SKU: What It Is and How It Works

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Andrew Bloomenthal has 20+ years of editorial experience as a financial journalist and as a financial services marketing writer.
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Updated June 05, 2024
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Stock Keeping Unit

Investopedia / Theresa Chiechi

What Is a Stock Keeping Unit (SKU)?

A stock-keeping unit (SKU) allows vendors to track inventory. It consists of alphanumeric digits and a scannable bar code printed on a product label. The characters define a code that tracks the price, product details, manufacturer, and point-of-sale. SKUs may also be applied to intangible but billable products, such as units of repair time in an auto body shop or warranties.

Key Takeaways

  • A stock-keeping unit (SKU) is a scannable code to help vendors track inventory.
  • SKUs often appear as bar codes or QR codes along with alphanumeric digits.
  • SKUs are also used for units of repair time, services, and warranties.

Tracking Inventory

SKUs are used by stores, catalogs, e-commerce vendors, service providers, warehouses, and product fulfillment centers to track inventory levels. Scannable SKUs and a POS system make it easy for managers to determine which products need to be restocked.

When a customer buys an item at the point-of-sale (POS), the SKU is scanned and the POS system automatically removes the item from the inventory and records other data such as the sale price.

SKUs should not be confused with model numbers, although businesses may embed model numbers within SKUs. Businesses create unique SKUs for their goods and services.

Vendor Benefits

  • Track Inventory: SKUs allow vendors to see what they have in stock, track inventory movement, and provide information on reorder points.
  • Prepare for Sales or Seasons: SKU data can help vendors decide what to reorder when preparing for holiday seasons or sales.
  • In Transit Data: SKUs carry data that allow vendors to see where an item is in the shipment process.
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Image by Sabrina Jiang © Investopedia 2020 

SKUs vs. UPCs

Because companies internally create SKUs to track inventory, the SKUs for identical products vary among businesses. Different SKUs help retailers design advertising campaigns without interference from other vendors.

For example, if a company provides the SKU to advertise a certain discounted refrigerator, shoppers cannot easily view the same refrigerator at other sellers using the SKU. This stops competitors from matching advertised prices and poaching customers. In contrast, universal product codes (UPCs) are identical regardless of which business sells the items.

Is a Barcode a SKU?

While SKUs are often depicted as barcodes, they are not always used for the same purposes. Barcodes are meant to identify products of the same type regardless of where they are sold. SKUs identify the seller or vendor. In addition, UPC barcodes typically feature only numbers, while SKUs are alpha-numeric and vary in length.

How Are SKUs Used In E-Commerce?

Individuals who sell products through e-commerce sites can create unique SKUs for their products to help track sales and inventory. Amazon allows sellers to create SKUs for products they sell on the site. In 2023, 600 million products were listed on the Amazon marketplace.

What Does Economic Order Quantity Mean for Vendors?

The ideal quantity of units a company should purchase to meet demand and minimize inventory costs is called the Economic Order Quantity (EOQ).

The Bottom Line

Businesses need to track inventory to know how much they're selling, how often to restock, and how fast items sell. Using an SKU simplifies the inventory process, allowing inventory management automation.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

  1. AMZ Scout. "Amazon Statistics."

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