What Is a Stock Keeping Unit?

A stock keeping unit (SKU) is a machine-readable bar code, most often seen printed on product labels, that lets vendors expeditiously scan and track the movement of inventory. Typically an alphanumeric combination of eight-or-so characters, SKUs may also be applied to intangible but billable products, such as units of repair time or warranties.

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Stock Keeping Unit (SKU)

Understanding Stock Keeping Units (SKUs)

SKUs are used by catalogs, brick-and-mortar retail stores, online e-tailers, warehouses, and product fulfillment centers to track inventory levels in order to determine which products require reordering. Although SKUs differ from model numbers, businesses may embed model numbers within SKUs.

[Important: By adding SKUs to every product variation, store owners can easily track the quantity of available products and create threshold limits to let them know when new purchase orders must be made.]

In any case, each business creates different SKUs for its goods and services. For example, businesses selling running shorts create different internal SKUs that reveal a product’s details, such as color, size, style, price, manufacturer, and brand. For example, the SKU for purple Ugg boots in the Bailey Bow style, size 6, may read "UGG-BB-PUR-06."

The Importance of Stock Keeping Units

SKUs let shoppers compare characteristics of similar items. For example, when a shopper buys a specific DVD, online retailers might display similar movies purchased by other customers, based on SKU information. This method may trigger additional purchases, thereby increasing a company’s revenue.

Stock Keeping Units Versus Universal Product Codes

Because companies internally create SKUs to track inventory, the SKUs for identical products vary among businesses, which can help retailers custom design advertising campaigns, without interference from other vendors.

For example, if a company provides the SKU to advertise a certain discounted refrigerator, shoppers cannot easily view the same refrigerator at other sellers, based on the SKU alone. This stops competitors from matching advertised prices and poaching customers. In contrast, universal product codes (UPCs) are identical, regardless of which business is selling the items in question.

Example of SKUs in the Modern World

SKUs are making the shopping experience more efficient than ever before. For example, If you've been shoe shopping in the past, you'll recall that clerks would have had to visually scour the back stockroom, to hunt for a specific model of shoes in your correct size.

Key Takeaways

  • A stock keeping unit (SKU) is a machine-readable bar code, most often seen printed on product labels, that lets vendors expeditiously scan and track the movement of inventory.
  • SKUs may also be applied to intangible but billable products, such as units of repair time or warranties.
  • SKUs are used by catalogs, brick-and-mortar retail stores, online e-tailers, warehouses, and product fulfillment centers to track inventory levels in order to determine which products require reordering.

But today, many retailers are equipped with portable scanners, enabling salespeople to check back-of-the-store inventory by simply scanning a floor sample. This is one of the many benefits of the modern-day SKU system.