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Stock-Keeping Unit (SKU)

A Stock Keeping Unit (SKU) is a unique, alphanumeric identifier assigned by a retailer or manufacturer to a specific product to internally track inventory. It is a fundamental component of inventory management systems and point-of-sale (POS) operations.

The SKU distinguishes a product based on its attributes such as size, color, style, material, and packaging. Unlike a universally unique UPC (Universal Product Code) or GTIN (Global Trade Item Number), the SKU is internal and company-specific.

Its technical utility lies in:

  1. Granular Tracking: Enabling precise monitoring of stock levels, movements, and sales performance at the individual product variation level.
  2. Data Analysis: Facilitating detailed reporting on profitability, demand forecasting, and inventory turnover by allowing aggregation and disaggregation of sales data.
  3. Efficiency: Streamlining warehousing, picking, packing, and replenishment processes.


Use Case

A clothing company, StyleCo, uses SKUs to manage its "Classic Cotton T-Shirt" product line across its retail stores and e-commerce platform.


SKU Structure

StyleCo designs its 10-digit alphanumeric SKU using the following structure: [PRODUCT CODE]-[COLOR CODE]-[SIZE CODE]


Segment

Digits

Example Value

Description

Product Code

4

CCTS

Classic Cotton T-Shirt

Color Code

3

BLK

Black

Size Code

3

MED

Medium


Example SKU

A Black, Medium Classic Cotton T-Shirt would be assigned the SKU: CCTS-BLK-MED.


Usage in Operations

  1. Inventory Control: When a customer buys the shirt, the POS system records the sale against CCTS-BLK-MED, immediately reducing the on-hand count for that specific variation in the central Warehouse Management System (WMS).
  2. Replenishment: When the stock for CCTS-BLK-MED falls below the defined reorder point (e.g., 50 units), the WMS automatically generates a purchase order request to the supplier for only the black, medium shirt, preventing overstock of other variations (like CCTS-WHT-SML).
  3. E-commerce: The e-commerce platform displays "In Stock" only if the available quantity associated with the specific SKU (CCTS-BLK-MED) selected by the customer is greater than zero.

This granular tracking ensures StyleCo maintains optimal stock levels for each color and size, minimizing stockouts and obsolescence.

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