Stock keeping unit
In the field of inventory management, a stock keeping unit or SKU (// or //) is a distinct item, such as a product or service, as it is offered for sale that embodies all attributes associated with the item and that distinguish it from all other items. For a product, these attributes include, but are not limited to, manufacturer, product description, material, size, color, packaging, and warranty terms. When a business takes an inventory, it counts the quantity of each stock keeping unit. SKU can also refer to a unique identifier or code that refers to the particular stock keeping unit.
SKUs are not always physical objects. Anything that can be sold separately from anything else has a stock keeping unit, such as extended warranties, delivery fees, installation fees, and licenses.
Example SKU systems
The following are 7 fairly typical SKU systems:
Manufacturer WidgCo's widget has a part number of 1234. It is packed 20 to a box, and the box is marked with the same part number 1234. The box is then placed in a warehouse. Then, the box of widgets is the stock keeping unit (SKU), because it is the stocked item. Even though the part numbers are interchangeable to mean either a widget or a box of widgets, the box of widgets is the stocked unit. If there are three different colors of widgets, each of these colors will be a separate SKU code. When the product is shipped, there may be 50 boxes of the blue widgets, 100 boxes of the red widgets, and 70 boxes of the yellow widgets shipped. That would be a shipment of 220 boxes, across three SKUs that may be designated 1234B, 1234R, and 1234Y.
Note that, although 'part number' and 'SKU code' can be used interchangeably, that isn't always the case. If you crack the glass in the side mirror of your car, the parts department of your local dealer might be able to tell you that the glass is part number 4398502934, but that they can't order just the glass. They only have the entire side mirror assembly, which doesn't have a part number (because it's made from many parts, each of which has a number), but it's the assembly that has an SKU code. "Left Side-view Mirror Assembly" is the stock-keeping unit.
A product is given an SKU code of 4321. Within the last 2 years Manufacturer X has been making article number 4321 for Raboof Inc. Mfgr. X is going out of business. Raboof now has two companies making the same product during the transition phase. Instead of tracking variants by maker, it uses UPCs (Universal Product Code), and possibly "color" or "dye" or similar. It will still hold the same article number for daily, weekly, monthly, quarterly, and yearly profit margins. SKUs link UPCs from the vendor to the retail company. A single UPC can have many SKUs. Makers use UPCs to see if it is worth making green when red products account for 99% of the market. Selling companies use SKUs to see which company performs better with the same item.
If a particular product has a MRP (Maximum Retail Price) of x and there is a revision in price, say the price now becomes y, then x and y will have to be stocked separately and billed separately so they become two different SKUs. SKUs can then be printed into a barcode, and placed on the product. When scanning SKUs, the system recognizes the price and prepares the sale for that price.
A SKU may contain all the common properties of an individual item. So, for instance, a SKU for a pair of Levi's 36" green straight-leg jeans might be LEV-JN-SL-36-GN or LEVJNSL36GN, where LEV stands for the vendor (Levi's), JN means Jeans, SL means Straight Leg, 36 stands for 36" waist, and GN stands for Green. Typical abbreviations are 2-4 characters long, and it's a good idea to make sure all abbreviations for one property are the same number of characters (so for instance, use RD and BU for Red and Blue, rather than RED and BLUE). This way all your SKUs are the same number of characters, and makes it easy to de-code a SKU without looking it up. If a size may be two or three dimensions, like 2x4, 4x6x8, or 2'4"x5'6", you may wish to create a numbering system for the sizes. If for example a size is 8X10, and you want all size abbreviations 3 characters, you could turn the 10 into a letter like A, so it reads 8XA. The number 11 would then be B, 12 is C, and so on. This methodology is used by companies who sell high-ticket items which have many variations in features.
In the following table, vendors, collections, designs, colors and sizes are each numbered 1-6; the product highlighted has the SKU V4C3D5R2Z6.
|Vendor 1||Collection 1||Design 1||Color 1||Size 1|
|Vendor 2||Collection 2||Design 2||Color 2||Size 2|
|Vendor 3||Collection 3||Design 3||Color 3||Size 3|
|Vendor 4||Collection 4||Design 4||Color 4||Size 4|
|Vendor 5||Collection 5||Design 5||Color 5||Size 5|
|Vendor 6||Collection 6||Design 6||Color 6||Size 6|
|→ SKU = V4 + C3 + D5 + R2 + Z6 (V4C3D5R2Z6)|
Another example: an item may be a can of a certain soft drink with an item identifier number of 1234. If that item is held in stock in the warehouse and two retail stores, it is said that there are three items and one SKU to be maintained. An item in two different bin locations in the same geographical location is not seen as two SKUs as they are managed as a single unit.
Some products remain the same but get updated each year or season. With such items - typically apparel - it can be helpful to have the date as part of the code for the SKU. For instance, in 2009 an extra large white T-shirt could be given a SKU of the form 12345-09-WHT-XL. The version for the 2010 season could have a different print on it, thereby being a different product and needing a new code, e.g. 12345-10-WHT-XL.
It may not always be desirable to have the year code easily identifiable in the SKU. For instance, 12345-05-WHT-XL could be the SKU for an extra large white T-shirt that dates from the 2005 model year. This detail in the stock code could be picked up on by the retailer with the result that the 2005 version of the T-shirt stays in the wholesaler's warehouse for even more time. If the 2005 T-shirt had a more innocuous code, e.g. 7A12345-WHT-XL, then the model year can only be deciphered by those that know that codes beginning with '7A' date from 2005.
Even if the product does not change from year to year the stock may still need to be rotated. Having the year embedded in the SKU code can help, however, the whole retail chain involved in the wholesaling, distribution and retail of the product will need to spend time updating codes every year/season. This is an administrative overload that could delay the roll-out of the product.
Some products are commonly sold both individually and in full-case quantities. These items receive two SKUs: a "parent" SKU for the full case and a "child" SKU for the individual item. For instance, a case of glue might have SKU 1234 while a bottle of glue might have SKU 2345. To encourage people who use a lot of glue to purchase full cases of it, they often sell at a discount. Both the case and the individual bottles will be marked with separate UPCs. The store's inventory control system is designed to work with the parent and child UPCs. If there are 12 bottles in addition to single-piece and full-case lots. Floor tile is an example. A particular style of tile with SKU 3456 may cover one square foot of floor space and come in a case of 12 tiles which has SKU 4567. As one box of tile is far from being enough to install a floor, manufacturers package 15 boxes of tiles on a pallet and sell the pallet as a master pack, which has SKU 5678.
Systems using child/parent/master pack SKU systems are designed so employees may only order even multiples of the largest pack size. An employee may order 15 of SKU 4567, one of SKU 5678 or 180 of SKU 3456; if the employee orders 100 of SKU 3456 the system will reject the order and ask the employee to resubmit the request in a multiple of 180. As the system is programmed with the number of SKU 3456 and the number of SKU 4567 that are in SKU 5678, the system will automatically translate an order for SKU 3456 or SKU 4567 into an order for the correct number of SKUs.