What Does SKU Stand For? (Definition, Uses, and Practices)

By Indeed Editorial Team

Published June 1, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

A stock keeping unit (SKU) is a code that an organization can use to monitor its inventory. Regardless of your role within an organization that sells physical products, knowing the answer to the question, "What does SKU stand for?" can help you improve the company's business performance. Learning about SKUs can be a valuable career step, and you can advance by researching the subject. In this article, we discuss what SKU stands for, mention some popular ways to use SKUs, explore some effective practices when implementing them, and give some tips on using them.

What does SKU stand for?

If you're wondering the answer to "What does SKU stand for?", the initials represent stock keeping unit, and it's a product code that companies can use to identify and track the products in their inventory. Knowing about SKUs can be essential for organizations with large inventories as they can use it to check how much of each product they have in stock. An SKU code typically has six to eight digits, and company employees can use a special device to scan it and match it to its corresponding stock. Some businesses that commonly use SKUs are:

  • Warehouses

  • Digital commerce sites

  • Fulfilment centres

  • Catalogues

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Some popular uses of SKUs

SKUs are a modern and efficient way to keep track of the exact number of items you have in stock at any time and to know their exact warehouse location. Using SKUs effectively can help organizations improve their stock management practices, which, in turn, can increase efficiency. The following ways can help organizations make the best use of SKUs:

To optimize product logistics

Each company creates their own internal SKUs, which means that you can use them to optimize all organizational procedures that relate to product and stock logistics. Using SKUs can allow you to categorize items by various criteria, such as their type, manufacturer, source, and size. Doing so can significantly improve warehouse efficiency. Each SKU can immediately indicate the corresponding product's exact location within the warehouse. Reducing the time a company takes to locate its available goods can have positive affect its profits.

To improve customer experience

Appropriately using SKUs can also help to strengthen an organization's relations with its customers. Store assistants can scan a product's SKU to find out its current stock information, which may be useful for a customer who wants a variation, for example, seeking shoes in a different size. Quickly obtaining accurate information regarding stocks can improve sales efficiency, which, in turn, can positively affect customer satisfaction.

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To analyze product popularity

Retail organizations can use SKUs to determine how popular their products are and how their popularity varies depending on various factors, such as season or sales cycle. If you work for such a company, you might also find SKUs useful to analyze how certain items appeal to specific customer categories. This information might allow you to match the inventory content with the customers' projected preferences and current trends.

To market products

Retail organizations can use SKUs to differentiate their products and convince customers to purchase from their online store. As each company has unique SKUs, advertising a product's SKU rather than its manufacturer model number makes it less likely that potential customers use the respective number to search the internet for other retailers that sell the same item. If you work for a physical retailer, you can also use SKUs as a marketing tool to reduce the number of store visitors who only examine products with the intention to buy them online later.

To improve the effectiveness of product recommendations

Companies can also use SKUs to facilitate the overall customer experience for their online sales platforms. They can assign SKUs so that they categorize the products according to common characteristics. When a potential customer visits an online store and looks at a product, the website can use its SKU to automatically generate relevant recommendations for similar or complementary products, which can increase sales.

To forecast product demand

Using SKUs to analyze stock dynamics can support retailers to identify various sales patterns and cycles that can help them make forecasts regarding future sales. This can help the company estimate how many more staff they might require during a particularly busy season. It can also assist the organization's financial department to calculate its ability to pay employees with the generated cash flow.

To improve the packaging and shipping process' efficiency

SKUs can also be useful for packaging and distribution tasks. By scanning the SKU code, employees who handle these tasks can quickly and efficiently access crucial package information, such as the shipping address and the name of the person or company it's going to. Including this information in a code that employees can quickly scan reduces the chances of misplacing packages or misspelling recipient names.

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What are some effective practices when implementing SKUs?

While using SKUs for a retail organization can potentially produce important benefits, it's usually important to ensure that the SKU system is effective and correctly implemented. Here are some useful practices that you can use when implementing SKUs for an inventory system:

Prioritize SKU information based on its relevance

When creating SKUs, it usually helps to present crucial information within the first two numbers in the code sequence. This usually means that, when choosing what each of the SKU's numbers represents, it helps to use the first numbers to display what you consider to be highly important information and then gradually show less vital and more product-specific information when choosing subsequent attributes. This might make it easier to identify products. In this way, warehouse handlers and customer service representatives can quickly and effectively locate the goods they're looking to find.

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Create SKUs that are easy to read and understand

When creating SKUs, it's usually important to carefully choose which letters and numbers to assign to each product and category. You might want to consider what format may help the employees quickly identify an item or group of items. Ideally, experienced employees can recognize common products without even checking their SKUs. For example, you can use abbreviations to describe the manufacturer name, type of product, and other relevant information.

Only include necessary attributes

It usually helps to decide which attributes are essential for the SKUs. Introducing unnecessary information can make the logistics and sales processes less efficient as it may confuse the employees who regularly use SKUs. It might be a good idea to create a coding system that only includes information that's useful to the customers and to the employees who directly operate the respective products.

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Tips on efficiently when using SKUs

When you implement SKUs for the inventory of the organization you work at, consider the following tips:

  • Avoid using letters that look like numbers: A major benefit to using SKUs is the fact that employees can quickly find information on a product by glancing at its SKU. The letters "O", "I", and "L" can cause confusion, as employees may confuse them with the numbers zero, one, and lowercase “L”.

  • Avoid starting an SKU with the number zero: Besides it being easy to confuse the number zero with the letter "O", starting a product's SKU with this number may cause errors in data analysis software applications. Some systems interpret zero as nothing, so the software may ignore it and move on to process the other letters and numbers, which can lead to further challenges.

  • Keep your data management system as simple as possible: Maintaining operational efficiency is usually important for a company's profits, and an effective way to do so is to ensure that employees can quickly find relevant information on SKUs. When assigning SKUs, it may help to determine each product category's main relevant features, such as colour, size, item type and brand name, or other identifying elements that are specific to certain types of products.

  • Reuse SKUs: You can optimize SKU usage by reusing old ones from products that are no longer in the organization's inventory system. It's usually safe to wait for a few years before reusing an old SKU to ensure that the inventory tracking system doesn't confuse the new product with the old one.

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