SKU Number Explained: Meaning, Uses, and How to Create One

The more products you carry, the harder it gets to answer simple questions like: What’s selling? What needs restocking? Where’s that item stored?

Inventory only runs as smoothly as the systems behind it, and that starts with how products are named, tracked, and stored. For growing retail and supply chain operations, SKU numbers and warehouse management software work hand in hand to bring order to complexity.

Your SKU system is the backbone of product distribution. Without it, tracking inventory, forecasting demand, and scaling operations becomes a guessing game.

In this article, we’ll break down what SKU numbers are, how they differ from UPCs, and how to build a system that supports accuracy and growth.

What is the purpose of the SKU number?

The purpose of a SKU number is to uniquely define and distinguish each product variant in your inventory using a consistent, internal code that reflects how your business organizes and identifies items.

By encoding product attributes like size, color, brand, or category, SKUs serve as a reference system. They allow you to systematically classify products, differentiate similar items, and maintain clarity across your catalog, especially as it grows.

Without SKUs, products become ambiguous, making them difficult to count, reorder, locate, or describe clearly across teams or tools. With them, every item has a defined place in your catalog, and every action tied to that item, from receiving to shelving to selling, can be tracked with clarity.

In technical systems, SKUs act as primary keys: they link all associated data from pricing and supplier info to stock levels and product metadata. They’re also essential for logic-based operations, such as sorting, filtering, matching, and synchronizing inventory across platforms. 

How do you create an SKU number?

Creating SKU numbers is a mix of logic, consistency, and the right tools. Whether you're building them manually or using software, your SKU format should reflect how your business organizes and sells its products.

You can create SKUs in a simple spreadsheet or use inventory management software that automatically generates and tracks them for you. Some tools also include built-in SKU generators, which allow you to define product attributes and generate codes instantly.

What is one example of an SKU number?

For example, if you sell orange t-shirts, your SKU numbers might be eight-digit. Here, the first two digits represent the brand name (like Nike or Adidas), the next three digits depict the product category (like t-shirt, poncho, sweater), and the next three digits encode the fit (small, medium, or large), followed by color (any color).

You can also organize products based on gender (male/female) or kids' age (0-6, 6-12, and so on). 

In the image below, you can notice an OMR code that incorporates implicit product information. The SKU number is LVMED-BLK-2492. The standard convention would be brand name (LV), size (MED),  BLK(product color black), and 2492 (SKU number).

Tips for creating a SKU number

Guidelines for creating a simple and easy-to-maintain SKU logic:

• Stick to a universal naming convention.
• Don’t lead with the number zero.
• Assure that SKUs for each product are unique 
• Don’t use letters easily confused with numbers, such as 0 and 1.
• Only include the most important characteristics, like product theme, product brand, product size, product fabric, product price, and SKU number.
• Put the most important identifiers first.
• Complete the SKU with a sequential number.
• Separate identifiers with dashes to make the SKU more readable.

As you can see, there’s a lot of room for flexibility. What works for the retail shop next door might not work for you, so take a long look at your inventory and develop an SKU naming convention easily understood by you and your employees.

What is the difference between a UPC and an SKU?

While both SKUs and universal product codes (UPCs) are used to identify products, they serve very different purposes, and they’re created and managed in different ways.

SKU numbers are unique identifiers assigned to each product, differing by store and product details such as shape, size, and color, to help retailers manage their inventory effectively.

A universal product code is a 12-digit code that is purchased and licensed by all leading manufacturers in North America for the ease of international logistics. It irons out your entire supply chain process and keeps your products consistent and compatible with e-commerce platforms and offline storefronts. It also speeds up the inventory process by standardizing product details and pricing. UPCs are assigned by the Global Standards Organization (GS1). Most large retailers require that a product have a UPC in order to be sold.

While a UPC number stays the same across different product styles and patterns, a SKU number is created after carefully examining a product's manufacturing details.

Below, we have summarized the differences between SKU, UPC, and a barcode.

What are the benefits of using SKU numbers?

A clear SKU system streamlines your entire inventory workflow, from sourcing and storage to sales and customer service. By assigning unique SKUs to each product variant, retailers can:

• Track inventory in real time. Know exactly how much of each item is in stock, where it’s located, and when it’s time to reorder, without relying on manual counts.
• Identify best-selling products faster. Spot high-performing SKUs and fast-moving inventory to stay ahead of demand and avoid stockouts.
• Forecast and plan smarter. Use SKU-level sales data to analyze buyer behavior, seasonal trends, and demand patterns, helping you make more informed purchasing decisions.
• Automate POS and inventory systems. SKUs work seamlessly with point-of-sale and warehouse software to speed up checkouts, automate restocking, and trigger low-stock alerts.
• Improve warehouse organization. Group and label products by SKU to optimize shelf layouts, streamline picking routes, and reduce fulfillment time.
• Enhance customer experience. Employees can quickly search SKUs to locate items, suggest alternatives, or confirm availability, spending less time in the backroom and more time with customers.
• Maintain a clean, scalable product catalog. SKU serves as the foundation for organizing product variants across locations, categories, and channels, making growth more manageable.

What are common SKU mistakes to avoid?

Even well-intentioned SKU systems can break down if they’re not built with consistency, context, and long-term use in mind. Here are some common SKU mistakes that go beyond naming conventions:

• Designing your SKU system without involving operations teams. While SKU logic may appear straightforward on paper, it can become a problem if warehouse staff, sales reps, or fulfillment teams find it difficult to interpret or use. Your SKU structure should reflect how products are actually managed in the real world.
• Making SKUs too cryptic or too verbose. Overly complex SKUs filled with hard-to-remember codes slow down search, scanning, and training. On the other hand, bloated SKUs that try to capture every detail can be equally difficult to manage. Strike a balance between clarity and simplicity.
• Assigning SKUs reactively instead of strategically. If you're creating SKUs one product at a time without a system-wide structure, inconsistencies will quickly accumulate. Begin with a clear framework that applies consistently across your entire catalog.
• Ignoring legacy cleanup when scaling. As your catalog grows, older SKUs that don’t follow current logic can cause confusion and integration issues. Set aside time to audit and refactor legacy SKUs to maintain a clean and usable system.
• Using SKUs as external-facing product IDs. SKUs are designed for internal tracking, not for customer-facing use. Displaying raw SKUs on e-commerce pages or packaging can confuse buyers and limit your flexibility to change them later.

Frequently asked questions about the SKU number

Got more questions? We have the answers.

Q1. Can two businesses use the same SKU?

Yes. SKUs are internal, business-defined codes, so two different companies can use the same SKU for completely different products. What matters is that SKUs are unique within your own system.

Q2. How long should a SKU be?

Most SKUs fall between 8 and 12 alphanumeric characters, but there’s no universal rule. The best length is one that stays readable for humans, reliable for systems, and flexible enough for future product growth.

Q3. Should I reuse SKUs across stores or channels?

Only if you want unified tracking. Reusing SKUs across stores, warehouses, or sales channels makes it easier to consolidate inventory data and reporting. If different locations manage inventory differently, you can layer location codes into the SKU or manage location logic inside your WMS or point-of-sale system instead.

Q4. Should SKUs be consistent across all products?

Yes. Consistency is what gives SKUs long-term value. Even if different product categories need different attributes, the overall structure and naming logic should stay stable so teams can interpret SKUs quickly and systems can sort them cleanly.

Q5. When should you use SKU instead of UPC?

Use SKUs for internal product tracking and inventory logic. Use UPCs when selling through external channels that require universal identification. 

Q6. How often should SKU audits be done?

A good rule of thumb is quarterly or biannual audits, depending on how fast your catalog changes. Audits help catch duplicates, inconsistent formats, outdated codes, and product lines that no longer match your SKU logic.

Your inventory, organized

A SKU might look like just a random code, but it’s one of the most useful tools for keeping your inventory in order. With the right system, SKUs help you track what’s selling, where each product is stored, and when it’s time to restock. They make it easier for your team to find items, avoid mistakes, and keep customers happy with fast, accurate service.

If you’re ready to upgrade your inventory management, browse our curated list of top inventory control software to find tools suited for your business. 

This article was originally published in 2019. It has been updated with new information.