Also called stock keeping unit, item code, product code
SKU stands for stock keeping unit. It is your own code for one specific product variant you stock. A 500 g and a 1 kg pack of the same atta are two SKUs. So are a red and a blue shirt in size M. The barcode is set by the manufacturer, while the SKU is usually set by you.
Stock, prices and reorders are tracked per SKU. If two variants share one code, you cannot tell which sold and which is running out. Marketplaces also use SKUs to match their listings to your stock. Keep codes short, readable and consistent, so staff can tell what a code means at a glance.
A shoe shop stocking one model in 5 sizes and 3 colours has 15 SKUs, such as RUN-BLK-08 for black size 8. When size 8 in black sells out, the system knows exactly what to reorder. It can also show that size 11 in red has not sold in months.