Stock Keeping Unit (SKU)

Definition:

A Stock Keeping Unit (SKU) is a unique identifier assigned to each distinct product or item in a company's inventory. SKUs are used to track and manage inventory at a granular level, taking into account variations in size, color, material, or other attributes. Each SKU typically includes information such as the product name, description, supplier, and pricing. SKU formats can vary widely depending on the company's specific needs, industry, and product characteristics, and may include numeric, alphanumeric, or other types of codes.

Example:

Acme Retail sells a variety of products across different categories. To effectively manage its inventory, Acme assigns a unique SKU to each product variation. For example:

  • A men's t-shirt in size large, color blue, and made of cotton might have the SKU "1234-567-89" (numeric)

  • A women's dress in size medium, color black, and from the summer collection might have the SKU "DRESS-SUMMER22-001" (alphanumeric with product type, season, and sequence number)

  • A set of kitchen knives with a specific brand and model number might have the SKU "KNIFE-SET-BRAND-1234" (alphanumeric with product type, brand, and model number)

By using these unique SKUs, Acme can accurately track the quantity, location, and movement of each specific product variation in its inventory, regardless of the SKU format used.

Why are SKUs important to Procurement teams?

SKUs are a fundamental tool for inventory management and procurement. They allow companies to track inventory levels, monitor stock movements, and make informed purchasing and pricing decisions at a detailed level. SKUs also facilitate accurate demand forecasting, as companies can analyze sales data and trends for specific product variations. In addition, SKUs are essential for efficient order processing, as they ensure that the right products are picked, packed, and shipped to customers. Procurement teams can use SKU data to optimize inventory levels, identify slow-moving or obsolete items, and negotiate better terms with suppliers based on volume and velocity. The flexibility of SKU formats allows companies to tailor their inventory management systems to their specific needs and industry requirements.