# SKU: What It Is and How It Works

> **Definition**
>
> A stock-keeping unit (SKU) is a label printed with a unique number and a scannable bar code, used by retailers to keep track of their inventory.

## What Is a Stock Keeping Unit (SKU)?

A stock-keeping unit (SKU) is a sticker attached to a product that retailers use to keep track of their inventory. The sticker contains a unique series of digits and a scannable bar code that records the information when the item is sold.

The digits identify the product, its price, its manufacturer, and the point of sale. SKUs may also be applied to intangible but billable products such as units of labor in an auto body shop or [warranties](https://www.investopedia.com/terms/w/warranty.asp).

### Key Takeaways

*   SKUs are used by retail stores, catalogs, service providers, warehouses, and product fulfillment centers.
*   Retailers rely on them to restock inventory as it is sold.
*   SKU data also allow vendors to see where an item is in the shipment process.

![Stock Keeping Unit](https://www.investopedia.com/thmb/TzUeSBCG_ZaTxzohIgjgfk-in6U=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Term-Definitions_StockKeepingUnit-b2852831aee5426b98848888cf18e993.jpg)

*Scannable SKUs and a POS system make it easy for managers to determine which products need to be restocked. — Investopedia / Theresa Chiechi*

## Tracking Inventory

SKUs are used by stores, catalogs, e-commerce vendors, service providers, warehouses, and product fulfillment centers to [track inventory](https://www.investopedia.com/articles/investing/020116/how-analyze-companys-inventory.asp) levels.

When a customer buys an item at the [point-of-sale](https://www.investopedia.com/terms/p/point-of-sale.asp) (POS), the SKU is scanned and the POS system automatically removes the item from the inventory while recording other data such as the sale price.

Scannable SKUs and a POS system make it easy for managers to determine which products need to be restocked.

> **Important**
>
> SKUs are not model numbers, although the model number may be included in the identification code. Businesses create unique SKUs for the products they sell.

## Vendor Benefits

*   **Track Inventory**: SKUs allow vendors to see what they have in stock, track inventory movement, and provide information on [reorder points](https://www.investopedia.com/terms/i/inventory-management.asp).
*   **Prepare for Sales or Seasons**: SKU data can help vendors decide what to reorder to prepare for holiday seasons or sales.
*   **In Transit Data**: SKUs carry data that allow vendors to see where an item is in the shipment process.  
    

![Image](https://www.investopedia.com/thmb/JjD3R-vYeE5k5BeV2zIrSaK0DcQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Stock_Keeping_Unit_SKU_May_2020-01-e9246575206c4bba9d4f22dd3272e963.jpg)

**

## SKUs vs. UPCs

Because each company creates its own SKUs to track inventory, the SKUs for identical products vary among businesses.

This can make it more difficult for a consumer to compare prices among retailers. For example, if a company provides the SKU to advertise a certain discounted refrigerator, shoppers cannot use it to check the prices at the store's competitors.

[Universal product codes](https://www.investopedia.com/terms/b/barcode.asp#:~:text=The%20most%20common%20form%20of,for%20use%20in%20grocery%20stores.) (UPCs) are identical regardless of which business sells the items, so they can be used for comparison purposes. The UPC label includes a barcode and a 12-digit number that identifies the product.

## How Do I Distinguish an SKU From a UPC?

Both labels are attached to many products, and both contain barcodes and a series of identifying characters. The UPC will display 12 numbers (and no letters). The SKU usually has both numbers and alphabetical characters, and its length will vary.

The UPC identifies the product. The SKU identifies the product and its retailer.

## How Are SKUs Used in E-Commerce?

People who sell their products through Web retailers can create and use unique SKUs to track sales and inventory. Amazon, for example, allows sellers to create SKUs for products they sell on the site.

## 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](https://www.investopedia.com/terms/e/economicorderquantity.asp) (EOQ). Retailers set an EOQ to alert them when a product needs to be reordered.

## The Bottom Line

Businesses need to track inventory to know how much they're selling, when they need to restock, and how fast products are selling. Using an SKU simplifies the inventory process, allowing some automation of inventory management.

> **Article Sources**
>
> 1.  AMZ Scout. "[Amazon Statistics](https://amzscout.net/blog/amazon-statistics/)."