Stock-Keeping Unit (SKU)

Definition

A stock-keeping unit (SKU) is a unique identifier assigned to each product or item in inventory to enable efficient tracking, management, and reporting of inventory levels and sales data. SKUs are essential for inventory management in both perpetual and periodic inventory systems.

5 Must Know Facts For Your Next Test

1. SKUs enable companies to track inventory levels, sales data, and product performance at a granular level, which is crucial for effective inventory management.
2. Each SKU is unique and typically includes information such as the product's brand, size, color, or other distinguishing characteristics.
3. SKUs are essential for implementing perpetual inventory systems, as they allow companies to continuously monitor and update inventory records.
4. In a periodic inventory system, SKUs are used to facilitate the physical count of inventory and reconcile the ending inventory balance.
5. Accurate SKU data is crucial for generating meaningful reports and analytics, which help companies make informed decisions about inventory planning, purchasing, and pricing.

Review Questions

• Explain how the use of SKUs supports a perpetual inventory system.
  • In a perpetual inventory system, SKUs enable the continuous tracking of inventory levels and transactions. Each time a product is purchased, sold, or used in production, the corresponding SKU is recorded, allowing the company to maintain an up-to-date record of the inventory on hand. This real-time visibility into inventory levels helps companies better manage their supply chain, avoid stockouts, and make informed purchasing decisions.
• Describe the role of SKUs in a periodic inventory system.
  • In a periodic inventory system, SKUs are used to facilitate the physical count of inventory at the end of an accounting period. The unique identifiers assigned to each product or item make it easier to accurately count and reconcile the ending inventory balance. SKUs also allow companies to analyze sales data and identify fast-moving or slow-moving items, which can inform future purchasing decisions and inventory planning.
• Evaluate the importance of accurate SKU data for effective inventory management.
  • Accurate SKU data is crucial for effective inventory management in both perpetual and periodic inventory systems. Reliable SKU information enables companies to generate detailed reports and analytics on inventory levels, sales performance, and product profitability. This data-driven approach helps companies optimize their inventory, minimize stockouts, and make informed decisions about purchasing, pricing, and product assortment. Inaccurate or incomplete SKU data can lead to inventory distortions, poor forecasting, and suboptimal inventory management, ultimately impacting a company's financial performance and customer satisfaction.

Related terms

Perpetual Inventory System: A perpetual inventory system continuously tracks and records changes in inventory levels as products are purchased, sold, or used in production.

Periodic Inventory System: A periodic inventory system determines the ending inventory balance by physically counting the inventory at the end of an accounting period, rather than continuously tracking changes.

Inventory Management: The process of ordering, storing, and using a company's inventory, including raw materials, components, and finished products, in a way that balances supply and demand.