are codes made up of letters and numbers that businesses use to organize inventory. Each SKU is designed to provide specific details about a product. For example, a clothing store might create an SKU that includes the item's category, color, size, and brand. A green, size large T-shirt from Brand X could have an SKU like TSH-GRN-L-X. When SKUs follow a set pattern, they help businesses quickly identify products and keep stock organized.
2. Keep SKUs Unique
Every SKU should be assigned to only one product type and variant. For example, that Brand X green shirt in size large would have a different SKU than the same Brand X green shirt in size medium. Each product needs its own unique, original SKU to keep inventory records accurate.
Reusing SKUs can cause confusion in tracking systems and lead to inventory errors. Even if a retailer stops selling a product, its SKU should not be reassigned to a different item. Doing so could mix up past sales data and make it harder for businesses to monitor stock levels.
3. Keep SKUs Simple
SKUs should be easy to read so employees can quickly find and organize products. A well-structured SKU follows a pattern and uses abbreviations that make sense. For example, the SKU for a green Brand X shirt in size large might be TSH-GRN-L-X, while the medium version of the same shirt could be TSH-GRN-M-X. Keeping the format simple helps employees and inventory systems quickly recognize specific product details accurately.
4. Use Clear and Readable Characters
Some letters and numbers look alike, like "O" and "0." To avoid mistakes, businesses should use uppercase letters and avoid characters that are easy to misread. Also, SKUs should only contain letters and numbers — avoiding symbols and special characters helps prevent inventory tracking errors.
Where Are SKUs Found?
Every time you buy something at a store — whether a pack of gum or a TV — it involves a SKU. But SKUs aren’t just for scanning at checkout. Behind the scenes, they keep products organized so that shelves stay stocked and online orders are fulfilled.
Here’s a look at where you can find SKUs hard at work in retail, e-commerce, and beyond:
1. SKU Supply Chain Integration and EDI
As products move from manufacturers to stores, businesses need a way to track them. Many companies use Electronic Data Interchange (EDI), a digital system that allows suppliers and retailers to share product details. SKUs are included in EDI documents to ensure everyone is using the same information, reducing confusion and mistakes in orders.
SKUs also help businesses monitor their products at all times. Companies use them to track production, shipping status, and inventory levels, ensuring stores have enough stock and avoiding shortages of popular items.
2. Warehouse Management and Logistics: SKU Cases
Warehouses rely on SKUs to keep products organized and easy to find. Each item gets a unique SKU, like a special code, that helps workers know exactly where things are stored.
When new shipments arrive, workers scan SKUs to update inventory records and confirm that everything is in the right place. This system speeds up order packing and shipping. SKUs also play a key role in inventory audits, ensuring the number of products in storage matches the records in the system.
3. Catalogs
SKUs make it easier to look up and order products in both printed and online catalogs. In a printed catalog, businesses use SKUs to find product details when customers place orders over the phone or by mail.
Online stores also use SKUs in product listings and web addresses so shoppers can find items more easily. These codes connect to point-of-sale (POS) and enterprise resource planning (ERP) systems, which track inventory and prevent businesses from selling items that are out of stock.
4. E-Commerce and Retail SKUs
Retailers — both in-store and online — use SKUs to track inventory and manage sales. In physical stores, checkout systems scan SKUs at POS terminals to identify products, update stock levels, and process purchases. Online platforms rely on SKUs in product listings to connect item pages, sync inventory across locations, and provide real-time stock updates on apps and websites. Large e-commerce platforms like Amazon and Shopify also require SKUs to sync inventory across multiple marketplaces and prevent overselling.
SKUs vs. Other Retail Codes
SKUs are just one of several product identification codes used in retail and logistics. Here’s how they compare to others:
SKUs vs. UPCs: SKUs are unique to each business for internal tracking, while Universal Product Codes (UPCs) are standardized 12-digit identifiers used across retailers to identify the same product at the point of sale.
SKUs vs. GTINs: SKUs help businesses track inventory variations like size and color, while Global Trade Item Numbers (GTINs) are standardized (8–14 digits, numeric-only) product codes used for universal identification across retailers and regions.
SKUs vs. barcodes: SKUs are alphanumeric codes businesses create for internal inventory management, while barcodes are scannable representations that encode SKUs, GTINs, serial numbers, or other product data for use at checkout and in supply chains.
SKUs vs. serial numbers: SKUs categorize product types, while serial numbers are unique to individual items, tracking their lifecycle for returns, recalls, and warranties.
Improve Your SKU System with Orderful
Whether you need to track bestsellers, plan restocks, or boost revenue, it all starts with a well-structured SKU system. A smart approach to SKUs simplifies inventory management — whether you’re launching a startup or expanding an e-commerce business. But a well-structured SKU system is only as effective as the tools behind it. That’s where Orderful comes in.
Orderful makes it easy to integrate SKUs into your operations with an EDI-enabled system that streamlines inventory tracking and supply chain management. Our dashboard delivers real-time SKU data, so you always know where your stock levels stand.
Ready to take control of your inventory — and then take it to the next level? Talk to an expert today.
