Keeping track of inventory is a crucial part of running a successful retail business. Proper inventory management ensures you have enough goods to meet customer demand without overstocking and accruing unnecessary inventory costs. Two standard methods retailers use to track inventory are SKUs and serial numbers. But when should you use one versus the other?
This article will explain the critical differences between a SKU and a serial number, plus when each system is most appropriate for your retail inventory management strategy.
What is an SKU?
A stock keeping unit (SKU) is an alphanumeric code used to identify and differentiate specific products and their variations. SKUs allow businesses to track available inventory quantities, sales, and other metrics for each product variant in inventory management software.
The SKU code is usually eight to 12 characters long,with embedded details about color, size, style, brand, and other product characteristics that distinguish one version of a product from another. By assigning unique SKU numbers for every product variation, companies can closely monitor the performance and availability of each item they sell.
How do SKUs work?
Companies design their own SKU numbering systems to keep track of products in a way that makes sense for their inventory. When generating a SKU number, the most important product attributes like brand, category, and size are typically encoded first, followed by less critical details.
For example, a clothing retailer may start their SKUs with a letter representing the brand name, followed by a category code, codes for size and color, and a sequence number that shows the order in which the retailer purchased products from their supplier. This allows them to easily identify which brand, type, and size each product’s SKU number refers to.
While a POS system, SKU generator, and inventory management system can automate SKU code creation, understanding the logic is still essential. Consider which product details are most vital to your operations and design your SKU architecture accordingly.
SKU example
The logical organization of information within SKUs makes them useful for reporting sales, managing stock levels, and tracking order fulfillment. Here are two SKU examples used by a hypothetical clothing store that carries multiple brands:
- WREN101REDSM. This SKU represents a red, small sweatshirt from the fictitious brand Wren. WREN represents the brand name, 101 is the product category code for sweatshirts, RED indicates the color, and SM specifies that it is a small size.
- WREN202BLUME. This SKU represents a blue, medium t-shirt from the same brand. While the brand code WREN is the same, 202 indicates this is a t-shirt rather than a sweatshirt. BLU shows it is blue, and ME specifies a medium size.
A retailer can rapidly identify the brand, type of clothing, color, and size by looking up the SKU in the inventory management system or scanning the bar code associated with the SKU. While employees may memorize common SKUs over time, most retailers rely on point-of-sale (POS) systems and SKU databases to decode the product details encoded in each SKU string.
What is a serial number?
A serial number is a unique identifier assigned to individual units of a product line. Unlike SKUs, which differentiate product variations, serial numbers distinguish specific items from each other. The serial number is typically a sequence of numeric digits but can also contain letters and symbols.
How do serial numbers work?
Serial numbers are most commonly used for consumer electronics like laptops, smartphones, and gaming consoles. Home appliances, sporting goods, and automobiles often use them as well. Serial numbers are stamped, engraved, or embedded into each product during the manufacturing process. This allows every single unit coming off the production line to be assigned a distinct ID that will stay with it throughout its lifetime.
Serial numbers enable tracking of specific products for recalls, repairs, and inventory audits. Serial numbers also facilitate the authentication of branded goods to prevent counterfeiting.
Serial number example
Serial numbers encode production information to distinguish individual items. Here are two examples of serial numbers used by a retailer selling electronics:
- A90X-U234PQR500. This serial number is assigned to an individual smartphone. A90X identifies the phone model. U234 signifies this was the 234th phone manufactured in the U factory. And PQR500 uniquely labels this device.
- A90X-S276PQR501. This is a different phone of the same model. The A90X model code is the same. But S276 shows this phone is from the S factory and was the 276th unit made there. PQR501, meanwhile, uniquely identifies this particular device.
While the base model number stays consistent, additional codes like factory designations, sequence numbers, and lot numbers assign unique identities to each phone to facilitate tracking. For example, a “-01” after the serial number may indicate the first production lot after the initial run.
SKU vs. serial number: key similarities and differences
Retailers rely on SKUs and serial numbers as product identification codes for inventory management and overall business operations. However, SKUs and serial numbers are used differently.
Product identification
- How they’re similar: SKUs and serial numbers both identify products for tracking.
- How they’re different: SKUs encompass entire product lines and provide a high-level view—two different products can have the exact same SKU. Serial numbers are assigned to individual items for granular tracking and no two are alike.
Use cases
- How they’re similar: SKUs and serial numbers can facilitate tracking and inventory management.
- How they’re different: SKUs optimize overall supply chain operations, sales reporting, and omnichannel commerce. Serial numbers enable recalls, repairs, anti-counterfeiting, and service history transparency.
Compliance considerations
- How they’re similar: SKUs and serial numbers help retailers and manufactures follow regulations from agencies like the Consumer Product Safety Commision.
- How they’re different: Serial numbers are required on some electronics by law in certain jurisdictions, while SKUs are optional.
Data structure
- How they’re similar: SKUs and serial numbers are both codes used for product identification.
- How they’re different: SKUs typically contain multiple elements like brand, category, color, and size to differentiate product variations. Serial numbers typically include less detailed information and instead feature unique sequences of digits assigned to each individual unit.
SKU numbers and serial numbers give retailers greater control and visibility over their product inventory management through unique identification codes. Understanding when to strategically use each type of product ID type can help you improve inventory management.
Advantages of using SKU codes
Using SKU numbers to identify products has many benefits that enhance retail operations and sales. Here are five advantages of using SKUs for retailers:
- Unified inventory tracking. Using SKUs lets retailers track current product quantities across physical stores, ecommerce sites, and other sales channels in one centralized inventory management system.
- Precise sales data. Detailed sales reports can break down performance metrics by individual SKU codes to provide insights into sales trends and the popularity of specific product variations.
- Efficient order processing. A unique SKU number for every product option enables quicker order fulfillment because warehouse workers can rapidly locate items.
- Seamless omnichannel selling. Assigning the same SKU to a product, whether sold online or at a retail store, helps ensure a consistent experience for shoppers.
- Streamlined supply chain. Providing suppliers with SKUs for each item makes it easier for them to anticipate and fulfill orders.
Advantages of using serial numbers
Serial numbers make it possible to easily track an individual product, offering important benefits for retailers and manufacturers. Here are five benefits of using serial numbers:
- Precise recalls. During a product recall, identifying the precise batch of defective products based on serial numbers can help you prevent wasting resources on unaffected units.
- Individual tracking. Following a specific item from manufacture to final sale by the unique serial number allows monitoring of that product’s history.
- Fraud prevention. Checking a serial number against a database can verify if a good is counterfeit or stolen.
- Service history. Tying service records like repairs and technical support to the device serial number provides transparency into issues for customers.
- Legal compliance. Displaying serial numbers on electronics is required by law in many jurisdictions, states, and countries to enable regulatory oversight. For example, in the US, the Consumer Product Safety Commision mandates that manufacturers apply serial numbers to a wide range of electronics to aid in recalls and compliance efforts.
SKU vs serial number FAQ
Can SKUs and serial numbers be used together?
Yes. SKUs and serial numbers can be complementary. The SKU identifies the product type, while the serial number specifies the unique unit. This provides both aggregated inventory tracking and individual item traceability.
Are serial numbers required in specific industries?
Yes. Industries such as electronics and auto makers are typically required to include serial numbers to carry out recalls and track defective products back to their source.
Are SKUs or serial numbers better for small ecommerce businesses?
SKU numbers are generally better for small ecommerce businesses, as they facilitate inventory management and product categorization, whereas serial numbers are more for individual item tracking by the manufacturer.
Do serial numbers improve customer experience?
Serial numbers can enhance customer experiences by enabling precise product tracking, warranty validation, and after-sales support for specific inventory items.
Are there privacy concerns related to serial numbers?
Potentially, yes. Often, when a buyer registers a product for warranty protection, they enter the serial number along with certain personal information into a page on the manufacturer’s website. If the manufacturer has a data breach, unauthorized parties might access this customer data.
Is an SKU the same as a universal product code?
No. SKUs are product identifiers used by individual retailers, while universal product codes (also called “UPC numbers” or “UPC codes”) are used for product identification by many different retailers with many different locations.
