Inventory & Stores

SKU (Stock Keeping Unit)

A unique code used to identify and track specific products or materials in inventory.

SKU (Stock Keeping Unit) is a unique alphanumeric code assigned to every distinct product or material in your inventory. Even if two items look similar, if they differ in any attribute (size, color, material, model), they get different SKUs. Think of SKU as the "identity card" of each inventory item – no two items share the same SKU.

Why SKU is Essential

Without SKUs, tracking inventory becomes a nightmare. Imagine telling your storekeeper "Give me 20 bolts" – which bolts? 5mm or 10mm? Stainless or mild steel? SKUs eliminate this confusion by giving each variant a unique code.

SKU Structure and Naming Conventions

While there's no fixed rule, most factories use a logical structure:

Format: [Category]-[Material]-[Size/Specification]-[Variant]

Examples:

BLT-STL-05-MS: Bolt - Steel - 5mm - Mild Steel
BLT-STL-10-SS: Bolt - Steel - 10mm - Stainless Steel
SHT-FBR-RED-M: Shirt - Fabric - Red - Medium size
MCH-CNC-2024-V2: Machine - CNC - Year 2024 - Version 2

Real Factory Examples

Example 1: Garment Factory

A Delhi garment manufacturer makes T-shirts in 3 colors and 4 sizes:

TSHIRT-WHT-S: White T-shirt, Small
TSHIRT-WHT-M: White T-shirt, Medium
TSHIRT-BLK-L: Black T-shirt, Large
TSHIRT-BLU-XL: Blue T-shirt, Extra Large

Total SKUs: 3 colors × 4 sizes = 12 SKUs (even though it's "the same T-shirt")

Why separate SKUs? Because each variant has different demand, different stock levels, and different suppliers may provide different colors.

Example 2: Steel Fabrication Unit

A fabricator maintains these SKUs for angles:

ANG-MS-50X50X6: Mild Steel Angle 50×50×6mm
ANG-MS-75X75X6: Mild Steel Angle 75×75×6mm
ANG-SS-50X50X6: Stainless Steel Angle 50×50×6mm

Even though dimensions and thickness may be same, material difference (MS vs. SS) means different SKU because cost, supplier, and usage are different.

Example 3: Electronics Assembly

An LED bulb manufacturer has these SKUs:

LED-9W-WHT-220V: 9W LED bulb, White light, 220V
LED-9W-WARM-220V: 9W LED bulb, Warm light, 220V
LED-12W-WHT-220V: 12W LED bulb, White light, 220V

Same wattage but different color temperature = different SKU. Same color but different wattage = different SKU.

SKU vs. Barcode vs. HSN Code

Aspect	SKU	Barcode (EAN/UPC)	HSN Code
Purpose	Internal inventory tracking	Universal product identification for retail/sales	Tax classification for GST
Uniqueness	Unique within YOUR company	Globally unique across all companies	Same for all companies selling similar product
Who Creates It	You decide the format	Assigned by GS1 organization	Defined by government
Example	BLT-STL-10	8901234567890	7318

Why Different Variants Need Different SKUs

You might wonder: "It's the same bolt, just different size. Why not track all bolts under one SKU?" Here's why:

Different Costs: A 10mm bolt costs more than a 5mm bolt – you need separate costing
Different Usage: Production may use 100 pcs of 5mm but only 20 pcs of 10mm – demand patterns differ
Different Suppliers: You may buy 5mm from Supplier A and 10mm from Supplier B
Separate Stock Tracking: You need to know exactly how many of EACH size you have

Common SKU Management Mistakes

Duplicate SKUs: Two materials accidentally assigned the same SKU code, causing inventory chaos
Inconsistent Naming: Sometimes using "BLT-05-STL" and sometimes "BOLT-STL-05" for similar items – makes reporting difficult
Too Generic SKUs: Using "MATERIAL-001", "MATERIAL-002" – doesn't communicate anything about the product
Not Retiring Old SKUs: When a product is discontinued, the SKU should be marked inactive, not reused for a different product
Manual SKU Assignment: Without a system, two people might assign different SKUs to the same material

Best Practices for SKU Management

Standardized Format: Define a company-wide SKU format and stick to it. Example: Always [Category-Material-Size]
Meaningful Codes: SKU should be somewhat readable. "BLT-STL-10" is better than random "X7Z4P2"
Keep It Short: Aim for 8-15 characters. Too long becomes cumbersome for printing and data entry
Avoid Confusing Characters: Don't use "O" and "0", "I" and "1" together – they look similar and cause scanning errors
Centralized SKU Registry: Maintain a master SKU list accessible to Purchase, Stores, and Production teams
Link to Product Master: Every SKU should have a detailed description, unit of measure, current stock, and supplier information

How Many SKUs Does a Factory Have?

It varies widely:

Small Workshop: 50-200 SKUs (limited product range, few raw materials)
Mid-sized Manufacturer: 500-2,000 SKUs (multiple products, several sizes/variants)
Large Factory: 5,000-20,000+ SKUs (wide product portfolio, many raw material grades)

SKU Proliferation – A Growing Problem

As businesses grow, SKUs multiply. Each new product variant, packaging size, or customization creates new SKUs. This is called "SKU proliferation." Problems:

Increased inventory holding costs (must maintain stock of each SKU)
Complex production scheduling (more changeovers between variants)
Forecasting becomes harder (less sales history per SKU)

Solution: Regularly review and eliminate slow-moving or redundant SKUs.

How ERP Systems Manage SKUs

A good manufacturing ERP automates SKU management:

Auto-SKU Generation: System suggests next available SKU based on your naming convention when you create a new product
Duplicate Prevention: Alerts if you try to create a SKU that already exists
SKU Search: Search by SKU code, product name, or attributes to find items quickly
SKU Hierarchy: Group related SKUs together (all bolts, all shirts) for better reporting
Barcode Printing: Generate barcode labels for each SKU for warehouse scanning
SKU Performance Reports: Track which SKUs are fast-moving, slow-moving, or dead stock
Multi-location Tracking: See stock of each SKU across multiple warehouses or factory locations