What Is a Stock Keeping Unit (SKU)? Definition and Guide (2024) - Shopify South Africa (2024)

Stock keeping units (or SKUs) are an important tool for every store to use. Assigning a stock keeping unit code to each of your products is the baseline of any good inventory management strategy. A healthy inventory management process—with the aid of SKUs—helps you keep up with stock demand, tackle loss prevention, and ultimately support your business’s sales.

Read on to get a crash course in stock keeping units, including how to recognize a SKU, how they differ from other product codes, and how to customize SKUs for your own store.

What is a stock keeping unit?

A stock keeping unit is an alphanumeric code created internally by sellers to identify, receive, and locate their product inventory (also known as “stock”). This type of code is more commonly known as a SKU (pronounced skew). It’s best practice for businesses to assign a unique SKU to each one of their products.

Where are SKUs used?

You will typically find SKUs used in:

• Warehouses
• Retail stores
• Catalogs
• Onlinestores
• Product fulfillment centers

The purpose of marking stock with SKUs is to help businesses more accurately and easily account for every piece of their inventory in any of those locations. For example, if you run a brick-and-mortar store, you should make sure your products are all assigned SKUs before performing an inventory audit in your store and any off-site storage units to get a complete picture of your inventory.

How are SKUs created?

Although each business develops their own internal systems for creating unique SKUs, there is a common method involved. Each SKU should consist of a unique combination of letters and numbers. Typically, those letters and numbers identify product characteristics such as: manufacturer, style, color, or size.

The goal of SKU creation is to make it simple for sellers and inventory managers to categorize and locate any given product based on its SKU. That means your SKUs should be decipherable by humans, without the need of any equipment to understand the code’s format.

To that end, it’s important to develop a standard SKU formatting process for creating your business’s SKUs. That way, it’ll be easier to train staff to use them when managing inventory.

How long should SKUs be?

It’s best practice to limit each of your SKUs to no more than 16 characters. If your product variety allows for it, using as few as 4 to 8 characters is ideal for the sake of simplicity. The shorter your SKUs are, the more easily they can be understood by you and your staff.

Although not required, it’s common to use hyphens between each descriptive section of a SKU to make it more easily readable. When creating your product SKUs, keep in mind that those hyphens count toward your goal character limit.

Examples of SKUs

Let’s look at a couple examples of potential SKUs in context.

Multi-brand retail business SKU

If you’re a business that resells products from a variety of brands or manufacturers, you may find that you need a wide variety of SKU formats. That’s because your SKU will need to account for not only common characteristics like product size, color, and type, but also who made the product.

For example, a neighborhood shoe retailer might sell shoes from a variety of brands. That means they have to keep track of shoes by brand as well as by style, size, and color.

Let’s say you worked at a local shoe retailer and were directed to create a SKU for one of your products sourced from the brand Allbirds, their Women’s Tree Runners Go sneakers.

The SKU for that product in blue in a women’s size 9 could look something like this: AB-SNK-BU-W9

That SKU would translate to:

• AB: The product’s brand or manufacturer, in this case Allbirds.
• SNK: The product’s type or style, in this case a sneaker.
• BU: The product’s color, in this case blue.
• W9: The product’s size, which might also be assigned a gender, in this case women’s size 9.

Single-brand DTC business SKU

Maybe you’re a direct-to-consumer (DTC) brand who exclusively sells products made by your own brand. In this case, unlike a retail store that sells products from multiple brands, you may not want to prioritize including manufacturer codes in your SKUs.

For example, DTC gender-neutral clothing brand TomboyX might focus on details like the type of apparel, fabric, sizing, and apparel collection in their SKUs to make it easier to manage their warehouses.

Let’s say you worked at TomboyX and were directed to create the SKU for the TomboyX Essentials Soft Bra - Black Rainbow Logo.

The SKU for that product in a size 3X could look something like this: BRA-RNBW-BLK-3X

That SKU would translate to:

• BRA: The type of apparel, in this case a bra.
• RNBW: The type of product collection, in this case their Rainbow Pride collection.
• BLK: The primary color of the product, in this case black.
• 3X: The size of the product, in this case a gender-neutral 3XL.

SKUs vs. model numbers

Model numbers are distinct from SKUs. Each unique model number is generated by the product’s manufacturer and is not something a retailer can alter.

Whereas SKUs are typically not something a customer needs to know or even gets access to knowing, model numbers are visible and useful to customers. Because a product’s model number is the same regardless of where you’ve purchased that product, it’s useful to know the product’s model number if you encounter an issue with the product that needs manufacturer support.

SKUs vs. serial numbers

The term “model number” is sometimes used interchangeably with the term “serial number,” but the two numbers are as distinct from each other as they are from SKUs. Much like a model number, each product’s serial number is created by its manufacturer, whereas serial numbers are not customizable by sellers.

Unlike model numbers, each serial number is unique to each individual type of product, not shared with any other products in their model or elsewhere. Serial numbers are typically reserved for consumer electronics products, such as cell phones, game consoles, and kitchen appliances.

Serial numbers are customer-facing, meaning they’re accessible for customers to locate and identify. For example, it’s common for manufacturers to request a customer’s product’s serial number in order to process a return or repair.

SKUs vs. barcodes

A barcode is often confused with a SKU, model number, or serial number, but it’s yet another necessary number that each product must be assigned.

Also known as a Universal Product Code, or UPC, a barcode is that set of scannable black bars and numbers that’s likely been on pretty much every product you’ve ever purchased. Each UPC is part of a system that’s recognized globally as a way to efficiently move products through the supply chain and point of sales. UPC barcodes are the reason why most stores can simply use a barcode scanner to ring up your purchases, instead of needing to manually enter in product information or a different code that may vary from store to store.

In other words, a SKU is an internal code that each business can create for its own inventory management, whereas a UPC is the same for a product no matter who sells it.