Stock keeping unit (SKU)

SKU, product and variant

A product is what a buyer sees on one page: the classic T-shirt. A variant is one combination of its options: the T-shirt in black, size M. A SKU is the code you give that variant so you can count it, pick it and report on it. A product has one SKU for each variant you stock and count separately.

Take a T-shirt in two colors and three sizes:

One product, six SKUs, 170 units. The buyer picks a color and a size, the store ships TEE-BLK-M and lowers that count by one. The product total of 170 says nothing about whether a buyer can get a black medium.

Options multiply. Add a third color and two more sizes (XS and XL) and the same shirt is 3 × 5 = 15 SKUs.

An item needs a new SKU when a buyer can tell it apart or when you have to count it apart: a different size, color, material or pack size, or a new version of the product. A new price, a new photo or a new description is not a new SKU.

A SKU belongs to your store. The same shirt sold by two shops has two different SKUs, one in each shop's records. To identify an item across shops, the trade uses a barcode number.

When a bundle needs its own SKU

A bundle needs its own SKU when it is sold as one item: one line on the order, one price, often one barcode. A deal that discounts two items bought together, each added to the cart on its own, does not. It is a discount on two SKUs that keep their own counts.

There are two ways to stock a bundle:

Take a gift set of 1 mug and 2 bags of coffee, with 20 mugs and 30 bags on hand. As a kit, the store can sell the smaller of 20 ÷ 1 = 20 and 30 ÷ 2 = 15, so 15 sets. If you pack 10 sets ahead, the counts become 10 sets, 20 − 10 = 10 mugs and 30 − 20 = 10 bags. Selling 4 sets lowers the set count to 6, and the 10 loose mugs and 10 loose bags can still sell on their own.

The pitfall is counting the same unit twice: a packed set whose parts still count as loose stock. The store then sells a mug that is shrink-wrapped inside a set. Lower the parts when you pack, not when the set sells. Give a kit its own SKU too, even though it holds no stock, so your sales report shows how many sets sold.

SKU, barcode and manufacturer part number

An item can carry several identifiers. Each comes from someone different and does a different job:

A barcode is the printed bars; the number in it is usually a GTIN. Each variant has its own GTIN, as it has its own SKU: the black medium and the white medium carry different barcodes. If you resell a brand's goods, use the GTIN on the brand's packaging and never make one up. If you make your own goods and sell where a GTIN is required, license numbers for your company from GS1.

You can print your SKU as a barcode for your own shelves and packing bench. That label scans in your warehouse only. It is not a GTIN, and no other system will recognize it.

Keep the SKU and the GTIN in separate fields. A GTIN used as a SKU is a code no one can read at a shelf, and if the brand issues a new GTIN for a changed product, your sales history splits in two.

How to design a SKU code

A SKU is read by people at a shelf, on a packing slip and in a spreadsheet. Design it so a picker can read it aloud and a spreadsheet cannot change it:

• Readable segments in a fixed order. Style, then color, then size: TEE-BLK-M. Keep the order across the whole catalog, so sorting by SKU groups each style and every black item contains BLK.
• A fixed length for each segment. Three letters for color (BLK, WHT, NVY) and the same for every style code, so codes line up in a list and a typo stands out.
• Hyphens between segments. Leave out spaces, slashes and other symbols, which some systems and file names reject.
• A letter first, never a zero. A spreadsheet reads 00412 as the number 412 and drops the zeros, and it can turn a code such as 6-10 into a date. A code that starts with a letter stays text.
• No letters that look like digits. O looks like 0 and I looks like 1, on a label and in handwriting. Leave both letters out of every code.
• Nothing that changes. Leave price, supplier and season out. When the price changes, a code that contains it is wrong, and changing the code breaks the sales history.
• Never reuse a retired code. If TEE-BLK-M is retired and the code goes to a new cut of shirt, last year's sales, returns and counts mix with the new item's. Give the new cut a new code, such as TEE2-BLK-M.

Counting stock per SKU

Count stock per SKU, never only per product. For each SKU, keep three numbers:

• On hand: units physically in your locations.
• Committed: units in paid orders that have not shipped.
• Available: on hand − committed, which is what the store can still sell.

TEE-BLK-M with 25 on hand and 3 committed has 22 available.

Why counts drift

The count in your records and the count on the shelf move apart one unit at a time:

• Mis-picks. A picker ships the black M instead of the black L. The record lowers L by one, but the shelf lost an M. L now has one unit more on the shelf than the record shows, M one fewer, and the product total still matches. Only a count per SKU finds it.
• Receiving errors. A carton labeled 24 holds 23, or two sizes arrive mixed and go on the shelf under one code.
• Returns. An item comes back and is restocked with no record, or is recorded as restocked when it was damaged.
• Loss and use. Damage, theft, samples, photo shoots and gifts that leave the shelf with no order.
• Late updates between channels. One channel lowers the count after another channel has already sold the last unit.
• Duplicate codes. The same item under two SKUs, received under one and sold under the other. One count runs below zero while the other grows.

Count a few SKUs every week instead of everything once a year, and count fast sellers and costly items more often. Record the share that matched: SKUs whose shelf count matched the record ÷ SKUs counted. Count 40 and find 34 that match, and accuracy is 85%. Look at the 6 that did not: the same picker, the same pair of look-alike codes or the same supplier points to the cause. Counts that drift also break each fulfillment promise, because the store sells units it does not have.

Sales per SKU: finding dead variants

The same T-shirt over the last 90 days, with days of stock left worked out as on hand ÷ (units sold ÷ 90):

The product as a whole has 67 days of stock and looks healthy. Per SKU, the white small and white large sold 3 of the 228 units (1.3%) and hold 75 of the 170 on hand (44.1%). At a $6 landed cost per shirt, that is 75 × $6 = $450 of cash on a shelf, while the black medium runs out in 25 days. The product figure hides both problems, as it hides slow products in inventory turnover.

Before you call a SKU dead, check three things:

• Days in stock. A SKU that was out of stock for 60 of the 90 days had 30 days to sell. If it sold 20 units in those 30 days, it sold 0.67 a day, the pace of the black large. Divide sales by days in stock, not days in the period.
• Whether buyers can find it. A photo in that color, the size in the size chart, and the variant switched on in every channel.
• Returns. Use units sold minus units returned. A size that sells and comes back may have a fit problem, not a demand problem.

Then act, starting with what costs least:

• Stop reordering it. This costs nothing and stops the problem growing.
• Clear the stock. Mark it down, or offer a discount code limited to that SKU. You give up margin on those units and get cash and shelf space back.
• Bundle it with a SKU that sells, at a price below the two bought apart.
• Retire the variant once its stock is gone. Buyers who wanted that size or color find nothing, so do this only when its sales per day in stock stay near zero.

The cost of each SKU

A new color looks like one more option on the product page. Behind the page, each SKU needs its own stock, its own safety stock, a shelf location, a count, a photo, a field in every channel listing and often its own supplier minimum. Similar codes next to each other on a shelf also raise the chance of a mis-pick.

Take 120 shirts of stock and keep 10 units of each SKU as safety stock against a late delivery:

With 12 SKUs, the whole 120 units is safety stock: every SKU arrives already at its buffer. To keep 40 units per SKU, the store needs 12 × 40 = 480 units, four times the cash. Unless sales of the shirt also grow four times, inventory turnover falls by about the same factor, and the colors left at season end are marked down, which cuts gross margin.

When you report a SKU count, say what you counted: active SKUs with stock, every active SKU, or every code ever created, retired ones included. Tools count differently, so one catalog can show three totals. Compare the same count each quarter.

Add a SKU when it brings sales the current range does not. Test a new color with a small order, set a date to judge it, and judge it by sales per day in stock against the SKUs it sits beside.

Questions

What is the difference between a SKU and a product?

A product is the item a buyer sees on one page, such as a T-shirt. A SKU is one version of it that you stock and count separately, such as the T-shirt in black, size M. A product in 2 colors and 3 sizes has 6 SKUs.

Is a SKU the same as a barcode?

No. A SKU is a code you make up for your own store, and it means nothing outside it. A barcode usually carries a GTIN, a UPC or EAN number assigned by the brand owner under a GS1 company prefix, and it identifies the item in every store. Keep both for each variant, in separate fields.

Do I need a SKU for every variant?

Yes, for every variant you stock and count separately. Without one, the black medium and the white large share a count, and the store can sell a size it does not have. A variant made to order, with no stock, still needs a SKU so its sales show up in reports.

Can I reuse an old SKU code?

No. A reused code mixes the old item's sales, returns and stock history with the new item's, and a late return of the old item can be restocked as the new one. Retire the code for good and give the new item its own.

How many SKUs should a store have?

There is no right number, and we do not quote an industry figure, because catalogs count SKUs in different ways. Each SKU needs its own stock, count and shelf space, so add one when it brings sales the current range does not, and retire one when its sales per day in stock stay near zero. Review stock at cost beside sales per SKU each quarter.