Stock Keeping Unit (SKU) Meaning - Why is SKU Important?

BY Clara Lu 16 Sep, "13

Stock Keeping Unit, more commonly known by it’s abbreviation SKU, is a term that is typically used when talking about inventory management. Managing inventory with SKUs is important for any business that sells products. 

Setting up inventory tracking correctly is crucial and this begins with the setup of the SKU.

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SKU Definition

Your SKUs are the product codes that you (and others) can use to search and identify stock on hand from lists, invoices, or order forms. To help you implement SKU best practices within your inventory system, we've built an SKU generator just for you!

Track Inventory

Products that are received at a business need to be properly tracked to know how many are available. A product variation, i.e. Large Red Bucket, can be easily tracked using a cloud based inventory management system. If the products in a warehouse or storage room have SKUs, then stock availability is easy to determine.

Easy Stock-takes

Stock-takes are done of a company's inventory to ensure the stock levels of the warehouse match the stock levels of the inventory management system. Every product variation should have it’s own unique SKU. This makes for very straight forward reconciling of the stock levels.

Identify Shrinkage

One crucial aspect for any business is tracking and identifying shrinkage. This is the number of items a business cannot sell or end up missing. Damaged or missing items can occur anywhere along the supply chain and in a lot of cases it’s due to theft. Correct inventory management makes creates transparency and minimises opportunity for theft.

Replenish Inventory

Manually managing large quantities of inventory can be difficult for a small business owner. Adding a SKU to every product variation means the quantity of on-hand products is easily known. A threshold limit for items can be set that indicates when replenishment is necessary. Managing inventory with SKUs means that the level of inventory will never get out of hand.

Identify Profits

By tracking product variants with SKUs you can report, not just on the main product line, but right down to the individual variation of the product i.e. color, size, material. These reports help determine what variations you should invest more in and what variations you might want to discontinue.

The SKU for the inventory of a business needs to be simple to understand. A typical SKU will have the first part used for product grouping and the other part for a unique value, such as the date.

See our article on Setting up SKUs correctly and download our SKU generator now!

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