What is a SKU?
SKU stands for Stock Keeping Unit, a unique identifier that a company assigns to each distinct product it sells. Think of a SKU as an internal product code or shorthand – typically alphanumeric – that represents a specific item, including its variant (size, flavor, color, pack size, etc.). For example, if you sell a beverage in three flavors and two bottle sizes, each flavor-size combination is a different SKU with its own code.
SKUs are primarily used for inventory tracking and sales reporting. When someone says “that product has strong SKU-level performance,” they mean one specific item (not just a brand or category) is selling well. It’s important to note that SKUs are usually company-specific (unlike a UPC barcode which is standardized); your SKU for a product might differ from the retailer’s identifier for the same item.
Why SKU matters in CPG
In the consumer goods world, everything happens at the SKU level. Why? Because decisions on production, distribution, and promotion are made for individual products, not just broad lines. Managing by SKU is what lets a CPG brand ensure the right product is in the right place at the right time. For brands selling through retail and ecommerce, SKU data is the foundation for understanding your business. Your Sales and National Account Managers care about SKUs because retailers think in SKUs – e.g., how many units of a specific flavor sold at Target last week. Demand Planners forecast demand for each SKU, factoring in seasonality and promotions. Supply Chain Leaders plan production runs and distribution by SKU to avoid shortages (nothing’s worse than having plenty of one flavor sitting idle while another flavor is out-of-stock).
Without clear SKU tracking, a company can’t pinpoint which products are driving growth or which are dragging. For instance, if you look at total category sales, you might miss that one SKU is responsible for most out-of-stocks at a retailer. Analytics teams live and breathe SKU-level data: they analyze trends like “SKU X is selling 20% above plan in ecommerce, but SKU Y is underperforming in grocery stores.” Executives need rolled-up views, but even they often review reports that highlight top-performing SKUs or the bottom 10% that might be candidates for discontinuation. In short, SKUs are the basic units of measure for product success, from the warehouse to the retail shelf, and every report in between.
Also, consider the challenge of selling across omnichannel (brick-and-mortar, online marketplaces, D2C). A strong SKU management practice ensures that no matter where the sale happens, you can attribute it to the correct item. Modern CPG data platforms (like Alloy.ai) even map different retailer product codes to your internal SKUs, so you can see a unified sales picture. (This means when Walmart reports sales of item 12345 and Amazon reports ASIN BXYZ, you know both correspond to your internal SKU ABC, and you can aggregate performance easily.)
Real-World Example
Imagine you’re a Demand Planning analyst at a beauty products company, and you manage a catalog of 500 SKUs.
One morning, you notice an alert in your analytics dashboard: a particular SKU – a shampoo in “Lavender 250ml” size – has experienced a sales surge on a major retailer’s e-commerce site. It’s selling out faster than forecasted. You dig in and see the SKU’s week-over-week sales have doubled at that retailer.
Immediately, you involve the Supply Chain team: they check ERP inventory for that SKU and find only 2 weeks of stock left in the pipeline. Production for the next batch isn’t scheduled until next month. This is where cross-functional action kicks in at the SKU level. You work with the Demand Planner to increase the forecast for this shampoo SKU, and the Supply Chain Leader expedites a production run.
The Sales/National Account Manager for that retailer also gets notified – armed with this SKU’s data, they might negotiate for more shelf space or ensure the retailer orders enough to cover the surge. Meanwhile, your Data Engineering team ensures that the retailer’s POS data for that SKU (perhaps identified by a UPC or retailer-specific ID) is correctly mapped to your internal SKU code in your systems.
Thanks to everyone focusing on the SKU, the company avoids a stockout, captures additional sales, and even learns that the promotion the retailer ran online for “Lavender 250ml” was a hit. Later, an Executive reviewing the category’s performance sees that this one SKU’s over-performance contributed significantly to the month’s growth – insight that would have been lost if you only looked at aggregate product line sales.
Key Metrics and KPIs for SKUs
- Sales per SKU: Revenue or units sold for each SKU, often measured per week or month. This helps identify winners and losers in your product portfolio. For example, you might find that 20% of SKUs account for 80% of your volume.
- SKU Productivity: A ratio of sales to some measure of distribution or space. In retail, one form is sales per SKU per store (how well does a product sell on average where it’s listed?). High productivity SKUs earn their spot on the shelf. Low productivity could flag a candidate for SKU rationalization (cutting underperformers).
- Out-of-Stock Rate (OOS) by SKU: How often a SKU is unavailable for sale when consumers want to buy it. You might track the percentage of stores out-of-stock on a given SKU or the days a SKU is out-of-stock online. A high OOS% on a popular SKU means lost sales and potentially unhappy retailers.
- Weeks of Supply (WOS): The number of weeks current inventory of a SKU will last at the current or forecasted rate of sale. Supply Chain and Planning teams monitor WOS for each SKU to plan production and avoid both stockouts and excess. For instance, 8 weeks of supply might be healthy for a slow-moving SKU, but for a fast seller, that could actually indicate over-stock if demand could be met with 4 weeks.
- SKU Proliferation Count: Simply, the total number of SKUs in your catalog, sometimes broken down by category or brand. While not a performance metric, tracking the growth or reduction of SKU count is important for complexity management. Executives often set goals to rationalize SKUs (e.g. “reduce SKU count by 15%”) to simplify operations and focus on the most profitable products.
Related Terms
- UPC (Universal Product Code): The barcode number on products (the ubiquitous black-and-white stripes). Retailers scan UPCs at checkout; each UPC typically corresponds to a SKU, but unlike your internal SKU (which you create), the UPC is standardized so any retailer will recognize it for that product.
- EAN (European Article Number) / GTIN (Global Trade Item Number): International equivalents/expansions of the UPC system. These are other product identifiers you might encounter in global commerce. They’re related to SKUs in that they identify products, but again, your internal SKU is like your own nickname for the product, whereas GTIN/UPC/EAN are universal IDs.
- Item Master Data: The database (often within an ERP) that lists all your SKUs with their key attributes (description, dimensions, case pack, etc.). It’s the master record ensuring everyone is referring to the same product correctly. Maintaining clean item master data (especially things like linking retailer item codes to your SKU) is crucial for accurate reporting.
- SKU Rationalization: A process where a company analyzes the profitability and strategic value of each SKU and decides which ones to keep or discontinue. This is often done to reduce complexity or after mergers. If a SKU isn’t pulling its weight (low sales or margin), it might be cut so resources can reallocate to better performers.
- Portfolio Mix / Assortment: In retail discussions, this refers to the collection of SKUs a brand offers or a retailer carries. Optimizing the assortment means having the right mix of SKUs that consumers want, which ties back to analyzing SKU performance data. (Related: Alloy.ai can help by consolidating SKU-level sales and inventory data across all your retail partners, so you can easily spot which products need attention.)