- The term SKU stands for something specific and is associated with the SKU number.
- The SKU number tells us important things about the properties of the SKU.
SKU 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.”
A little later on, I will discuss why this explanation of the term is inconsistent with something called the SKU number. Understanding what the term SKU stands for means knowing a bit how the term first developed.
Understanding what the term SKU stands for means knowing a bit how the term first developed.
Origin of What the Term SKU Stands For
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. Therefore what the term SKU stands for does not translate well outside of the single store environment.
SKU numbers are internal numbers and letters that are used for products. Sometimes the SKU number can have a code that is human-readable build into it. For instance, the following SKU number could apply for socks.
The code of this type of SKU number would be the following:
Manufacturer, Color, Size, Model Number. Therefore this is
Therefore this SKU number tells us that this is an (NK) Nike, (SK) Sock, (8-12) Size 8 to 12, (0023) model number.
Most SKU numbers are short, and therefore, one has to know the “code” to read them. A SKU number both identifies the SKU from other SKUs but also provides information about the SKU to the individual/company/entity that maintains the SKU.
Location as Part of the SKU Number?
Something else interesting about SKU numbers is that they do not have a location component. I have never seen a SKU number that looked like the following:
That is the last add-on being (SDDC) San Diego Distribution Center.
This is because it makes no sense to have a location appended to a SKU because obviously, a SKU travels through the supply chain, and if it had a location appended to the SKU number, then everytime that SKU was transferred it would have to have its SKU number altered. That would create a serious problem.
Is the Term SKU a Useful Term?
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 SKU has been around for a very long time.
- What the term SKU stands for is not descriptive. That it does not tell the listener what they want to know.
- The term SKU does not include within it whether it refers to a location, and opinions vary as to what its meaning is.
- When you use the term SKU, it may have a different meaning to the listener.
- SKU numbers are important components to supply chain management, and a SKU number both identifies the SKU from other SKUs and provides information about that SKU.
What We Do and Research Access
Using the Diagram
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I cover supply planning and stocking principles in the following book.
Safety Stock and Service Level Book
Important Features About Safety Stock
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 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