Is the Term SKU a Useful Term?

Executive Summary

  • The term SKU tends to confuse people.
  • We cover the complications with the term.

The most important information carried by this term is two attributes. This is the uniqueness of the product and the uniqueness of the location. Does the term SKU communicate this information to the listener? In this article, you will find out. 


SKU, which stands for “stock keeping unit” is a commonly used term in supply chain management. According to the website Lokad, an SKU is..

refers to a specific item stored to a specific location. The SKU is intended as the most disaggregated level when dealing with inventory.

That is not how I have found the term to be used in practice. Often when people use the term SKU, they only mean the “product” divorced from its location. For years the term SKU-Location or “SKUL” was commonly used in companies and still is.

The Problem with the Term SKU

The term Stock Keeping Unit was originally used at the store level. So if one goes into a Target, each product has a bar code and is called a Stock Keeping Unit. That is a distinct item from any other item in that store. And for that purpose, the term works perfectly well. The problem arises when one works in supply chain management, and that same Stock Keeping Unit is in many locations, including warehouses.

In that environment, the term SKU, which has some confusion as to whether it is tied to a location or not linked to a location is more confusing than helpful. I can say this because I have had repeated discussions where I have to ask, or the other person has to ask if they or I mean an SKU or an SKU location combination. For this reason, I recommend the use of a different term.

That is the term product location combination or “PLC” for short or even the “PL.”

The Product Location Combination, the PLC

The term “product location combination” is an excellent term because it is impossible to confuse with any other meaning. All supply networks are made up a mix of goods at locations. If we look at a company that carries 100 products and has 10 locations, then 1000 product site combinations are the maximum number of potential product location combinations.

Counting Valid PLCs

In most cases, the actual number will be significantly lower than this as companies don’t carry every product at every location. On the other hand, when on looks in the supply chain system, there are often many more product location combinations than the theoretical maximum because of old product locations that have not been removed from the system. Therefore another important distinction is how many “active” PLCs exist in the system.


  • The term Stock Keeping Unit has been around for a very long time.
  • The term Stock Keeping Unit is not descriptive. That it does not tell the listener what they want to know.
  • The term Stock Keeping Unit does not include within it whether it refers to a location, and opinions vary as to what its meaning is.
  • The term product location is far more useful for being self-descriptive.

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I cover supply planning and stocking principles in the following book.

Safety Stock and Service Level Book

Safety Stock

Safety Stock and Service Levels: A New Approach

Important Features About Safety Stock

Safety stock is one of the most commonly discussed topics in supply chain management. Every MRP application and every advanced planning application on the market has either a field for safety stock or can calculate safety stock. However, companies continue to struggle with the right level to set it. Service levels are strongly related to safety stock. However, companies also struggle with how to set service levels.

How Systems Set Safety Stock

The vast majority of systems allow the setting of safety stock by multiple means (static, dynamic, adjustable with the forecast in days’ supply, etc..). However, most systems do not allow the safety stock to be set in a way that is considerate of the inventory that is available to be applied.By reading this book you will:

  • Understand the concepts and formula used for safety stock and service level setting.
  • Common ways of setting safety stock.
  • Service levels and inventory optimization applications.
  • The best real ways of setting both service levels and safety stock.


Chapter 1: Introduction
Chapter 2: Safety Stock and Service Levels from a Conceptual Perspective
Chapter 3: The Common Ways of Setting Safety Stock
Chapter 4: The Common Issues with Safety Stock
Chapter 5: Common Issues with Service Level Setting
Chapter 6: Service Level Agreement
Chapter 7: Safety Stock and Service Levels in Inventory Optimization and Multi-Echelon Software
Chapter 8: A Simpler Approach to Comprehensively Setting Safety Stock and Service Levels

Service Level & Safety Stock Setting

Service Level & Safety Stock Setting

Setting service levels and inventory can be performed far more easily than is done at the vast majority of companies. Click the image to see how.