A Stock Keeping Unit (SKU) and a Universal Product Code (UPC) are both identifiers used to track inventory, but they serve different purposes in a retail business. Understanding the differences between SKUs and UPCs can help retailers manage their inventory more efficiently.
What is a SKU?
A SKU (Stock Keeping Unit) is a unique identifier that retailers assign to each distinct product in their inventory. SKUs help retailers track each product variant for inventory management purposes. Some key facts about SKUs:
- Assigned internally by the retailer
- Unique to each product variant (size, color, style, etc)
- Often alphanumeric code
- Used in inventory management, ordering, accounting
For example, a t-shirt that comes in three sizes and two colors would have six distinct SKUs, one for each variant. This allows the retailer to track the inventory quantity, sales, and other metrics for each t-shirt variant. SKUs help retailers know exactly which products need to be reordered when stock runs low.
What is a UPC?
A UPC (Universal Product Code) is a barcode that identifies a specific product for retail checkout. UPCs help retailers track products at the point of sale. Some key facts about UPCs:
- Assigned by product manufacturers
- Unique to each distinct product (not each variant)
- 12-digit numerical barcode
- Scanned at checkout to lookup pricing, update inventory
For example, a t-shirt style that comes in different sizes and colors may have only one UPC assigned to that base product. When the t-shirt is scanned at checkout, the retailer’s point of sale system will match the UPC to the right product and its pricing. But the UPC alone doesn’t distinguish between size or color variants. That’s where SKUs provide additional detail.
SKU vs UPC Summary
Here is a quick comparison of how SKUs and UPCs differ:
| SKU | UPC |
|---|---|
| Assigned internally by the retailer | Assigned by the manufacturer |
| Unique to each product variant (size, color, style) | Unique to each distinct product |
| Alphanumeric code | 12-digit barcode |
| Used for inventory management | Used at point of sale |
In summary:
- SKUs allow retailers to track inventory for each product variant
- UPCs identify products for scanning at checkout
- SKUs provide more detailed inventory data than UPCs
- Retailers assign SKUs internally but don’t control UPC assignment
Using SKUs and UPCs together provides visibility into both product-level and variant-level inventory, creating a robust system for managing retail inventory.
Why SKUs Matter for Inventory Management
SKUs are essential for retail inventory management because they give visibility into each product variant. Relying only on UPCs provides limited inventory data. Here are some key reasons why retailers need SKUs:
- Pinpoint low inventory – With SKUs, retailers know exactly which size and style need to be reordered rather than just seeing total product quantity.
- Improve demand forecasting – Sales and order data can be tracked for each SKU to predict future demand more precisely.
- Streamline order fulfillment – Orders can be accurately picked, packed, and shipped when each product variant has a unique identifier.
- Increase sales – Out-of-stock situations can be minimized when low inventory SKUs are reordered in time.
- Set pricing – Unique pricing can be set for each SKU depending on the variant’s popularity, newness, or profit margins.
Without the level of detail SKUs provide, retailers would constantly risk out-of-stock situations,Shipping times would increase as employees hunted to find the correct item for each order in the warehouseDisappointed customers could abandon retailers who can’t keep popular items reliably in stock.
Best Practices for Retail SKU Management
Here are some best practices retailers should keep in mind when developing and managing their SKU system:
- Create logical SKU structure – Use consistent prefixes, suffixes, or delimiters to make SKUs easy to interpret across product lines.
- Make SKUs readable – Avoid obscure codes so SKUs can be quickly matched to products by warehouse staff.
- Organize SKU segments – Split SKU components to indicate product line, item number, size, color, etc.
- Develop rules for modifiers – Define SKU conventions for product variants like color or materials.
- Ensure SKU stability – Avoid changing SKUs unnecessarily once products have been established.
- Track product history – Link outdated SKUs to new versions so sales history isn’t lost when items are updated.
With some strategic planning and standards in place, retailers can build an effective SKU framework that scales as inventory expands. The key is consistency in assigning and organizing SKUs across product categories.
How SKUs Integrate with Inventory Management Software
Inventory management software centralizes SKU data and automates several key functions, including:
- SKU assignment – Software can automatically generate and assign new SKUs as new products or variants are added.
- SKU barcode printing – Barcode labels with embedded SKUs can be printed and attached to products.
- Inventory updates – By scanning SKU barcodes, inventory is deducted or added in real-time as items are sold or received.
- Order management – Orders can be processed using SKUs for accurate order picking, packing, and shipping.
- Reporting – Retailers can run reports on sales, margins, orders, and inventory by SKU.
Integrating the SKU system into inventory software centralizes product data and removes manual errors that could occur with spreadsheets or paper-based tracking. Retailers gain greater visibility into inventory operations and have SKU data sync in real-time across ecommerce, warehouse, and accounting systems.
Incorporating Both SKUs and UPCs into Inventory Management
To maximize retail inventory visibility, SKUs and UPCs can work together within inventory management software:
- UPCs are imported for each base product that will have corresponding SKUs.
- Rules define when product variants require a unique SKU, such as for different sizes, colors, materials, etc.
- The software automatically generates and assigns SKUs based on UPCs and configurable variant rules.
- UPCs are used at point of sale to lookup pricing and base product information.
- SKUs store all inventory-related data and are referenced on order forms, packing slips, shipping labels, etc.
Bringing UPC and SKU data together provides retailers with product identification from manufacturing through to order delivery. Inventory accuracy improves when a single system can connect point-of-sale UPC scans to fulfillment and accounting based on SKUs.
Conclusion
SKUs and UPCs serve complementary purposes for retail inventory management. While UPCs identify products at the point of sale, SKUs allow retailers to track inventory for specific product variants. Well-organized SKU codes and inventory management software integration provides retailers with the detailed inventory visibility they need to reduce stockouts, improve order accuracy, and make better data-driven decisions.