What Is an SKU? Everything About Stock Keeping Unit | Atlasmic Blog
October 18, 2021
Business Growth
6 min read

What Is an SKU? Everything About Stock Keeping Unit

Learn how to keep track of your products and inventory.

Ben Bitvinskas
Co-founder, Atlasmic
If you own, manage or deal with a warehouse or at least a stock of some kind, you have to know what a stock keeping unit or an SKU is. Both retail and wholesale businesses that have inventory, should be aware of how to use it. But, if you’re just getting into business or want to expand your knowledge, you came to the right place. Here at Atlasmic, we’re all about providing knowledge to online entrepreneurs. So, in this article, we’ll be focusing on what is SKU
and how it is used in business.

What is SKU (Stock keeping unit)?

Every retailer and warehouse manager has to keep track of their stock. It’s important to monitor the movements and logistics for every single item and/or batch. But how can you track and manage tens, hundreds, or thousands of items? Here is where SKU or stock keeping unit comes into play.
An SKU is a form of identification, assigned to an individual item in your storage. An example. Let’s say that you sell 3 different soft drinks - Coca-Cola, Fanta, and Sprite. You sell them in two volumes - a small can and a bigger bottle. So, for you, there would be the need for 6 Stock Keeping Units in total. One for each brand and one for each size of the drink.
The stock keeping unit is an alphanumeric code that is assigned to each product. Characters in SKU represent different information pieces that let you track your inventory data easier. Instead of a product barcode that might be used by different companies, your SKU code will be an internal marking for a product. Nonetheless, you might see it printed on labels or just embedded onto the can, the bottle, etc.
Retailers use SKU codes to monitor and record the movements of the product, record price & other related product information as well as track stock.

How are Stock Keeping Units used?

As we mentioned, stock keeping units are used to track and monitor the movements of products and stock. Warehouse managers, e-commerce businesses, retailers, and many more places use them. But how exactly do they work?
Well, you do need an active point of sale (POS) or warehouse management system. Then, these SKU codes and products have to be put in the system so it recognizes them. After a product has been scanned at the cashier’s desk or by the warehouse employees - the system will automatically keep track of your inventory. The only thing you needed to do was to scan the barcode (that is assigned to SKU).
That means, a barcode by itself, without SKU isn’t valuable. You need to have a point of sale system or a way to track inventory digitally, assign stock-keeping units and manage stock altogether.
Modern point of sale and warehouse management systems will show you exactly how many units were sold, they can also display the best-selling locations, best-selling days, least-sold goods, and other tendencies as well. For managers and designated employees, it can show when it’s time to restock or maybe initiate a sale to clear some stock.
All in all, having stock-keeping units can help increase the efficiency of the business.

How to make your own SKU?

If you sell products but don’t have a traditional warehouse per se or sell in low quantities, integrating a barcode system might not be the most efficient way in tracking stock. You could just create your system for keeping stock and assign unique indicators to each one of your products.
The easiest way to make your own SKU is by encoding the features of the product in the stock keeping unit. For example, a red sweater size XL could have the code
RD-SWE-XL
- a set of abbreviations that can be immediately recognized for associations with an XL-sized red sweater.
Here’s a chart with some examples of how you can create your SKUs for tracking stock and recording its movements.
As you can see, every piece of information that is important to the item tracking gets an abbreviation that eventually makes a unique code for a specific product. Eventually, by having different SKU codes you can quickly keep track of every item.

Making the most of SKUs

So, if you have your eyes on stock-keeping units and want to learn more about their implementation, or are just starting your business, this information is bound to be crucial. Let us show the many different areas, in which you can utilize the stock keeping unit and give added benefit and added value to your business.
Inventory management
. Although we’ve already mentioned it in the earlier paragraphs, it’s the primary purpose of having a stock keeping unit in the first place. By implementing a warehouse management system or a point of sale system, you can see your inventory and monitor it, knowing what’s running low and what’s selling slow.
Pricing and marketing
. For some, it may seem like a natural opportunity, but strangely enough, stock keeping systems were only introduced to marketing not so long ago. They can provide you with many different insights. For example, some of your discounts may correlate with the increased sales of other products. Or, you might see that you need to price match because sales have dropped ever since your competitor reduced their prices.
Insights into your business model
. SKU insights may be as beneficial as opening up knowledge about a wholly different business model. For example, you might see that you need to reduce the number of products you’re selling, or add more accessories, etc. By looking at total sales and trends, you can see the flaws in your approach or notice your hidden strengths.
Better customer service
. “Do you have this in stock?”. If a customer asks that, all your employees need to do is just scan the SKU and they will immediately get an answer. That’s - better customer service.

Summary

Stock keeping units or SKUs are a unique form of product identification. Each item has its own SKU code that is used to track inventory throughout businesses. Having those codes set up lets you keep running an efficient and successful business. Also good to mention, you will never miss a restocking problem!
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