Studies show that poor inventory management can cost businesses up to 11% of their annual revenue. Businesses or warehouses with optimized inventory management, on the other hand, enjoy up to a 30% boost in the rate orders are picked, packed and shipped both correctly and on time.
To end up on the profitable side of that profit/loss equation, warehouse managers, 3PL providers, and inventory management staff must master both Stock-Keeping Units (SKUs) and Universal Product Codes (UPCs)—and know the differences.
These codes are the product identification that decide whether a business organizes and monitors its inventory most efficiently. Knowing how to use each code can significantly improve the speed and accuracy of your inventory management process.
In this article, we will explore SKUs and UPCs and the best practices for managing them in warehouse operations.
What Is A SKU?
A Stock Keeping Unit (SKU) is a set of alphanumeric codes created internally by sellers to receive, identify, and locate their product inventory or stock.
It is commonly called an SKU, and it is good practice for every business to assign a unique SKU to each product for various reasons.
SKUs are key to warehouse managers accounting for every single item in the warehouse. Their combination of letters and numbers identify a product by size, color, style, materials, and more. An SKU is to make it easy to categorize any product and be used by staff to manage inventory without the help of any equipment.
Retail Uses of SKUs
In a multi-brand retail business, you will need an SKU that not only accounts for common characteristics but also for who made the product. For example, if you sell shirts from multiple brands, it means you have to keep track of the shirts by brand as well as style, size, and color. For example, if you have products from Nike, an SKU for a women’s blue pair of sneakers in size 10 would look like this: NKSNKBUW10. The SKU would translate to:
- NK: Brand name
- SNK: Product type or style
- BU: Product color
- W10: Product size and gender
In a single-brand business where you produce the products, you may need a different format for SKUs. For example, if a brand like Nike wants to assign an SKU to a winter collection, gender-neutral sportswear in size 3x and in black, the SKU would look like this: SPWWNTRBLK3X, translating to:
- SPW: The type of apparel
- WNTR: Product collection
- BLK: The color of the product
- 3X: The size of the product
What Is A UPC?
A UPC, or Universal Product Code, is a barcode that identifies products and their manufacturers.
Third parties, such as warehouses, use this code to import price data and track inventory. GS1 is a global organisation that provides unique product numbers for businesses worldwide. They manage the UPC system.
A UPC consists of a 12-digit number and a corresponding barcode that users can scan electronically. Making up the 12 digits are:
- The first 6-9 digits are the company’s unique identifiers assigned by the GS1 to the manufacturer.
- The next 3-6 digits are the item number assigned by the manufacturer to the specific product and fluctuates in length depending on how long the company’s GS1 identifiers are.
- The final digit is a check digit used to ensure the code is scanned properly.
UPCs are generally used to identify and import product prices and track inventory.
For example, if a company makes a can of tomatoes, they register and get a UPC number for that product, which is turned into a barcode, which is the black lines you see on the product. From that point:
- The barcode on the can of tomatoes is scanned at checkout.
- The store’s computer system looks up the number and identifies the brand, the product, and the price.
- With this information, you pay, and the system records that one can of tomatoes was sold.
- The store’s inventory system tracks the number of cans remaining on the shelf and reorders when they need more to prevent running out.
UPCs help with more than checkout. Warehouse managers can use them to track the location of a product, confirm whether a product was sold in the store in the event of a return, and trigger the security system when a barcode isn’t scanned before someone leaves the building.
SKU vs UPC: What’s The Difference?
SKUs and UPCs differ based on three factors: who makes them, how they’re used, and their composition.
Who Creates Them
SKUs are custom codes created by businesses to manage inventory internally, tailored to factors like size, color, or brand. On the other hand, UPCs are standardized 12-digit codes issued by GS1 and purchased by manufacturers to sell products through retailers or internationally.
Format
SKUs can include both letters and numbers and vary in length, typically 8 to 12 characters, but sometimes longer. UPCs are strictly 12-digit numerical codes with no letters.
Purpose
SKUs help businesses organize and track inventory in-house, while UPCs scan and track products in retail and supply chains. While SKUs can apply to services or products, UPCs are used only for physical goods.
The table below provides a quick view of the main differences between an SKU and UPC.
| SKU | UPC |
| Alphanumeric codes (Numbers and letters) | Numeric |
| Created by the business that retails the product | Must be gotten from the GS1 |
| Specific to each business | Universally recognized |
| Any length (between 8 and 10) | 12 digits |
| Internal use | External use (Universal identifier) |
| Physical products and services | Physical products only |
Is it possible for a warehouse to not use SKU or UPC?
Yes, it’s technically possible for a warehouse to operate without SKUs or UPCs, particularly smaller operations handling limited product lines or businesses with very simple inventory needs. But making the choice to avoid both SKUs and UPCs significantly increases operational complexity, error rates, and limits scalability for warehouses.
Those warehouses generally rely on alternative identification methods. A few are:
- Lot/batch numbers
- Serial numbers for individual items
- RFID tags for real-time tracking
- Location-based systems organized by warehouse zones
- Manual description systems.
SKUs and UPCs have come to dominate warehouse identification methods because as businesses grew and needed to integrate with retail partners, suppliers, or e-commerce platforms, that mismash of unstandardized identification codes became a major bottleneck.
By now most warehouses find that implementing at least basic SKU systems (even if not using UPCs) is essential for maintaining accuracy and efficiency in modern supply chain environments.
Why SKU And UPC Accuracy Matter So Much In Warehousing And Fulfilment
Here are some major benefits when SKU and UPC are accurate in warehousing and order fulfillment.
Inventory management
Warehouse managers use both codes to track stock levels and sales performance and make better decisions about stock replenishment. Inaccurate SKUs or UPCs can significantly impact normal warehouse operations and lead to overstocking or understocking. These unique identifiers ensure that the right products are available at the right time.
Sales and reporting analysis
SKUs provide insights into product performance, top performers, and sales trends. UPCs instead improve the accuracy of point-of-sale transactions. UPCs ensure that each product is properly identified, priced, and recorded so businesses generate accurate sales reports, understand product profitability, and monitor their price strategies.
Efficient supply chain tracking
UPCs in particular play a significant role in supply chain tracking as they move through the global supply chain from manufacturers to distributors and retailers. Wrong values or mistakes in codes can lead to loss of product and revenue.
Can You Use a UPC as a SKU?
No, you cannot use a UPC as an SKU. Both types of codes serve different purposes. While they may share some similarities, they cannot be used interchangeably.
SKUs are for internal inventory management and bear unique codes created by a business to identify specific products within the warehouse. UPCs, on the other hand, are for external use and are assigned for universal product identification. Their code makeup is entirely different and so cannot be used for one another.
Best Practices For Managing SKUs And UPCs In A Warehouse
Here are some best practices for using SKUs and UPCs to get the best inventory management results.
Develop a consistent SKU system
Establish a clear and consistent SKU management format that all warehouse personnel can understand. Ensure that the SKU includes the most relevant product attributes, such as product type, color, size, and style. Avoid using confusing characters or special characters. Integrate your SKU system into your warehouse management system to ensure proper inventory tracking and product identification.
Reduce SKU assignment
Don’t create SKUs for slow-moving products, as they can cause unnecessary traffic, especially when high-demand products are moving in and out of the warehouse. Instead of creating new SKUs, track variations of an SKU under a parent SKU. This can help reduce redundant SKUs.
Maintain a central SKU/UPC database
Always use a single source of data for your SKU/UPC system. Store your data in an ERP or a warehouse management system like Da Vinci, which can provide more detailed insight into your product movements. Ensure that you regularly audit, clean out duplicates, and correct data errors to avoid system overload.
Label all products for scanning
Assign barcodes to everything (UPC or internal barcodes) and ensure that your UPCs are scannable and GS1 approved. If the codes are internal, use code 128 or QR codes if SKUs need barcoding. Always invest in good, reliable handheld scanners to reduce errors.
Integrate a warehouse management system (WMS)
A WMS can manage SKUs, track UPCs, and optimise your warehouse storage and picking routes for products. Ensure your system is fully integrated with your SKU/UPC system to get real-time inventory updates when scanning or picking. Also, connect your WMS with e-commerce platforms and shipping tools for seamless warehouse operations.
Track and analyze SKU performance
Monitor your SKU/UPC-level sales, returns, and errors, and use the data to phase out any underperforming SKUs/UPCs. Use your SKU inventory to optimize restocking and reduce overstocking.
How Da Vinci Unified Helps 3PLs Manage SKUs and UPCs
Da Vinci is a cloud-based WMS designed for third-party logistics providers (3PLs). It provides impressive tools for inventory management, SKU optimisation, and UPC tracking. Da Vinci effectively manages SKUs and UPCs by:
Centralized hub for SKU/UPC management
It provides a centralized system for managing client SKUs and UPCs and can manage this data independently for multiple clients without cross-contaminating product data. It also allows clients to customize their SKU attributes and barcode formats.
Barcode integration
Da Vinci has a built-in barcode scanning system that can provide real-time barcode scanning using UPCs or custom barcodes assigned to SKUs to reduce errors. It is GS1 compliant and provides UPCs for retail and wholesale distribution.
Inventory visibility
Da Vinci provides real-time tracking of inventory levels by SKU, status, and location. For clients that need to track their products, Da Vinci tracks SKUs by batch or serial number. Warehouse workers can use the WMS to track SKUs down to the bin level, ensuring exact location-based control. This helps with easy picking and packing.
SKU vs UPC FAQs
What is a barcode?
A barcode is a machine-readable representation of data written as bars and spaces that is used to identify and track items.
Do I need both a SKU and a UPC?
Yes, most businesses need an SKU and UPC because both serve different purposes, especially if your business manufactures and retails.
Can a single UPC apply to different SKUs?
No, a single UPC should not apply to different SKUs. A UPC is designed for a specific product, and its variations should have their own unique UPCs.
What’s the difference between SKU and UPC?
An SKU is a unique alphanumeric code used internally by a business to manage its inventory and track products. A UPC is a 12-digit standardised code used externally for point-of-sale tracking.
Should small businesses create their own SKUs?
Yes, small businesses should create their SKUs to help with tracking and inventory management.
How are SKUs used in e-commerce vs. retail?
You can use SKUs to track and manage inventory in both e-commerce and retail. In e-commerce, they are important for order fulfilment and even product recommendations. In retail, you use SKUs to identify products on shelves, tracking point-of-sale, and organizing stock.
Conclusion: Use SKU and UPC Codes to Improve Accuracy and Scalability
SKUs and UPCs are both important factors in managing and tracking inventory. Warehouse managers who implement these unique codes into their system can improve their accuracy in inventory reporting and significantly reduce the risk of overstocking on products.
With these codes in place, it is easier to detect high-demand goods and stick to them while tracking products and ensuring security at retail stores. To maintain a smooth SKU/UPC system, it is important to constantly audit the system to ensure that there are no duplicates and reduce the risk of inaccurate inventory reports after analyses.
Book a demo from Da Vinci today to streamline your warehouse operations with SKUs and UPCs.