Full Form of SKU – Stock Keeping Unit
The full Form of the SKU is Stock Keeping Unit.SKU is the bar code printed on the different product labels for purposes like the ease of inventory tracking and its management, identification of a particular product, reconciliation of stock levels of each product, analyzing the products that are most profitable, identification of reorder points, and saving customers time by ensuring that they are able to find the desired products with a lot of ease and convenience.
How Does it Work?
An SKU comprises numbers and letters, and this alpha-numeric combination is taken into use to describe the details of a product with respect to its color, brand name, model number, and so on. Every company has a unique way of creating stock keeping units for their goods, and the following are the aspects that must be taken into due consideration while generating an SKU:
- It must be ensured that every SKU is unique, and the same is not reused. In other words, it must be ensured that each product is allotted a unique SKU.
- Stock Keeping UnitStock Keeping UnitThe Stock Keeping Unit is a method of categorizing inventory (based on its nature, size, colour, price, packaging, and other factors) for logistics and strategy purposes, and it is a helpful internal metric for any organization. must be kept short and simple. Keeping a long SKU can be quite complicated for the readers and sometimes fail to work in an inventory management system.
- The use of space and special characters must always be avoided as they can confuse the readers.
- Alphabets that can be confused with numbers must not be taken into use. Alphabets like O, I, and J must be avoided as these can be confused as 0 and 1.
Example of SKU
Let’s take an example.
ABC store sells tea of different varieties and different companies. The store starts to deal with Tetley green tea recently. The store created an SKU for a large packet of Tetley green tea as GRE-LAR-B123-TET.
- GRE stands for Green Tea,
- LAR stands for Large pack,
- B123 is the model number provided by the ABC store,
- Dash (-) is used to separate various information about the green tea,
- TET is used to dictate the brand name of the product, i.e., Tetley.
The Stock Keeping Unit determined for a large pack of Tetley green tea is simple, short, unique as well as easily understandable by the readers and at the same time provides all the valuable information concerning the product as well.
The uses of the stock-keeping unit are discussed as follows:
- Tracking Inventory Levels: It enables the users to easily track their inventories and find out the availability and even the total quantity of a specific product. This helps users save their time and even safeguard themselves from getting stocked out since they can easily identify the products that need to be reordered.
- Identification of Shrinkage: These are even taken into use for tracking as well as identification of inventory shrinkage, i.e., the total number of items that are missing or a company cannot sell.
- Identification of Products that Derive Highest of Profits: They are even taken into use for tracking products that are the best selling and also products that are not performing or under-performing. This allows the stores to focus more on products that are best selling and less or rather eliminate products that are not best selling or underperforming.
- Replenishing Inventory Levels: Stock Keeping Unit can be taken into use for replenishing inventory levels, i.e., for identifying reorder points for each product and eliminating the possibilities of stock-out.
Stock Keeping Unit is crucial and widely taken into use by warehouses and retail shops. The importance of SKUs are enumerated as follows:
- Stock Keeping Unit helps customers compare similar products based on its characteristics such as prices, quantity, quality, date of manufacturing, ingredients, etc.
- SKU helps in the collection of data during sales.
- It helps in the identification of a product.
- Stock Keeping Unit eases tracking of inventory, which is of great help for the users to find out the quantity of a particular item at the moment.
- SKU helps in detecting any inventory shrinkageInventory ShrinkageInventory Shrinkage refers to the excess stock of goods shown in the accounts' books, although actual inventory is short of it. The reason behind this difference in real and recorded stock can be damage, theft, counting error, etc..
- It helps in inventory management.
- SKU helps users to find out the reorder point for a specific product.
- Stock Keeping Unit helps in calculate the profitabilityCalculate The ProfitabilityProfitability refers to a company's ability to generate revenue and maximize profit above its expenditure and operational costs. It is measured using specific ratios such as gross profit margin, EBITDA, and net profit margin. It aids investors in analyzing the company's performance. of all the products.
- SKU helps in reconciling inventory levels of a specific product.
Stock Keeping Units vs Universal Product Codes
Stock Keeping Units and Universal Product codes differ from each other on various parameters. A stock keeping unit differs from companies to companies. Stock keeping units are generated by the companies itself, and the mechanism of construction of the same is not the same for all companies. On the other hand, UPCs or Universal product codes are identical for all the companies. Stock keeping units are not the same for all the companies, while universal product codes are the same for all the companies.
Benefits of SKU
- Stock Keeping Unit help in the optimization of the product catalog management of the users.
- SKUs help in tracking the inventory levels.
- They are of great use in replenishing inventory levels. It is due to this reason that stores that have SKUs rarely stock out.
- Stock Keeping Unit can help in analyzing sales trends as well as levels.
- It helps identify the products that are the best performing, average performing, underperforming, or not performing at all.
- SKUs help in the application of customer behavior analytics.
- Stock Keeping Unit helps enhance productivity and improve inventory flexibility as per the demand of a specific product.
SKU is the abbreviation used for stock-keeping units. It is a scannable barcode that helps storekeepers or vendors to track and manage their inventory levels. It helps the users to identify the products that are replenishing and needs to be reordered and even offer sales data. Stock Keeping Unit enables the storekeepers to easily identify the quantity of a specific product and even help customers compare similar products. The mechanism of construction differs from companies to companies, and it must not be confused with UPCs or Universal product code.
This has been a guide to the Full Form of SKU (Stock Keeping Unit). Here we learn how does SKU works along with an example, uses, and importance. You may refer to the following articles to learn more about finance –