What is a SKU and how are they used by retailers?

Posted by:
The Scale Up

19 Feb 2019

Heard someone say “es-kay-you” or “skew”? Not sure what a SKU is and if you need one?

Whether you have a large inventory of multiple products, or just specialise in one single product, you’ll likely have a SKU architecture in place. Essentially, a SKU lets you track a product, and keeps everything nicely organised.

In this article, the team at James and James share answers to a few frequently asked questions around SKUs and offer some best practice advice on using them.

What does SKU stand for?

SKU stands for stock keeping unit. Some people pronounce SKU letter by letter – “an es-kay-you”. Others pronounce it as a single word – “a skew.”

What is an example of a SKU?

In eCommerce and fulfilment, a SKU is a code that represents one, unique product line. It’s usually a combination of letters and numbers that reflect the characteristics of that product. So, for instance:

  • JJF-TS-SML-GN would be a small, green, James and James Fulfilment t-shirt
  • JJF-TS-LRG-GN would be a large, green, James and James Fulfilment t-shirt
  • JJF-TS-SML-OR would be a small, orange, James and James Fulfilment t-shirt

Is a SKU the same as a barcode?

A SKU and a barcode are similar in that they both refer to one, unique product line.

Where they’re different is that a SKU can be read and understood by a human, without the need for a barcode scanner and related technology.

Also, if you resell products, you should refer to them using your own SKU, rather than relying on the manufacturer’s barcode. If you don’t, and the manufacturer changes the barcode later, you’ll need to update the SKU in multiple places – your online store, marketplaces, warehouse and so on.

Is a SKU the same as a serial number?

No. A SKU refers to one, unique product line. A serial number refers to one, unique product. So 100 small, green t-shirts would all have the same SKU number. But each one would have a different serial number, usually increasing in increments of one.

What format should a SKU number take?

Your SKUs should include any attributes that differentiate products from each other. So that could be brand, product, size and colour, plus material, packaging, style and so on.

It’s also a good idea for the code to be extendable. For example, if your business does wholesale as well as direct-to-consumer (D2C) sales, you’ll want SKUs for case sizes. A box of 50 small, green t-shirts might be: JJF-TS-SML-GN-C50

Why should you use SKUs?

Using SKUs within your eCommerce business can have benefits in two key areas:

1. Pick and pack

Labelling your products with both a SKU and a barcode can be really useful in a fulfilment warehouse during pick and pack.

For example, as our team travel around our fulfilment centres, picking items from the shelves and placing them on trolleys, they scan the items’ barcodes to check that they’ve selected the right ones.

When they bring these items back to a packing desk, to prepare them for despatch, there might be two or more similar items on one trolley, which need to go in different orders – for example, a black t-shirt and a dark grey t-shirt.

The SKU number helps them identify the right product quickly – something they couldn’t do with a barcode alone – ensuring that Mr X doesn’t end up with Mr Y’s dark grey t-shirt!

2. Inventory management

The second advantage of using SKUs is that it enables you to take more accurate stock readings, and understand your best and worst-selling products. It’s crucial for accurate stock takes.

Without SKUs, you might know that you have 1,000 t-shirts in stock and some are selling well. With SKUs, you’ll know the exact size and colour breakdown, and that small, green t-shirts will sell out next week, unless you order more from your manufacturer now.

Having this sort of granular inventory management will ultimately save you money. It will reduce:

  • Capital investment required to buy new stock, some of which might already be unpopular with customers and unlikely to ever sell
  • Storage costs associated with maintaining a large range of products, some of which may be slow-moving
  • Missed opportunity costs, which come from running out of popular products, because you haven’t spotted they’re selling well and reordered.

How many SKUs should you have?

Now we know that SKUs are useful for managing your inventory, the natural question is how many you should have – just how big should your product range be?

Unfortunately, there’s no one-size-fits-all answer for this. It will depend on the industry you work in and the maturity of your business. Established clothing retailers will obviously have tens of thousands of SKUs, catering for different sizes and demographics. Smaller, start-up retailers are likely to have fewer. Indeed, it’s sensible to begin with a handful of SKUs, and expand your range as your revenues grow and you receive feedback from customers.

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James and James Fulfilment

It all began in 2010, when James Hyde and James Strachan couldn’t find a modern shipping service for the eCommerce business they ran. Faced with messy warehouses based on out-dated systems, they decided to build their own.

We’ve not stood still since, helping hundreds of online brands scale up – and scaling with them.