SKU (Stock Keeping Unit)

SKUs are the language of inventory management. Every variant of every product gets its own SKU. A t-shirt that comes in 4 colors and 5 sizes has 20 SKUs. A laptop with 3 processor options, 2 memory configurations, and 2 storage options has 12 SKUs. This granularity is essential because customers do not buy generic products; they buy specific variants, and you need to track each one. Good SKU architecture follows a logical convention that encodes useful information. For example, "TS-BLU-M" might indicate a t-shirt, blue, medium. This makes SKUs readable to warehouse workers and useful for analysis. Poor SKU architecture uses random numbers that carry no meaning and make manual handling error-prone. SKUs differ from UPCs (Universal Product Codes) and EANs (European Article Numbers), which are standardized barcodes used across the retail industry. A UPC is the same for a product regardless of which retailer sells it. A SKU is internal to your organization and may differ from other companies selling the same product. Many businesses use both: UPCs for external identification and SKUs for internal management. SKU proliferation is a common challenge. As businesses add products, variants, and bundles, the SKU count grows, and with it the complexity of inventory management. Each additional SKU requires storage space, forecasting, replenishment planning, and potentially safety stock. SKU rationalization, the process of identifying and discontinuing underperforming SKUs, is a regular exercise for mature inventory operations.