What Is an SKU? And How to Generate Them (With Tips)

By Indeed Editorial Team

Published 5 May 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.

Companies often use specific numbers to track inventory for various purposes, including sales, marketing and budgeting. These numbers, called SKUs, are often on product barcodes. Learning about SKUs may help you implement them within your team's production process. In this article, we answer the question "What is an SKU?", describe why companies use these numbers, explain how to generate them and provide some tips for using them.

What is an SKU?

To answer "What is an SKU?", it's an acronym for stock-keeping unit used as a unique symbol to represent a product. Retail employees attach and scan SKU numbers to track various merchandise a business has in supply. Each retailer organises SKU numbers in their own way. You can use alphanumeric symbols in an SKU to represent various product details, such as:

  • Price: SKUs can describe price categories for products, such as products under $20 or over $100.

  • Category: These numbers can indicate a category of product, such as clothing or bathroom supplies.

  • Size: They can describe the size of a product, such as length, width and height.

  • Colour: You can include colour descriptions within SKUs, such as black or red products.

  • Brand: When a company sells products from many brands, they often specify the brand within an SKU.

  • Demographics: An SKU can indicate demographics of target customers, such as age and gender.

  • Store location: SKUs can contain information about the location of a product within a store.

Why do companies use SKUs?

Companies use SKU numbers in their retail management systems for many reasons, such as:

  • Maintaining stockroom organisation: Retail associates can look at an item's SKU number to determine its type and the department where it belongs. They can also group similar merchandise together in a warehouse or stockroom, making it more efficient to store and retrieve items.

  • Tracking inventory: Customers may return or exchange products. Having SKU numbers can help retailers keep an accurate count of their inventory.

  • Improving customer service: A sales associate can use SKUs to confirm if a customer can purchase an item in the store or order it online. A more organised stockroom can also reduce the time required to retrieve products when customers request them.

  • Streamlining the distribution process: Warehouse employees can more easily identify ordered products by examining SKU numbers. An SKU number can show where a product is located within a warehouse and allows workers to confirm a customer completed a purchase and ship the product accordingly.

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Differences between an SKU and a UPC number

Although both SKU numbers and universal product code (UPC) numbers appear on the barcode of a retail product, there are differences between these numbers, including:

  • Purpose: Each product has a specific UPC code that is the same for any company or person selling the same product that a vendor can't alter. SKU numbers are determined by a company's internal policies for their own inventory and logistics management.

  • Length: While most UPC numbers are 12 digits long, SKU numbers don't have strict length requirements but are often eight to 12 digits long.

  • Composition: UPC numbers are strictly numerical, whereas SKU numbers can include letters.

  • Uniqueness: While every UPC number is unique, retailers can use duplicate SKU numbers. For example, there could be two items with the same name and product details that have different UPC numbers, but a retailer chooses to identify them with the same SKU for convenience.

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How to generate an SKU number

The following steps can show you how to create SKU numbers:

1. Divide your stock into categories

The first step of SKU number generation is to determine how you want to organise stock. The categories you use can depend on the size of the inventory and the differences between the products being sold. For example, if the products are similar with minimal stock, then you can consider using simpler SKU numbers. Companies with large inventories and several product lines may need more complex SKU numbers for better categorisation and organisation.

For example, a department store that has adult and children's clothing in its inventory. You can assign separate categories according to gender and then create sub-categories, such as winter and summer clothing or garments for infants and teenagers. You can use alphanumerical symbols to represent each of these main and sub-categories.

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2. Determine the length of the unit

SKU numbers come in varying lengths that can determine various elements of a product. For example, if you want to include size information in your SKU numbers, then you add an extra digit that indicates size information. If you want to show colour variations between product types, then consider adding more numbers that indicate specific colours. The more elements a product has, the longer its SKU number may be.

3. Assign meaning to each character

Once you've determined the length of your SKU numbers, you can group the numbers into characters that represent specific product details. For example, if you sell clothes, then consider assigning a number to the type of garment and a number to the size. When warehouse and logistics employees scan a barcode label, they can gain enough information about a product for further processing without needing further guidance.

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4. Attach sequential numbers to the end of an SKU

Adding numbers at the end of an SKU number can indicate how recently manufactured a product was. For example, a manufacturing team may use a three-digit system that increases by one each time they produce a new item. New products have a higher number and older products have a lower number. This can help a company track perishable items in inventory, ensure they sell older inventory first and allow for easier analysis of sales.

Tips for generating SKU numbers

Consider following these tips when assigning SKU numbers to inventory:

Use a simple format

A simple format can make your SKU number easier to read and interpret, especially for employees. Consider ordering your characters from the most important detail about a product to the least important. When someone reads the number, they can find the information that matters most to them. For example, if a business sells an assortment of lipsticks, then the first symbols of the SKU number can show whether the lipstick is matte or liquid. Employees can easily decipher the category and organise the product in its correct department on the sales floor and the stockroom.

Simplicity in SKU number generation can also make it easier for a company to train new personnel to understand their retail management system. Be consistent in the number of characters you use and how you differentiate between product categories. It may also be helpful to avoid using numbers that resemble letters to avoid confusion, such as zero and the letter "O". As a business expands and starts selling new products, creating more symbols in the same format can help distinguish old inventory from new inventory.

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Make your SKU number identifiable

Depending on the product you sell, consider selecting colours and patterns that are easy to read. For example, you can use a white background and black lines to make an SKU more visible on clothing products. Companies often place SKU numbers in locations that are easy to find when the product is on a shelf to improve the efficiency of store employees when scanning products.

Measure how well products perform

SKU numbers provide transparency for how well products are performing in the market. You may be able to find trends in certain SKUs. For example, a company may notice a particular lipstick is more popular in one colour over another. If they sell more products in the same colour, they may be able to generate more profits.

SKU numbers also help determine if a product is profitable. You can use the numbers to track inventory and measure profit margins by unit. Companies can use SKUs to track how fast different products are being sold and need resupplying. This helps analysts to separate profits by specific product lines and variations to compare different product features.

Invest in an SKU number generator

Companies that sell a large diversity of products often invest in an SKU number generator. This tool can help a company develop a consistent system for assigning SKU numbers and eliminate mistakes in the process. Companies can also integrate this tool into their other inventory and logistics management systems to further increase efficiency and consistency across an organisation.

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