SKU Numbering System for a Warehouse: How to Design Item Codes

A good SKU numbering system gives every stocked item one short, permanent code that never changes and never gets reused. The most durable pattern is a light structure, a product group and subgroup followed by a plain sequence number, with everything else (size, colour, supplier, bin location) stored as separate attributes rather than squeezed into the code.

Item coding is a decision you make once and live with for years. Get it right and nobody notices. Get it wrong and it shows up daily as duplicate records, searches that return nothing, and stock histories split across several entries. This guide covers how to choose a code structure, the mistakes that cost the most to undo, how internal codes relate to manufacturer barcodes and serial numbers, and where a warehouse system such as Avadar fits in.

Why a warehouse needs item codes, not just descriptions

Descriptions are written by people, and people write them differently. “Galv pipe 2in”, “2 inch galvanised pipe” and “Pipe, galvanized, 2″” may well be the same product, yet a system treats them as three. Each one gets its own balance, reorder point and history, and none of them is correct. A unique item code removes the ambiguity: one product, one code, across every location and document.

What a clean coding scheme buys you:

• No duplicate records hiding the true quantity on hand
• Reports by family, such as all fasteners or all packaging materials
• Searches that do not depend on how someone spelled a word
• A dependable value to print as a barcode or QR code
• Smoother handoffs between the warehouse, purchasing, sales and accounting

Smart vs dumb SKUs: which item code structure should you use?

Practitioners usually describe two schools. A smart (intelligent) code packs meaning into its segments: the first characters show the category, the next ones the subcategory, perhaps a size. A dumb (non-intelligent) code is just a sequence number; every descriptive detail lives in attribute fields.

Most warehouses settle on a semi-smart middle ground: the code carries only the top-level group and subgroup, followed by a meaningless sequence. Top-level families rarely change, so the code stays stable, yet a picker can still tell at a glance whether they are holding raw material or finished goods.

Designing a SKU numbering system step by step

1. Clean the item master first. Merge duplicates and retire dead items before you design anything. A new scheme on top of a messy list only gives the mess tidier labels.
2. Keep top-level groups few. A handful to a few dozen is plenty: raw materials, components, packaging, consumables, tools, finished goods.
3. Define subgroups by what the item is. Not by where it is stored or who sells it to you, because both change.
4. Size each segment with room to grow. Eight subgroups today makes one digit look enough. The tenth one breaks the scheme, so allow two.
5. Make the final segment a plain counter. Its only job is uniqueness. Do not load it with meaning.
6. Write down the format rules. Digits only, or letters too? Separators or none? Fixed length? Every code should follow one pattern.
7. Give one role the right to create items. When anyone can add a product, duplicates return sooner or later.

A hypothetical example for a kitchenware manufacturer:

Notice that thickness and size stay out of the code. Put them in and every small specification change forces a new SKU.

Item coding mistakes that are expensive to undo

• Two codes for one item. It happens when someone cannot find an existing record and creates a new one. The result is split stock and unnecessary purchase orders.
• Recoding a live item. Treat a code like a passport number. Change it and historic reports, labels already on shelves and purchase history lose their link. If the product genuinely changed, give it a new code and deactivate the old one.
• Recycling retired codes. The old item’s history merges into the new item’s.
• Embedding the bin location or supplier. Both move; the code then lies.
• Look-alike characters. Letter O and zero, or I and one, cause misreads whenever someone types a code by hand.
• Over-long codes. Every extra character adds typing errors and crowds the label.

Item code, serial number, batch and manufacturer barcode

These identify different things and should not be merged:

• Item code (SKU): identifies the type. All 500 units of one pump model share it.
• Serial number: identifies one individual unit, needed when each unit has its own warranty or service history.
• Batch or lot: groups units produced or received together, used for expiry tracking and recalls.
• Manufacturer barcode: the supplier’s own identifier, such as a retail GTIN. Useful to scan, but you do not control it, so it should point to your internal code rather than replace it.

A frequent error is building the batch or serial into the SKU. Each new lot then becomes a new product, and the stock report stops making sense. Jewellery stock follows its own rules; see our separate article on gold and jewellery inventory coding.

Barcode and QR labels sit on top of the code

A barcode is not a new identifier; it is a way to read your existing code without typing. Once the structure is clean, printing it on a label and scanning it at receipt and issue removes most keying errors. Label material, size and placement have their own pitfalls, covered in our barcode label printing guide.

Using your item codes in Avadar warehouse software

Avadar, the warehouse system from P-Soft, works with the coding scheme you design and puts it to use on the floor. It does not dictate your structure; it makes a good one pay off:

• Label printing: each code can go onto a barcode or QR label using ready-made templates with tested print quality, on every plan.
• Scan-based documents: receipts, issues and transfers are recorded by reading the label with a handheld scanner or simply a smartphone, with typed entry when a label is damaged.
• Search without memorising codes: look items up by barcode, serial, batch or name, and even a customer or supplier name leads you to the right record.
• Fast counts by scanning, which is where tidy codes turn into accurate stocktakes.
• In the Industry edition from the Pro plan, batch and expiry and per-serial warranty are tracked alongside the item code, exactly the separation recommended above.

If your item list lives in Excel or another program today, P-Soft’s team migrates that data, with the scope set by plan or contract. The migration is the ideal moment to clean up duplicates. Once you are live, each code’s movements can be followed on its stock card.

Checklist before you lock your coding scheme

• No changeable attribute (location, supplier, price) inside the code
• Room to grow in every segment
• Written format rules that everyone can access
• One role responsible for creating new items
• A clear rule that retired codes are never reused
• A pilot: code and label a few real items before rolling out

Frequently Asked Questions

What is a SKU numbering system?

A set of rules for giving every stocked item a unique, permanent code so it is identified the same way in all documents and reports.

How long should a SKU be?

There is no fixed number. Choose the shortest length that covers all groups and future items with room to grow.

Can I change an item’s code later?

Avoid it. If the item has really changed, create a new code and deactivate the old one so history stays intact.

Is a barcode the same as an item code?

A barcode is a scannable form of a code. Usually the internal item code is printed on the label as a barcode or QR code.

Can Avadar print barcode labels?

Yes. All three Avadar editions print barcode and QR labels from ready templates, on every plan.

Have a coding scheme ready and want to put it to work with scanning and labels? Book an Avadar trial demo; our team will go through your item list with you and recommend an edition.

Further reading

• What Is Warehouse Management Software & Why Every Business Needs It
• The Best Warehouse Management Software for Your Business: A Guide to Choosing and Comparing (2026)
• What Is Stocktaking? A Complete Practical Guide

Complete guide: warehouse management software