What Is SKU

What Is SKU?

By Team TranZact | Published on Mar 10, 2023

The simplest demonstration of what is SKU can be found in the price tag of a product. An alphanumeric stock-keeping unit (SKU) code is embedded in the product's price tag to help merchants keep track of inventory and maximize sales.

Our guide will walk you through details on what is SKU, how to generate an SKU number, why they are essential, and how to use them.

TranZact - Best Inventory Management Software

Understanding Stock Keeping Units (SKUs)

Stock-keeping units (SKUs) are unique identifiers for items sold by retailers. The retailer assigns a specific code to each item based on its characteristics. SKUs are usually divided into categories and classifications.

Home improvement stores, for instance, may have hardware, lawn, and garden sections. Their SKUs may have numbers or letters that designate products according to their lawn and garden classification.

SKUs in business are used for inventory management, including retail stores, e-commerce vendors, catalogs, warehouses, service providers, and fulfillment centers. Scannable SKUs and point of sale (POS) systems make it easy for managers to determine what products need to be restocked.

The POS system automatically removes an item from inventory when a customer purchases something at the POS. It also records other data, such as the sale price, when an item is purchased.

Although businesses can embed model numbers within SKUs, both of them should be distinct from one another. A business's goods and services are branded with unique SKUs. As an SKU example, a shoe store uses internal SKUs to indicate size, color, price, manufacturer, style, and brand.

How an SKU Works?

An SKU, or stock-keeping unit, is a code used for inventory tracking. Manufacturers assign SKUs to products, and retailers use them to keep tabs on what items are available in stock. SKUs may be numeric or alphanumeric and typically consist of between four and six characters.

Maintaining a thorough SKU inventory of your products requires understanding how they function. When a product is initially created, its manufacturer or retailer assigns an SKU to it. This SKU then tracks the item throughout its journey, from production to warehouse to store shelf (and beyond).

No matter the price or other details about a product, its SKU remains constant. Even if an item goes out of stock and is then restocked, its SKU remains unchanged.

Retailers can update their records to obtain accurate data regarding what products are selling and at what rate. Having understood what is SKU and how it works let's see what SKUs are used for.

What Are SKUs Used For?

The stock-keeping unit (SKU) is a code the seller assigns to each product type. Additionally, SKUs are integral parts of merchandising, as they allow merchants to organize inventory based on store or on the availability of the SKU in the warehouse.

SKUs are used for more than just identifying products and tracking inventory. You can evaluate your retail business's profitability and efficiency using the gathered information.

Detailed analysis

SKUs provide retailers with the data they need to analyze seasonal and cyclical sales trends among different customer segments or determine which products are most popular. As a result of this analysis, they can stock inventory following the behavior of consumers.

Managing inventories

An SKU system is primarily used for inventory management. It allows retailers to track inventory levels, turnovers, and item workflows. As a result, inventory levels and timeframes can be set based on sales information, which can serve as triggers to initiate or stop inventory orders in real time.

Assistance to customers

When a customer wants to turn to an alternative version of a product, store assistants can scan SKUs to find out what is available quickly. This enhances the customer's experience as well as sales efficiency.

Marketing and advertising

SKUs are modern advertising techniques. As online retail becomes increasingly competitive, SKUs help you identify marketing techniques generating sales and make your inventory appear unique. A retailer's SKU is often displayed instead of a manufacturer's model number in advertising.

In this way, consumers are less likely to find the exact model in another store, and competitors are less likely to match pricing strategies based on the same information.

Choosing the right product

Additionally, companies use them to improve the customer experience on their online sales platforms. For example, SKUs are used to suggest items during shopping journeys. A unique SKU with all the product's identifying characteristics is attached to each product.

Why Are SKUs Important?

An SKU serves as a unique identifier for a product and allows it to be tracked throughout its lifecycle - from manufacture to sale. In other words, every time a product changes hands, its SKU will enable businesses to know its history and where it's headed.

Utilizing SKUs offers numerous advantages, such as:

Improved Inventory Management:

SKUs can assist businesses in keeping tabs on their stock levels and turnover. Companies can make informed decisions regarding appropriate stock levels by understanding which products are selling quickly and which remain unsold.

Reduced Costs:

Inefficient inventory management can result in unnecessary storage and labor expenses. By using SKUs, businesses can minimize these expenses by only stocking the required products.

Increased Sales:

Businesses can boost sales and foster customer loyalty by using SKUs that guarantee products are available when customers want them.

How SKUs Are Formed

The formation of SKUs is a two-step process. The first step is to determine the SKU's desired granularity level. The second step is to allocate a unique number or code to each SKU.

The granularity of an SKU can be described as the level of detail at which the SKU represents a product. A low granularity would result in fewer products represented by each SKU, while a high granularity would result in more products described by each SKU.

In terms of an SKU number example, a company might stock only one type of product (e.g., all size 8 shoes) in its inventory. In this case, the company would have a low granularity for its SKUs because the same SKU would represent all size 8 shoes.

On the other hand, if the company stocked multiple types of products (e.g., size 8 shoes and size 9 shoes), then it would have a high granularity for its SKUs because every kind of product would require its own unique SKU.

Once the desired level of granularity has been determined, each SKU must be allocated a unique number or code. This number or code will identify the associated product whenever ordered or shipped.

The number or code can be anything convenient for the company, but it must be unique within its inventory system. For example, some companies use numeric codes (e.g., 000123), while others use alphanumeric codes (e.g., a2c457).

Manage Your SKUs Seamlessly With TranZact

A business might have thousands of SKUs, and managing them can be daunting. TranZact helps your SME business to track all SKUs on a single platform and filter them based on custom views. TranZact enables you to manage inventory movements with accurate SKU entries and also integrates with Google Sheets, Tally, and BUSY, equipping you to continue using your existing applications without interruptions.

FAQs on Stock Keeping Unit (SKU)

1. What is SKU in a product?

An SKU number identifies products internally by assigning a number (usually eight alphanumeric digits) to them so that retailers can keep track of stock levels.

2. What is an SKU example?

Stock Keeping Unit (SKU) is a unique identifier for products assigned by retailers or manufacturers. For an apparel company with all types of clothing products, the SKU for T-shirts, for example, would have an SKU of XYZ12345.

3. Is SKU and barcode the same?

No, SKUs and barcodes are not the same, although they both are related to inventory management. SKUs are alphanumeric or numeric codes, created and assigned by the business or retailer themselves. A barcode, on the other hand, is a visual representation of the SKU or other identifying information encoded in an electronic format.

TranZact Blogs

Subscribe to Our Blog
Related Blogs
Inventory Forecasting

Inventory Forecasting: Methods, Formulas, Best Practices and Strategies

Explore inventory forecasting methods, formulas, best practices, and strategies for...

inventory control models & techniques

What Are the Most Common Inventory Control Models & Techniques?

Discover the most common inventory control models and techniques for...

Delivery Challan Under GST

Delivery Challan Under GST: Meaning, Uses, and Format

Learn about delivery challans under GST, their format, purpose, and...

What Is Closing Stock

Closing Stock: Meaning, Formula, Calculation, Valuations & Examples

Learn about closing stock meaning, valuation methods, formulas and examples....

Inventory Management Mistakes and Tips to Avoid Them

10 Common Inventory Management Mistakes and Tips to Avoid Them

Learn how to avoid common inventory management mistakes with tips...

Best Practices For Managing Delivery Challans in Manufacturing Business

Best Practices For Managing Delivery Challans in Manufacturing Business

Discover best practices for managing delivery challans in manufacturing. Learn...

Inventory Management in Excel

Inventory Management in Excel: Templates, Formulas, and Automation Techniques

Explore inventory management in Excel with templates, formulas, and automation...

ABC Analysis in Inventory Management

ABC Analysis in Inventory Management: Techniques, Advantages & Examples

Learn about ABC Analysis in inventory management, its techniques, advantages,...

Inventory Management: TCS vs. TranZact

Inventory Management: TCS vs. TranZact Automation Benefits

Compare TCS and TranZact for inventory management automation. Discover which...


TranZact is a team of IIT & IIM graduates who have developed a GST compliant, cloud-based, inventory management software for SME manufacturers. It digitizes your entire business operations, right from customer inquiry to dispatch. This also streamlines your Inventory, Purchase, Sales & Quotation management processes in a hassle-free user-friendly manner. The software is free to signup and gets implemented within a week.