SKU Numbers: What Are They and Why Are They So Important For Your Business?

In the field of inventory management, SKU stands for Stock Keeping Unit. It is the term often used in retail with emphasis on a company’s system used to manage their inventory. 

SKU numbers are unique alphanumeric codes that the supplier assigns to each product, thus making it easy to distinguish this product from others. As a result, SKUs alphanumeric code is sometimes referred to as the product code. The SKU numbers in retail are most significant when it comes to setting up and managing inventory – it can be a crucial part of the sales process for any retail business. 

The proper setup of the stock-keeping unit or SKU will allow for the accurate tracking of all items.

SKU NUMBERS vs BARCODES

Unlike barcodes -which are an optical machine-readable representation of the Universal Product code also called UPC codes- that can be reproduced onto retail products, SKU numbers are used internally and not externally. 

Further, they can easily be read or interpreted by individuals and do not have such strict standards as barcodes and Universal Product Codes (UPC codes). 

An SKU number system may look like this: SP-Cot-Br-38. 

At a first glance, it may appear to be a random, meaningless array of letters and numbers, but if we decipher the SKU meaning it’ll be possible to see “Short-Pants, Cotton, Brown, Size 38.” This example gives a clearer understanding of what an SKU number system is.

Creating SKU numbers is one of the most important prerequisites for the management of your inventory. Without SKU numbers your system will not function properly, so it’s crucial to know how to establish SKU numbers and manage them.

Why Are SKU Numbers So Important?

Efficient and effective management of inventory

With SKU numbers, one can easily search for and track inventory and their movements. This inventory tracking system can aid in the management of inventory costs.

Improved accuracy

SKU numbers can also be contained in barcodes. With barcoding tools now available, this significantly reduces the incidences of human errors that may happen when entering the data manually.

Faster and easier access to data

With an SKU number system, it’s possible to get the required information about a specific product with the click of a button. 



Location-specific data can also be accessed if items are stored at multiple locations. This is a good tool to track inventory and access sales data.

Improved quality of service

SKU codes help you make sure that the warehouse employees do not pick or ship the wrong items but will provide the exact product to customers. 

The use of an SKU number system will help to better manage inventory, customer satisfaction, and gain customer loyalty.

Protection from theft

You can track movement and location, therefore if something is missing you will immediately know about it. You’ll also have a unique number that identifies exactly which product is missing and can also provide a store location. 

Greater oversight brings less likelihood of theft. As such it’s much more difficult to steal an item with a unique number, even if it’s a small item among lots of other items inside a big warehouse. 

SKU numbers allow you to track and organize your inventory so you know where everything is at any time.

Ability to create threshold limits

For each SKU number, you can specify the reorder point and safety stock levels. This means you can control your inventory amounts and be alerted when you should replenish them. 

This will ultimately assist with smarter inventory decisions as there will be a better stock count.

Inventory Management Software

Inventory Management system software is the best tool for the management of inventory. An inventory system that is easy to use allows you to create and manage your SKUs effectively and efficiently. 

How to create SKU Numbers

There are no hard and fast rules when it comes to creating an SKU number. Listed below are some simple steps that are commonly practiced SKU naming conventions to help get anyone get started.

Design a format

Start by creating a standard format for naming SKUs. SKUs are normally alphanumeric so a combination of letters and numbers can be used to create your SKUs. 

Determine the order in which you will arrange product features. Some examples of product features include the brand name, size, color, or item type. Best practice dictates that you should only include the most outstanding product features in SKU names. For instance, your standard SKU format might be:

Name of manufacturer-the color of the product variant-size

For example, an SKU number for ‘black Old Navy slippers in size 12’ might be:

OLN-BL-12

Once a pre-decided SKU naming format is followed, you will be able to easily create SKUs for any new products that your company decides to distribute.

Create a coding system

The next step is to establish a list of attribute codes to identify different aspects and or features in your SKU names such as brand names, sizes, types, and colors.

This can be done in spreadsheet software such as Excel or Google Sheets by simply mapping the attribute name to the attribute code.

The main benefit of establishing a list of standardized attribute codes for SKU naming is that all members of your team will be following the same key when assigning SKU names. 

This will also contribute to enhanced management of inventory, improved customer frequency in making purchases, and in turn, maximize sales.

SKU Numbers System Made Easy

Step 1: Ensure that the SKU is very easy to understand and user friendly

SKU names should not be complicated, but straightforward and easily explained. This helps different departments within your company – such as customer support, frontline/sales departments, and operations and logistics properly understand exactly which product the SKU refers to.

This will augur well for good internal and external customer experience and boost profits.

Step 2: Words should be arranged based on the level of importance

It’s best practice to arrange SKU variables in the order of their importance. One way to do this is by looking at a product description and identifying the key attributes that are most outstanding. 

Depending on the types of products the company offers, these product attributes might include the brand name, model, color, or warranty information.

The attributes that are most significant or constant, such as brand name or model, should be placed at the beginning of the SKU section. Assign other variable product attributes (like size and color) towards the end of the SKU section.

Step 3: As far as possible do not use letters that often look like special characters

It is noteworthy to mention that there are some letters and numbers that look very similar, this can be very confusing to the end-users and should be avoided. 

Additionally, you should also avoid using special characters. Below is a list of examples:

• Special characters like the forward-slash “/” will be treated as a data separator in Excel.
• “I” (uppercase i) and “l” (lowercase L) look the same.
• Symbols like @, >, <, *, don’t always have a standard, clear meaning.
• The number 0 and letter O appear to be similar in most fonts.

Instead, it’ll be best to stick to using numbers and letters to name your SKUs as illustrated in the following example:

• Fruit Juice, No Added Sugar, Medium-White = FJ-NS-M-WH
• Fruit Juice, No Added Sugar, Large-Green = FJ-NS-L-GR
  

Step 4: SKUs should not start with zero

Some data storing tools disregard zero’s altogether. For example, entering 05587 in Excel would actually store 5587. 

Therefore, to minimize data storage issues avoid using zeros to start your SKU.

Step 5: Avoid the use of Manufacturers’ SKUs

Regardless of the business type, that of online retailers or a brick-and-mortar retail store, it’s always best not to incorporate the manufacturer’s SKUs but use your own SKUs. 

Different SKUs will limit confusion in general with other inventory and with sales staff on the sales floor. Each team member will know exactly what product is being referred and can easily track inventory.

Step 6: Keep SKUs simple

Not to the least keep your SKU names simple since “much is said with little and little is said with much”. A simple SKU naming system will allow you to make it easier for team members to memorize SKU naming conventions and quickly identify the correct product variants.

Frequently Asked Questions