What is a Stock Keeping Unit (SKU)?

Definition: A stock keeping unit or SKU is a unique code assigned to a given item for identification and tracking purposes. It can be considered the “name” of the product when it comes to inventory.

What Does Stock Keeping Unit (SKU) Mean?

Stock Keeping Units (SKU) are identification numbers established with the purpose of optimizing an inventory. The products or services are catalogued under a unique code to facilitate control. It is easier to keep an organized inventory this way since items can be easily identified and counted when an audit is performed.

These SKUs are not only applicable to physical products they can also be assigned to intangible items as well since the SKU helps track different aspects of the intangible item like production costs, availability and delivery status, among many other elements that are normally recorded and measured by a digital system that administers all these codes separately.

When a company offers a new product or service the item has to be assigned with an SKU to be incorporated into the system. Finally, the SKUs are normally represented by a bar code (mostly in the case of products) to facilitate recording and tracking activities.

Example

A company that sells washing machines is currently in the process of optimizing its inventory procedures. The company has been experiencing some inventory losses due to poor controls and the owners decided to hire a consultant to build the inventory structure from scratch.

The company currently offers 5 different models of washing machines. In order to start keeping track of what is going on with the inventory the consultant decided to identify with a different SKU each piece of the washing machines employed during the manufacturing process. After doing this, each of the 5 models received a different definitive SKU that identified the product as one single piece.

The final 5 SKUs for each of the models were: WM12LBX, WM18LBX, WM24LBX, WM218LBZ and WM24LBZ. These newly assigned SKUs will help the company keep track of where the inventory should be in case there’s a lost item. The consultant and the owners expect this measure to reduce losses dramatically.