Efficient inventory tracking enables manufacturing businesses to optimize their operations, minimize costs, and maximize profitability. However, tracking inventory can often be complex and time-consuming, leading to inefficiencies and potential financial losses.

Whether you're a small retailer or a large-scale distributor, knowing how to take control of your inventory and enhance your business's overall efficiency.

This article will provide a comprehensive guide on inventory tracking methods, simplifying the process and equipping you with the necessary steps to streamline your inventory management.

What Is Inventory Tracking?

Inventory tracking is the systematic process of monitoring and managing the flow of goods or products within a business.

It involves keeping a record of inventory items' quantity, location, and status throughout their lifecycle, from procurement or production to storage, distribution, and sale.

What Is an Inventory Tracking System?

An inventory tracking system is a software or set of tools designed to monitor, record, and manage the movement of inventory items within a business.

It gives businesses a centralized, real-time platform to track and control their inventory, enabling efficient stock-level management, accurate order fulfillment, and effective inventory planning.

A few tracking features in an inventory tracking system are stock movement tracking, sales order management, reporting, and analytics.

Efficient inventory tracking significantly impacts various aspects of business operations, including accounting, purchasing, sales forecasting, and customer relationship management.

The tracking method varies depending on the type of inventory and its movement and storage. Here are some examples:

1. Supplier Tracking Inventory

Having visibility into the timing and location of stock arrivals enables better management of distribution centers and warehouse logistics, such as receiving and put-away tasks.

2. Inventory Turnover

Inventory turnover is a ratio that indicates how many times the stock has passed through the supply chain, from raw material receipt to product sale, within a specific period. A higher turnover generally signifies more sales, while a low turnover suggests excessive inventory levels.

3. Customer Returns

Proper management of customer returns is essential to avoid errors in stock availability. Mishandled returns can lead to surplus inventory and costly mistakes in stock replenishment.

4. Damaged Goods

Damaged inventory can incur significant expenses for a business. Maintaining up-to-date data on the locations of losses helps manage risks and address recurring issues.

Inventory Tracking Methods

Inventory tracking methods vary based on industry, product type, and stock volume. Here are several concepts to consider:

1. Manual Tracking

Manual tracking using pen and paper is an option for businesses not ready to invest in an inventory tracking system. It involves updating a master data sheet periodically or after each transaction to categorize inventory.

2. Accounting Systems

Integrating accounting and inventory management systems provides a powerful tool for inventory tracking. It offers detailed inventory views and insights into how inventory decisions impact financials.

3. Inventory Management Systems

Dedicated inventory management systems track stock, forecast demand and generate reports. Integration with accounting and payment processing enhances functionality.

4. Card System (Kanban)

Kanban, a just-in-time (JIT) system developed by Japanese automakers, uses visual cards to track stock, production, and inventory. It operates on a pull system, signaling the need for more stock instead of predicting demand.

5. Spreadsheets

Spreadsheets can organize and categorize large amounts of data, but manual data entry is prone to errors and lacks efficiency and scalability.

6. Open Source Software

Some small businesses opt for open-source software for inventory management. While they provide basic features, they often lack advanced capabilities and customer support.

7. SaaS (Software-as-a-Service)

SaaS solutions with inventory tracking features benefit startups and offer easy stock monitoring without requiring comprehensive enterprise solutions.

8. Cloud-Based Software

Most SaaS solutions are cloud-based and mobile-friendly, integrating well with other software. They suit businesses requiring multi-user access and stock tracking across multiple locations.

9. In-House Solution

Organizations with sufficient internal resources may develop custom on-premises inventory management systems tailored to their needs with in-house tech support.

10. Third-Party Providers

Online retailers commonly outsource inventory management and logistics to third-party logistics (3PL) providers. 3PLs handle inventory receipt, storage, movement, and tracking, freeing up resources but potentially leading to added costs and loss of control.

Here's How You Can Choose the Best Inventory Tracking Method for Your Business

Choosing the right inventory tracking method for your business requires careful consideration of your specific needs and capabilities. Evaluate factors such as the type of product you sell, the volume of your inventory, the complexity of your supply chain, and your budget.

Assess the pros and cons of different methods, including manual tracking, software solutions, and outsourcing options.

Select a method that aligns with your business goals, enhances operational efficiency, and allows for effective inventory management tailored to your unique requirements.

Inventory Tracking Benefits

Implementing inventory tracking technology brings numerous benefits that directly impact your business. Among the benefits are:

1. Cost-Efficiency

By leveraging automated replenishment features and demand-based decision-making, inventory tracking software helps prevent overstocking and ensures timely order fulfillment. This data-driven approach optimizes inventory management, reduces costs, and maximizes space utilization.

2. Space Savings

With demand forecasting and planning tools, inventory tracking software accurately predicts inventory needs at different supply chain stages. This insight enables efficient warehouse space management, ensuring inventory arrives just in time for production without excessive early stock.

3. Enhanced Clarity

Inventory tracking reports provide accurate and reliable data, eliminating guesswork from supply chain operations. These reports provide visibility into key metrics such as stock levels, order fulfillment rates, and inventory turnover, enabling informed decision-making.

4. Customer Satisfaction

Real-time inventory status updates and automated tracking notifications provided by inventory tracking solutions contribute to faster delivery and improved customer satisfaction. Customers appreciate transparency and prompt information about their orders, leading to increased sales revenue.

5. Supplier Satisfaction

Sharing tracking data with suppliers fosters collaboration and enables both parties to identify industry trends promptly. System integration can enhance transparency and provide valuable insights for improved supplier relationships depending on the setup.

Solving Inventory Tracking Challenges

Expanding your business and setting up inventory tracking systems can pose challenges that need to be addressed effectively:

1. Scaling Up

As your business grows, manual inventory tracking becomes increasingly time-consuming and inefficient. Instead of scaling manual processes, consider upgrading to automated tracking software offerings features like automatic re-ordering and procurement.

2. Separate Systems

Relying on separate systems for inventory tracking, accounting, and demand planning leads to redundancy, time wastage, and potential errors. Opt for modern inventory management software that integrates all essential systems, streamlining ordering processes and improving financial management.

3. Multi-Location Logistics

Real-time tracking of materials and goods across various locations is crucial for businesses with multiple warehouse locations and complex global supply chains. Ensure you have a system that provides continuous tracking and seamless data sharing among different solutions.

How to Make Inventory Tracking More Efficient

To streamline your inventory tracking process, consider the following steps:

1. Conduct Regular Cycle Counts

Perform routine cycle counts to identify and rectify any discrepancies in inventory records. Implement high-frequency counts in specific areas to maintain accurate stock levels and assign dedicated workers for efficient counting.

2. Track Beyond Movement

When managing inventory, consider factors like staffing decisions, seasonal demand, and purchasing schedules. Look for cost-saving opportunities throughout the supply chain, from suppliers to warehouses to customers.

3. Implement Best Practices

Study industry benchmarks and seek input from frontline employees to identify areas of improvement in your inventory tracking process. Document and establish best practices for ongoing reference and continuous optimization.

4. Automate Manual Tasks

Utilize inventory management systems and software applications that automate data tracking and stock replenishment processes, improving efficiency and accuracy.

5. Embrace Digital Data

Inventory tracking software with a barcode scanner or advanced Radio-Frequency IDentification (RFID) technology minimizes human errors and ensures accurate data recording. Barcode inventory tracking software and RFID tags facilitate efficient financial accounting, up-to-date reporting, and practices like cycle counting.

6. Audit Internal Systems

Regularly conduct inventory audits to identify inefficiencies and detect theft, damaged goods, or spoilage. Audits help maintain inventory accuracy and identify areas for improvement.

7. Enable Lifecycle Management

For a perishable inventory, implement a system that manages product life cycles, identifying when to cycle and dispose of goods. It ensures optimal inventory freshness and helps mitigate supply chain delays.

8. Customize Reports

Utilize inventory management systems with customizable, real-time tracking reports and forecasting tools. Regularly input data from purchase orders and invoices to keep the system updated with actionable information. Tailor reports managing low stock levels by location, effectively addressing seasonal or regional demand fluctuations.

9. Upgrade from Spreadsheets

Replace the manual inventory tracking system with a dedicated system that automates data updates and reduces errors. Centralized databases ensure accurate and scalable inventory management.

Inventory Tracking and Supply Chain Management

Inventory tracking and supply chain management are closely interconnected aspects of business operations. Effective inventory tracking is crucial for optimizing supply chain processes and ensuring efficient inventory management from procurement to delivery.

Inventory tracking provides real-time visibility into stock levels, allowing businesses to monitor inventory movement. It also helps track product availability and inform replenishment and order fulfillment decisions.

This data-driven approach helps prevent stockouts, minimize excess inventory, and streamline the flow of goods throughout the supply chain.

Manual vs. Automated Tracking

Manual inventory tracking involves using manual methods such as spreadsheets, pen, and paper, or physical counts to track and manage inventory. While it may be a cost-effective option for small businesses with limited inventory, it is prone to human errors.

On the other hand, automated inventory tracking utilizes technology and software solutions to streamline the process. It offers advantages such as accurate and real-time inventory data, automated data updates, integration with other systems, and efficient order management.

What is the Best Way to Keep Track of Inventory?

The best way to keep track of inventory is by using simple inventory-tracking software. Such systems provide a centralized platform to monitor stock levels, track product movements, and update inventory data in real time.

Simple inventory tracking solutions help businesses maintain accurate inventory records, make informed purchasing decisions, and ensure optimal stock levels, enhancing operational control and customer satisfaction.

Streamline Your Inventory Tracking Process With TranZact

Effective inventory tracking and automation of inventory management processes are vital components of successful business operations. You can simplify inventory tracking by embracing modern inventory management practices and leveraging technology. TranZact's digital tools and simple inventory tracking software give live visibility into your inventory, improving accuracy and enhancing customer satisfaction.

FAQs on Inventory Tracking

1. What is inventory tracking?

Inventory tracking refers to monitoring and managing the movement, availability, and quantity of products or goods in a company's inventory.

2. Why is inventory tracking important?

Inventory tracking is important as it helps businesses maintain accurate stock levels, prevent stock-outs or overstocking, optimize supply chain operations, and make informed business decisions.

3. What are the benefits of automated inventory tracking?

Automated inventory tracking offers real-time visibility, reduced manual errors, improved efficiency, streamlined order management, and enhanced decision-making based on accurate data.

4. What are some common inventory tracking methods?

Common inventory tracking methods are push, pull, and just-in-time techniques.

5. What are 4 different kinds of inventory?

Four kinds of inventory are work-in-progress, raw material, MRO inventory (maintenance, repair, and operations), and finished goods inventory.

6. Can inventory tracking help reduce costs?

Yes, inventory tracking can help reduce costs by minimizing overstocking, preventing stock obsolescence, optimizing warehouse space, and improving demand forecasting accuracy.

7. How often should I perform inventory counts?

The frequency of inventory counts depends on factors like business size, industry, and inventory turnover rate. However, regular cycle counts and periodic audits are recommended to maintain accurate inventory records.

8. What is MRO in inventory?

MRO in inventory can be defined as maintenance, repair, and operations. It is necessary to keep running the company's day-to-day operations.