How to choose a SKU? (2024)

SKU features, secrets and tips… and the other codes?

Corrado Facchini

9 min read

Feb 21, 2024

What is the SKU?

SKU stands for Stock Keeping Unit. The SKU code is the unique key used by companies to identify a product. It is a sequence of alphanumeric characters, normally referring to the main product details: price, colour, style, brand, gender, type and size.

Functionality:

Identification: the SKU allows you to distinguish a product from all the others quickly and precisely, avoiding confusion with similar items.
Traceability: the SKU helps to monitoring the inventory levels, sales and the product movements within the supply chain.
Organization: the SKU makes it easier the organisation of the warehouse, the management of stocks and the identification of products to order or replenish.

Features:

Unique: each product has only one SKU that it does not change over time
Alphanumeric: the SKU can be made up of letters, numbers, or a combination of both
Customizable: The company can choose the SKU code structure according to their needs

All the benefits of SKUs for your business:

Better inventory management
Greater efficiency in warehouse processes
Reduction of errors
Better product traceability
Greater visibility into inventory

Other uses of SKU:

Billing: SKUs can bu used on invoices to identify products sold
Returns Management: SKUs can be used to identify products returned by customers

The composition of an SKU varies from company to company, as there is no universal standard format. However, there are some common principles that are generally followed:

Length:

On average, a SKU is 8–12 characters long
Longer SKUs can be difficult to remember and manage
Shorter SKUs may not provide enough information to uniquely identify the product

Structure:

The SKU can be made up of letters, numbers, or a combination of both
The SKU structure can be divided into segments, each of which represents a specific product feature. For example, a segment could identify the product type, the other one segment might identify the product type, another the size, another the color, and so on

Examples of segment usage for this SKU “AB1234-EF-S-N”

Product type (e.g. “AB” for shoes, “CD” for books)
Model (e.g. “1234” for a specific shoe model)
Brand (e.g. “EF” for Nike, “GH” for Adidas)
Size (e.g. “S” for small, “M” for medium)
Color (e.g. “N” for black, “B” for white)

SKU creation tips:

Choose a simple, easy and logical structure
Use unique codes for each product
Avoid using letters that can be confused with numbers (e.g. O and 0)
Document the SKU structure for ease of understanding

Final SKU example:

AB1234-EF-S-N

In this example, the SKU identifies a pair of size 40 black Nike sneakers:

AB1234: Code for athletic shoes divided into “AB” for the product type “shoes” and “1234” for a specific shoe model “athletic”
EF: code for brand Nike
S: code for size 40
N: Code for the color black

Finally, it is important to remember that the SKU must be tailored to the specific needs of each company.

Both SKUs and barcodes play crucial roles in identifying and tracking products, but they serve different purposes:

1. Purpose:

SKU: an internal code used by a single company to manage and track its inventory
Barcode: auniversal code that can be scanned by any organization to retrieve product information

2. Uniqueness:

SKU: unique within a company but can be the same for similar products in different companies
Barcode: unique for a specific product, regardless of the company selling it

3. Information Contained:

SKU: can be alphanumeric and often contains internal information relevant to the company (e.g., size, color, brand, model) but might not be readily understandable to someone outside the company
Barcode: doesn’t directly display information, but encodes it (usually a product identification number like a UPC) which can be decoded by scanners and software

4. Visualization:

SKU: typically a written code (e.g., “SHRT-BL-M”)
Barcode: a series of lines and spaces that represent the encoded information, readable by scanners

5. Example:

A clothing store might assign the SKU “SHRT-BL-M” to a blue, medium-sized shirt. This code wouldn’t mean anything to another company, but it helps the store track their inventory
The same shirt might have a UPC barcode encoded as a series of lines. This barcode would be unique to the specific shirt style, color, and size, regardless of the store selling it

In summary:

SKU: Private language for internal product identification and management
Barcode: Universal language for external product identification and information retrieval

Both SKUs and UPCs (Universal Product Codes) help identify products, but they serve different purposes and have key distinctions:

Purpose:

SKU: An internal code used by a single company to manage and track its inventory
UPC: Used externally and serves as a universal identifier for products. Any business can scan the UPC to retrieve information about the product, independent of the company selling it

Uniqueness:

SKU: unique within a company but can be the same for similar products in different companies
UPC: unique for a specific product, regardless of the company or location

Format:

SKU: can be alphanumeric and often contains internal information relevant to the company (e.g., size, color, brand, model) but might not be readily understandable to someone outside the company
UPC: always 12 digits long and follows a specific format established by GS1, a global organization responsible for assigning product codes.

Information contained:

SKU: Often includes internal information relevant to the company but not readily understandable to outsiders. It might encode details like size, color, brand, or model based on the company’s chosen system
UPC: Doesn’t directly display information. It encodes a product identification number that can be decoded by scanners and software to access information about the product in a standardized database

Visualization:

SKU: Typically a written code (e.g., “SHRT-BL-M”)
UPC: Represented by a series of vertical lines and spaces that encode the product information, readable by barcode scanners

Here’s a table summarizing the key differences:

Analogy: consider your home pantry and a grocery store:

SKU: like a code you use to label shelves based on your own organization system (e.g., “Canned_Veg1”).
UPC: like the product’s barcode, which everyone can understand and use to get product information from a central database

While SKUs (Stock Keeping Units) and EANs (European Article Numbers) share similarities in identifying products, their purposes and scope diverge in key ways:

1. Purpose:

SKU: used internally by a single company to manage and track inventory within their own system. It helps categorize and organize products based on their specific needs, like size, color, or model variation
EAN: used externally and serves as a standardized identifier for products primarily within Europe, though its use extends to other regions as well. Any business can scan the EAN to retrieve product information, regardless of the company selling it

2. Uniqueness:

SKU: unique within a company but can be the same for similar products in different companies
EAN: unique for a specific product, regardless of the company or location

3. Format:

SKU: Alphanumeric, meaning it can include letters, numbers, or both. The format and length are not standardized, and each company determines their own system
EAN: Always 13 digits long and follows a specific format established by GS1, the same organization that assigns UPCs (Universal Product Codes). The format consists of a country code, manufacturer code, product code, and a check digit

4. Information Contained:

SKU: Often includes internal information relevant to the company but not readily understandable to outsiders. It might encode details like size, color, brand, or model based on the company’s chosen system
EAN: Doesn’t directly display information. It encodes a product identification number that can be decoded by scanners and software to access information about the product in a standardized database

5. Visualization:

SKU: Typically a written code (e.g., “SHRT-BL-M”).
EAN: Represented by a series of vertical lines and spaces similar to a UPC barcode, readable by barcode scanners

Here’s a table summarizing the key differences:

Analogy: Consider your home pantry and a supermarket across Europe.

SKU: like a code you use to label shelves based on your own organization system (e.g., “Canned_Veg1”)
EAN: like the product’s barcode, which everyone can understand and use to get product information from a central database, primarily in Europe but with wider regional adoption

In summary, SKUs are company-specific codes for internal use, while EANs serve as standardized identifiers for product identification and information sharing, particularly in Europe.

Yes, there can be differences in the structure and usage of SKUs between different industrial sectors. While the core function of identifying and tracking products remains the same, the way information is encoded within the SKU can vary based on the specific needs of the industry.

Factors influencing SKU differences:

Product complexity: Industries with highly complex products, like electronics or pharmaceuticals, might require more elaborate SKUs to capture details like model variants, component versions, or expiration dates. This often leads to longer SKUs with specific segments for various details
Product variety: Industries with a wider variety of products (e.g., clothing or food) might use SKUs to encode attributes like size, color, or flavor. This may involve using specific characters or codes within the SKU to represent these variations
Inventory management practices: Different sectors might have unique inventory management needs, which can influence the level of detail included in the SKU. For example, the automotive industry might use SKUs to track specific parts within assemblies, requiring more intricate coding than a clothing retailer tracking basic garments.
Regulation and compliance: In some industries, like pharmaceuticals or medical devices, regulations might dictate specific information that needs to be included in the SKU for traceability and compliance purposes. This can lead to standardized SKU formats within the sector.

Here are some examples:

Fashion: A clothing store might have an SKU like “SHRT-BL-M” to represent a blue, medium-sized shirt. This uses simple codes for color and size but wouldn’t capture details like brand or material.
Electronics: An electronics store might have an SKU like “TV-LED-43-ABC123” to represent a 43-inch LED TV from brand ABC with model number 123. This SKU incorporates details beyond just the product category.
Food: A grocery store might have an SKU like “CannedVeg-2024–07” to represent a can of vegetables with an expiration date in July 2024. This emphasizes the tracking of specific production batches.

It’s important to note that these are just examples, and the specific way SKUs are used will vary significantly between companies within an industry. However, understanding the factors influencing SKU differences can provide a general understanding of how various sectors might approach product identification and tracking.

If you have any questions or corrections, please contact me.

Version: 1.0 — Last update: 26/02/2024 — Author: Corrado Facchini

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