A stock keeping unit, or SKU, is a unique code a business assigns to a specific product variation so it can be tracked accurately in a warehouse or store. SKUs matter because many items can look similar but differ by size, color, supplier, packaging, or location. A well designed SKU system helps workers find products faster, reduces shipping errors, and keeps inventory records aligned with what is physically on the shelf.
In logistics, SKUs are the basic units used to plan purchasing, storage, picking, packing, and sales analysis.
An SKU usually connects product attributes to a database record that stores quantity, location, cost, reorder point, and movement history. When a barcode or QR code is scanned, the warehouse management system identifies the SKU and updates inventory in real time. SKU data can be used to calculate turnover, forecast demand, trigger replenishment, and measure which products take the most space or labor.
Good SKU design balances human readability with system accuracy, so codes are clear enough for workers but structured enough for software.
Key Facts
- An SKU identifies one exact product variation, such as brand, model, size, color, and packaging.
- Inventory on hand = beginning inventory + units received - units sold or used.
- Reorder point = average daily demand x lead time + safety stock.
- Inventory turnover = cost of goods sold / average inventory value.
- Stockout rate = number of stockout events / total demand events.
- SKU velocity measures how quickly a SKU moves through inventory, often using units sold per day or picks per week.
Vocabulary
- Stock Keeping Unit
- A stock keeping unit is a unique internal code used to identify and track a specific product variation in inventory.
- Barcode
- A barcode is a machine-readable pattern that links a scanned label to product and inventory data.
- Warehouse Management System
- A warehouse management system is software that tracks inventory locations, movements, orders, and fulfillment tasks.
- Reorder Point
- A reorder point is the inventory level at which a new purchase or production order should be placed.
- Safety Stock
- Safety stock is extra inventory kept to reduce the risk of running out when demand or delivery time changes.
Common Mistakes to Avoid
- Using the same SKU for similar but different items is wrong because each variation needs its own record for accurate counting, pricing, and picking.
- Making SKU codes too long or inconsistent is wrong because workers are more likely to misread them and software reports become harder to filter.
- Confusing SKU with barcode is wrong because the SKU is the internal product identifier, while the barcode is a scannable way to access that identifier or related data.
- Ignoring slow moving SKUs is wrong because low demand items can use valuable storage space and increase carrying costs even if they rarely cause stockouts.
Practice Questions
- 1 A warehouse starts the week with 420 units of SKU A. It receives 180 units and ships 235 units. How many units are on hand at the end of the week?
- 2 A product sells an average of 12 units per day, supplier lead time is 6 days, and safety stock is 30 units. Calculate the reorder point.
- 3 Two shirts have the same design but different sizes and colors. Explain why they should not share the same SKU in a warehouse system.