June 23, 2023
June 23, 2023

What is SKU? A Guide to Organized Inventory

In inventory management, SKU (Stock-Keeping Unit) numbers are crucial for tracking inventory, managing stock replenishment, and improving order accuracy and warehouse efficiency. This article will explore the importance of SKU numbers, provide practical tips for creating and managing them effectively, and walk you through some of the most important terms.


What is SKU? 

A SKU is a unique identifier assigned to each product in a company's inventory system and is a critical tool in inventory management, as it helps you track inventory levels and distinguish between different products - even if they have similar characteristics such as color or size. Each SKU number is unique to a specific product and can include a combination of letters, numbers, or symbols.

Difference between SKU and UPC

While both SKU (Stock Keeping Unit) and UPC (Universal Product Code) are used to track products in the inventory management process, they serve different purposes and have unique characteristics. 


A UPC is a standardized barcode that is used to identify and track products at the point of sale. It is a 12-digit number that is assigned to a specific product by the manufacturer or distributor. UPC codes are used to scan products at the checkout register, allowing for easy and efficient tracking of sales data.


On the other hand, SKU numbers are used internally to track inventory levels, manage stock replenishment, and improve order accuracy. Unlike UPC codes, SKU numbers are assigned by your business, and they can be customized to fit the specific needs of the company. 

Example of UPC and SKU

  • A SKU for a red t-shirt in size large with a crew neck might be "RT-L-RD-CR"
  • A UPC for a can of Coca-Cola might be "049000028904"

In summary, UPC codes are standardized and used primarily for point-of-sale tracking, while SKU numbers are customized by the business and used throughout the inventory management process.

AutoStore FusionPort workstation Bin opening with SKUs inside
A SKU is a unique identifier assigned to each product in a company's inventory system and is a critical tool in inventory management.

Improve efficiency, accuracy, and profitability with SKUs 

So, why should you even use SKUs? Other than contributing to warehouse automation, there are several reasons for that: 

  • Accurate inventory tracking: SKUs allow you to track inventory levels more accurately. As each product has its own unique identifier, it becomes easier to monitor stock levels and know when to reorder products.
  • Improved order accuracy: SKUs can help to reduce order errors, as they provide a clear and concise way to identify products. This makes it easier for your warehouse staff to pick and pack the correct products for each order.
  • Efficient stock replenishment: SKUs make it easier to manage stock replenishment, as your business will have a clear overview of which products are selling well and which ones need to be restocked.
  • Better sales tracking: SKUs provide you with valuable sales data that can be used to make informed decisions about product lines and marketing strategies.
  • Faster product searches: Other than business benefits, SKUs make it easier for customers to find products on a website or in a physical store. Customers can simply search for a product using its SKU, which is quicker than having to browse through numerous product listings.

Overall, using SKUs as part of an inventory management system can help you to streamline operations, reduce errors, and improve your bottom line.

SKUs provide you with valuable sales data that can be used to make informed decisions about product lines and marketing strategies.

Defining an order (Order, line, and Unit)

“Order”, “line”, and “unit” are all terms used in inventory management to represent different levels of detail in the sales and order fulfillment process. Though they are closely connected, they are used to describe different objects of an order. 


An order is a request made by a customer to purchase one or more products from a business. It includes information such as the customer's name, billing and shipping addresses, payment method, and the specific products being ordered.


A line is a specific item or product included in an order. For example, if a customer orders three items, each item would be considered a separate line in the order.


A unit refers to the individual item that is being sold. For example, if a customer orders three shirts, each shirt is considered a separate unit.

Unit vs. SKU

Where a unit is an item being sold, an SKU is a unique identifier assigned to each product in a company's inventory system. Where a unit can be a specific shirt in an order, the same unit would have several SKUs such as one for every size and color.

In summary, an order is the entire request made by a customer, a line is a specific item or product included in an order, and a unit is the individual item being sold. In relation, an SKU is like an ID number assigned to every variation of a product.

The video below shows a warehouse operator picking various SKUs and fulfilling orders at the RelayPort:

How to assign SKUs to products

To assign SKUs to products, it is important to plan carefully and pay close attention to detail. Here are some steps to follow when creating and assigning SKUs: 

  1. Determine the level of detail needed: SKUs can include various levels of detail, such as product type, color, size, and style. Determine which characteristics are important to track in your inventory management system.
  2. Choose a numbering system: Choose a numbering system that works for your business, such as sequential numbers, alphanumeric codes, or a combination of both.
  3. Create a format: Decide a suitable format for your SKUs. For example, you might use a format that includes the product type, followed by the color, size, and style.
  4. Make sure SKUs are unique: Each SKU must be unique to a specific product. Therefore, avoid using the same SKU for different products or variations of the same product.
  5. Implement a system for assigning SKUs: Create a system for assigning SKUs to new products and ensure that all SKUs are entered into your inventory management system - and in the same way.
  6. Regularly review and update SKUs: Remember to review SKUs on a regular basis to ensure they are still accurate and relevant. Additionally, update SKUs as needed to reflect changes in product offerings or inventory management processes.

Manual vs. automatic SKU management

SKU management can be done manually or automatically. Manual SKU management involves assigning SKUs to products by hand, often using a combination of letters and numbers to create a unique identifier for each product. Automatic SKU management, on the other hand, uses technology such as barcode scanners or an inventory management software to assign and track SKUs. 

Manual SKU management is best for small businesses with limited products or custom products, where automatic SKU management is better for larger businesses with high product volume or standardized products.

Automatic SKU Management with barcode scanners or inventory management software is an efficient method of assigning and tracking SKUs.

How to track your inventory using SKUs

Once you have created SKUs for all of your products, tracking the inventory is actually quite simple. Just follow these simple steps:

  1. Every time a product is received or sold, scan the barcode to update the inventory count and record the transaction.
  2. Monitor your stock levels regularly and reorder products as needed. That will ensure that you always have the products your customers want and need. 

How to demand forecasting and planning with SKUs

To forecast demand and plan inventory using SKUs, you need to collect historical sales data, analyze market trends, use forecasting methods, plan inventory levels, and monitor actual demand. By following this process, you can anticipate changes in demand, adjust inventory levels accordingly, and optimize your inventory levels. Overall, assigning SKUs and track inventory will eventually result in reduced cost and improved customer satisfaction, as it allows you to reorder products before they run out of stock.


This article has provided a thorough overview of SKUs, what it is, how to manage it, and why it is necessary to keep track of inventory. In summary, a SKU is a unique identifier that represents a product's attributes and is used to track inventory. Using SKUs helps businesses monitor stock levels, forecast demand accurately, and reduce costs. Assigning SKUs to each product or item can improve inventory management, increase efficiency, and enhance customer satisfaction, ultimately benefiting your bottom line.





What is a SKU example?

An example of an SKU is "ABC1234BLK”. This SKU represents a black shirt in size small from manufacturer ABC.

Another example is “MACBOOK-AIR-GOLD-256GB", where "MACBOOK-AIR" represents the product, "GOLD" represents the color, and "256GB" represents the storage capacity. 


Why is SKU important?

SKUs are important because they help businesses track inventory, monitor stock levels, and forecast demand accurately. This can reduce costs associated with overstocking and stockouts and improve overall customer satisfaction, as tracking inventory can prevent products from running out of stock. 


How do I get a SKU for my product?

To create an SKU for your product, you can use a combination of letters, numbers, and symbols that represent different attributes of the product, such as size, color, and manufacturer. As a business, you are responsible for creating your own SKU, while the only requirement is for the SKU to be unique and easy to read. 

Is SKU and barcode the same?

No, while a SKU is a unique identifier used to track inventory, a barcode is a visual representation of an SKU that can be scanned to identify the specific product. Barcodes can be generated for each SKU and attached to the corresponding products or items in your inventory to make tracking easier. 

Do you want to learn more about how to automate your warehouse operations to improve efficiency and overall ROI? Let's get in touch today.

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