We explain inventory tracking systems and give examples of how they work. Learn how to choosethe right inventory tracking method for your business and some of the critical features itshould include.
In this article:
- Inventory tracking systems and software features
- Overview of popular tracking methods
- How to choose the right inventory tracking method andtools for your business
- Benefits and challenges of inventory tracking
- Frequently asked inventory tracking questions
What Is Inventory Tracking?
Inventory tracking is the systems and methods a company uses to monitor how raw materials orfinished goods move through the supply chain. Fundamental to generating revenue, the goal isto have the right amount of stock to meet customer demand.
What Is Inventory?
On a balance sheet, inventory is a current asset representing materials or goods that convertto revenue with a sales transaction. There are several approaches to inventory management.Supply chain approaches that strive to keep inventory low, lean or until demand drivessupply see it as a liability.
What Is an Inventory Tracking System?
An inventory tracking system follows inventory every step of the way through your supplychain: from order to transit, receiving, storage and order fulfilment—and the returns,exchange and warranty processes if applicable.
Organizations use accurate, real-time inventory tracking data to reduce expenses, analyze supply chaintrends and drive revenue. These tracking features are often part of inventory managementsystems.
Inventory Tracking Examples
How you track inventory impacts your accounting, purchasing, sales forecasting, customerrelationship management as well as the production side, such as quality control and orderfulfillment.
How you track depends on the type of inventory and how it is moved and stored, such as these:
Inventory Turnover:
Turnover is a ratio that reflects how manytimes stock has cycled through your supply chain—from the receipt of rawmaterialsto the moment the product is sold—in a given period. A higher turnover usuallymeansmore sales, and a low turnover usually shows too much inventory.Tracking Inventory from Suppliers:
Knowing when and where yourstock will arrive helps you better manage distribution center and warehouselogistics, such as receiving and put-away tasks.Customer Returns:
If not managed correctly, customer returns cancreate errors in stock availability. They can cause surplus inventory and createcostly mistakes in stock replenishment.Damaged Goods:
Damaged inventory is a devastating businessexpense. Keep up-to-date data on where losses occur to manage risk and fixreoccurring issues.
Inventory Tracking Methods
Inventory tracking methods vary depending on your industry, what kind of product yourbusiness sells and how much you stock. Here are some supply chain management concepts,technologies and tools to consider.
Manual Tracking:
Those who aren’t ready to invest in aninventorytracking system often track their inventory using pen and paper. With this method,you’ll need to update a master data sheet that categorizes all inventoryeither atregular intervals or whenever there is a transaction.Card System:
Kanban, also known as the visual sign or cardmethod, is a just-in-time (JIT) system designed to limit excess stock. Rather thantry to predict demand, Kanban is a pull system, where cards are used to track stock,production and inventory and signal when more is needed. The system was developed byautomakers in Japan, and the name Kanban comes from the Japanese word for sign.Spreadsheets:
Spreadsheets organize and categorize massiveamounts of data. But manually entering and managing the data is prone to mistakesand is not efficient or scalable.Accounting Systems:
Integrating accounting andinventory management systems gives you a powerful tool for inventorytracking. It not only shows detailed views of your inventory and stock, but howdifferent inventory decisions affect your company’s finances.Inventory Management Systems:
Inventory management systems trackstock and inventory, forecast demand and generate reports. They also have customersupport and training options. They’re most useful when integrated withaccountingand payment processing.Open Source Software:
Some small businesses turn to open sourcesoftware for inventory management. These platforms usually provide interfaces, basicdashboards and some tracking features. But they often lack many of the advancedfeatures, such as integrating with the rest of your systems, creating what’sknownas a data silo. Another drawback is the lack of customer service and training.Software-as-a-Service (SaaS):
A SaaS solution with inventorytracking features allows you to keep an eye on stock easily. This is particularlyuseful for startups that aren’t ready for a comprehensive enterprise inventorymanagement solution.Cloud-Based Software:
Most SaaS solutions are cloud-based andmobile-friendly. They also integrate with other software. Businesses that need toscale inventory management for multiple users tracking stock across locationsbenefit from the flexibility and cost-savings that cloud solutions provide.In-House Solution:
Organizations with enough internal resourcesto plan, design, develop and deploy their on-premises inventory management systemsmay decide to build custom inventory tracking applications. The advantage is asystem tailored to match specific business needs with custom features and in-housetech support to help troubleshoot system issues.Third-Party Providers:
Outsourcing inventory management andlogistics to a third-party logistics (3PLs) provider frees up space, time andresources for retailers and ecommerce businesses that are 100% online. These 3PLcompanies receive, store, move and track inventory for their customers. With thisstrategy, you avoid the expense of physical warehouses and use drop shipping tomanage inventory but add the potential problems of added costs, loss of control,systems that aren’t synced and communication issues.
How to Choose the Right Inventory Tracking Method for Your Business
Choosing the right inventory tracking methodcomes down to various factors, including the scale of your warehouse operations, userlicenses, budget and features. Consider how a tracking method aligns with your strategicbusiness goals like production planning or sales forecasting.
Inventory Tracking Benefits
Implementing inventory tracking technology provides accurate, actionable data that directlyimpacts your bottom line and customer relationships. Here are some examples of the benefits:
Cost-Efficiency:
Inventory tracking software’s automatedreplenishment feature helps avoid overstock while making sure you’re able tofulfillcustomer orders. Relying on data and demand-based replenishment—which takesintoaccount historical sales, seasonality and promotions—drives inventorydecisions thathelp you manage space and lower your costs.Space Savings:
You can accurately predict inventory demand atspecific points in the supply chain with demand forecasting and planning tools ininventory tracking software, ensuring inventory arrives in time for production butnot too early. This insight into inventory cycles translates to optimized warehousespace.Enhanced Clarity:
Reports on tracking data remove error-proneguesswork in your supply chain. They offer a clear picture of important measureslike stock on hand, order fulfillment rates and inventory turnover.Customer Satisfaction:
Faster delivery improves customersatisfaction and helps drive more sales revenue. Inventory tracking solutionsprovide real-time inventory status to customers, and some systems can send automatedtracking updates directly to customers.Supplier Satisfaction:
Companies and suppliers can sharetracking data specific to their industry and use it to spot trends quickly.Depending on the setup, the two organizations can even integrate systems for moretransparency and insights.
Inventory Tracking Challenges
Implementing inventory tracking systems and methods comes with challenges that often occurwhen expanding your business.
Scaling Up:
The labor and effort involved in manual inventorytracking is a drain on time. Scaling manual tracking processes to match inventorygrowth or customer demand is the wrong approach. Consider upgrading to trackingsoftware, or a complete inventory management platform, that provides automatedfeatures for re-ordering and procurement.Multi-Location Logistics:
Companies with multiple warehouselocations and global supply chains need a system that provides continuous, real-timetracking of materials and goods shipped, received and stored. Gathering and sharingthis data can be challenging across solutions that can’t communicate.Disparate Systems:
Performing inventory tracking with one systemand using another for accounting or demand planning is time-consuming, redundant andvulnerable to errors. Modern inventory management software integrates all systemsfor more efficient ordering and better financial management.
How to Make Inventory Tracking More Efficient
Inventory is a substantial expense for most businesses, regardless of size. Understanding howit moves and ensuring it arrives promptly at the correct destination is crucial. Here aresome steps to make your inventory tracking more efficient:
Ditch the Spreadsheet
Manually tracking inventory with spreadsheets is time-consuming, prone to error andhard to scale. Upgrade to a tracking system that minimizes manual tasks andautomatically updates data in centralized databases.
Perform Regular Cycle Counts
Cycle counting helps identify and rectify any inventory record discrepancies. As withany process, it is helpful to understand your performance, if it is improving, andhow you perform compared to industry benchmarks. You can perform cycle counting byscheduling high frequency, regular counts of sections, or bays as part of everydayoperations. Use inventory cycle counting methods to do counts daily and assignspecific workers for particular areas.
Track More than Movement
Keep an eye on staffing decisions, seasonal demand and purchasing schedules. Searchfor savings in every step as stock moves from supplier to warehouse to customer.
Implement Best Practices
Study the supply chain for opportunities to improve the movement of stock throughyour organization. See what others are doing in your industry and follow inventorymanagement formulas. And ask frontline employees where they see inefficiencies intracking. Use this information to create best practices and document your inventorytracking methods for ongoing reference.
Automate Manual Tasks
Inventory management systems and standalone software applications have automatedfeatures for data tracking and replenishing stock.
Digital Data
Use barcode scanning and mobile devices to minimize human error and problems likeduplicated data. Using barcodes or advanced radio frequency identification tags(RFID) improves your financial accounting, keeps your reports up-to-date and allowsyou to implement best practices like cycle counting.
Audit Internal Systems
Conducting frequent inventory audits help you spot and track inefficiencies. Theyalso detect more significant issues such as theft, damaged goods and spoilage.
Enable Lifecycle Management
Food, beverage and other highly perishable inventory requires a system thatidentifies when to cycle products and dispose of raw goods. Use lifecycle managementfeatures to flag old inventory and trigger alerts when there are supply chaindelays.
Customize Reports
Many inventory management systems feature accurate, real-time tracking reports andforecasting tools that are customizable. Input data from purchase orders andinvoices frequently to keep the system up to date with actionable information. Forexample, you can run reports to help determine low stock levels by location tomanage seasonal or regional demand fluctuations.
Tracking Inventory Through the Supply Chain
Tracking inventory at every stage in the supply chain helps you find ways to save money. Forexample, you can compare transportation and storage costs across different carriers andregions to find the most cost-efficient solutions. Tracking inventory is an important stepto meeting key performance indicators (KPIs) for your inventory management.
Modern inventory management systems track the number of units ordered from suppliers andestimate arrival time using GPS integrations. A central database receives automatic updateswhen the warehouse receives the order. And accurate stock levels are instantly available forall users in multiple locations.
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Inventory Tracking FAQs
Who Uses Inventory Tracking?
Inventory tracking is vital to businesses of all types and sizes. It plays an important rolein the relationship between customer satisfaction and inventory supply and demand.
In larger companies, there may be a role specifically for this, such as an inventory manager.But whatever the title, inventory is tracked by whichever employee is responsible foroverseeing inventory management and providing accurate data on which products are availableso business leaders can make informed decisions on supply chain management and sales.
What Is an Inventory Tracking List?
Inventory tracking lists are a form of inventory control thatorganizes stock by category, description, quantity and location. These lists are updated andstored with manual documentation or digitally using inventory tracking software.
How Can I Keep Track of My Inventory for Free?
Small businesses with minimal inventory and few employees can use manual inventory trackingwith spreadsheets to save on software costs. Also, there is free open source inventorytracking software available online. But these systems are prone to human error, missingfeatures that can save your business money, not scalable, keep your data in silos, and lackcustomer service and customization features.
How Do I Track My Warehouse Inventory?
Implement an inventory management systemand warehouse management software with tracking features. These solutions helpmanage multiple warehouse locations, track orders, schedule delivery and manage storagespace.
How NetSuite Can Improve Your Inventory Tracking
Inventory tracking is an essential part of inventory management. Decision-makers know theyneed a tool that’s flexible, scalable and integrates easily with existing solutions.
NetSuite inventory management system offers native tools and features to help track how yourinventory moves. Track inventory across multiple locations, automatically manage re-orderpoints, forecast demand and plan distribution. Learn more about NetSuite’s inventorytrackingand warehouse management systems.
