Definition
A Stock Keeping Unit, or SKU, is a unique identifier for each distinct product or service that can be purchased in business. It is used to track inventory levels, sales, and other data important for managing products. Each SKU is associated with any item that is purchasable, allowing the item to be tracked in an inventory system.
Key Takeaways
- A Stock Keeping Unit (SKU) is essentially a product code that you can use to track and manage your inventory. It is a unique identifier that can represent important details about your product such as size, color, or type.
- SKUs are crucial for keeping an organized and accurate inventory tracking system. They make it easier to locate products in your warehouse, identify out of stock items, or even identify which items are selling the best.
- While SKUs might appear similar to barcodes, the two are distinct. SKUs are internal and specific to each business. They are customizable and created by the businesses themselves, unlike barcodes which are universal and assigned by global standard organizations.
Importance
The finance term Stock Keeping Unit (SKU) is significant because it allows businesses to easily track and manage their inventory. SKUs are unique identifiers assigned to each product or service a company offers.
They help with the identification of product attributes like size, color, and manufacturer, which in turn aids in streamlining inventory management and ensuring efficient restocking procedures. SKUs are also used to track sales, prevent stockouts or overstocks, and evaluate product performance.
This increases the accuracy of inventory control, leading to improved profitability, reduced storage costs, and increased customer satisfaction. Overall, SKUs enable companies to maintain optimal inventory levels and make data-driven business decisions.
Explanation
The Stock Keeping Unit (SKU) plays an integral role in inventory management, acting as a distinct identifier for each specific product or service that can be purchased. By designating unique SKUs to all the different items, businesses can track the availability, sales, and overall performance of individual products quite efficiently.
This enables companies to make informed inventory-related decisions, as well as assisting in the identification of slow-moving items and forecasting future demand for particular products. SKU’s purposes extend beyond inventory tracking.
They also play a critical role in facilitating the processes of ordering, shipping, and delivery. For instance, when an order is placed, the SKU lets the warehouse workers know what item to pick for shipping, rather than checking the product description or name.
Furthermore, SKUs streamline the process of record-keeping and help reduce potential errors that could result from manual data entry. In essence, the use of SKUs is to enhance tracking and management, which can significantly boost business operation efficiency, improve customer service and ultimately, drive growth.
Examples of Stock Keeping Unit
Retail Store: A large supermarket may have thousands of items in its inventory and needs to track the quantity, price and selling rate for each individual product. For example, every brand and type of a certain product, like laundry detergent, will have a unique Stock Keeping Unit. Different sizes and versions of the same product also have different SKUs. By assigning SKUs, the supermarket can closely monitor the sales and stock levels of each product variant.
Online E-Commerce Platform: An online clothing store might sell t-shirts in various colors and sizes. Each size/color combination would have its own SKU. For instance, a small blue t-shirt would have a different SKU from a medium blue t-shirt or a small red t-shirt. SKUs help the store track inventory and analyze sales data for each item.
Warehouse Management: A company that manufactures hardware tools, for example, may have a SKU for every type of screwdriver and drill they produce. SKUs allow the company to keep a record of how many units are sold and how many remain in stock, to inform production and distribution decisions.
Frequently Asked Questions on Stock Keeping Unit
What is a Stock Keeping Unit?
A Stock Keeping Unit (SKU) is a unique identifier for each distinct product and service that can be purchased. It’s a type of inventory management tool that helps companies keep track of their goods and services.
What is the purpose of a Stock Keeping Unit?
The purpose of a SKU is to help track the quantity of inventory you have on hand and simplify the process of maintaining your inventory. It can help businesses accurately report on product performance.
How is a SKU number created?
A SKU number is often created by the company selling the product and can be constructed in any way the company chooses. Usually, SKU numbers include information that allows the company to quickly identify the product, such as a brief description and key attributes.
What information does a Stock Keeping Unit provide?
A Stock Keeping Unit typically provides detailed information about the product’s size, type, color, brand, price and manufacturer. It serves as an easy reference for the available stock of a particular product.
Can SKUs be reused?
No, SKU numbers should be unique and not reused even if a product is discontinued. This ensures that every item has a specific identifier, preventing errors in inventory management.
Related Entrepreneurship Terms
- Inventory Management
- Warehouse Tracking
- Product Identification
- Supply Chain Management
- Order Fulfillment
Sources for More Information
Sure, here are four reliable sources to learn more about the finance term ‘Stock Keeping Unit’:
- Investopedia: A comprehensive resource for investing education, personal finance, market analysis, and free trading simulators.
- Entrepreneur: A North American publication that carries news stories about entrepreneurialism, small business management, and business opportunities.
- Business Dictionary: An easy-to-use free business glossary with over 20,000 terms.
- Tutorials Point: It provides step by step learning about various concepts including financial terms.
