7 Benefits of Inventory Tracking for Your Business
Inventory tracking is the process of monitoring the quantity, location, and status of the items or SKUs that a business owns. Inventory tracking is essential for managing inventory levels, optimizing supply chain efficiency, reducing costs, and increasing customer satisfaction. In this article, we will discuss the definition, importance, and methods of inventory tracking, as well as some tips and best practices to help you get started.
Key takeaways
Inventory tracking is the process of monitoring the quantity, location, and status of the items or SKUs that a business owns.
Inventory tracking is important for improving inventory management, enhancing supply chain efficiency, lowering costs, and increasing customer satisfaction.
Inventory tracking can be done using different methods such as manual, barcode, or RFID.
Inventory tracking requires defining categories, assigning identifiers, labeling items, recording data, updating data, conducting audits, and analyzing data.
Inventory tracking can be done more effectively by choosing the right method, using software, auditing regularly, and following tips and best practices.
What is inventory tracking?
Inventory tracking refers to the systems and methods a company uses to keep track of how raw materials or finished goods move through the supply chain. Inventory tracking can provide information such as:
- Updated stock levels: This shows how much of each item you currently have in stock. It helps you avoid stockouts or overstocking and plan your purchasing and production accordingly.
- Stock locations: This shows where each item or SKU is stored or located in your warehouse, distribution center, or store. It helps you optimize your storage space, reduce picking errors, and speed up order fulfillment.
- Inventory accuracy: This is a measure of how well your inventory records match your physical inventory. It helps you identify and correct any discrepancies caused by theft, damage, human error, or supplier issues.
- Carrying costs: This is the total amount of money you spend on storing, holding, and owning your inventory. It includes expenses such as rent, utilities, labor, security, insurance, and depreciation. It helps you evaluate your inventory performance and profitability.
- Inventory valuation: This is the process of assigning a monetary value to your unsold inventory for accounting purposes. It helps you report your inventory as an asset on your balance sheet and calculate your cost of goods sold (COGS) and gross profit.
- Inventory turnover: This is a ratio that indicates how often you sell and replace your inventory in a given period. It helps you measure your inventory efficiency and liquidity.
Why is inventory tracking important?
Inventory tracking is important for several reasons:
- It improves inventory management: Inventory tracking helps you maintain optimal inventory levels that match your demand and supply. It prevents you from running out of stock or having excess inventory that ties up your cash flow and wastes your resources.
- It enhances supply chain efficiency: Inventory tracking helps you streamline your supply chain processes such as purchasing, receiving, storing, picking, packing, shipping, and returns. It reduces errors, delays, and waste in your operations.
- It lowers costs: Inventory tracking helps you reduce your inventory-related costs such as carrying costs, storage costs, labor costs, and transportation costs. It also helps you avoid losses due to shrinkage, obsolescence, or spoilage of your inventory.
- It increases customer satisfaction: Inventory tracking helps you deliver accurate and timely orders to your customers. It improves your order fulfillment rate, reduces backorders and cancellations, and increases customer loyalty and retention.
How to do inventory tracking?
There are different methods of inventory tracking that vary in complexity and accuracy. Some of the common methods are:
- Manual inventory tracking: This involves using paper-based or spreadsheet-based systems to record and update your inventory data. This method is simple and inexpensive but prone to human error and inefficiency.
- Barcode inventory tracking: This involves using barcode labels and scanners to capture and transmit your inventory data electronically. This method is fast and accurate but requires investment in hardware and software.
- RFID inventory tracking: This involves using radio frequency identification (RFID) tags and readers to track your inventory wirelessly. This method is more advanced and reliable but also more expensive and complex.
Regardless of the method you choose, there are some steps you need to follow to do inventory tracking effectively:
- Define your inventory categories: You need to classify your inventory into different categories based on their characteristics such as type, size, color, brand, etc. This will help you organize your inventory better and make it easier to track.
- Assign unique identifiers: You need to assign unique identifiers or codes to each item or SKU in your inventory. This will help you distinguish between different items and avoid confusion or duplication.
- Label your inventory: You need to label each item or SKU with its identifier using a barcode label or an RFID tag. This will help you scan or read the item information quickly and accurately.
- Record your inventory data: You need to record the quantity, location, status, cost, value, and other relevant data of each item or SKU in your inventory system. This will help you keep track of your inventory movements and changes.
- Update your inventory data: You need to update your inventory data regularly whenever there is a change in your inventory such as a purchase order,
- a sales order, a transfer order, a return order, etc. This will help you maintain accurate and current inventory records.
Tips for effective inventory tracking
Here are some tips to help you do inventory tracking more effectively:
- Choose the right method for your business: You need to choose the inventory tracking method that suits your business size, type, budget, and goals. You can start with a simple method and upgrade to a more sophisticated one as your business grows and evolves.
- Use inventory tracking software: You need to use inventory tracking software that can automate and integrate your inventory tracking processes. This will help you save time, reduce errors, and improve your inventory visibility and control.
- Conduct regular inventory audits: You need to conduct regular inventory audits to verify and validate your inventory data. This will help you identify and correct any discrepancies or issues in your inventory records.
- Analyze your inventory data: You need to analyze your inventory data to gain insights and make informed decisions. This will help you optimize your inventory levels, improve your inventory performance, and increase your profitability.
Tips
- Use a reliable and scalable inventory tracking system that can handle your business growth and complexity.
- Implement a clear and consistent inventory naming and labeling system that can avoid confusion or ambiguity.
- Train your staff on how to use your inventory tracking system properly and efficiently.
- Monitor your inventory KPIs such as stock levels, turnover, accuracy, valuation, etc. regularly and take corrective actions if needed.
Inventory Tracking: A Statistical Report
Inventory tracking is the process of monitoring the movement, location, and quantity of inventory items in a business. Inventory can include raw materials, unfinished goods, and finished goods that are ready to be sold. Inventory tracking is essential for optimizing inventory management, reducing costs, increasing sales, and improving customer satisfaction.
According to a report by NetSuite, inventory tracking systems can provide real-time data on various aspects of inventory, such as:
- Inventory turnover: This is a ratio that reflects how many times stock has cycled through the supply chain in a given period. A higher turnover usually means more sales, and a low turnover usually shows too much inventory.
- Inventory from suppliers: This is the information on when and where the stock will arrive from the suppliers, which helps to manage logistics and warehouse operations.
- Customer returns: This is the process of handling the inventory that is returned by customers, which can affect the stock availability and replenishment.
- Damaged goods: This is the data on the inventory that is lost or damaged due to various reasons, such as transit, storage, or handling errors.
Inventory tracking methods and tools
There are different methods and tools for inventory tracking, depending on the type, size, and complexity of the business. Some of the common methods are:
- Barcode scanning: This is a method that uses barcode labels and scanners to identify and track inventory items. Barcode scanning can reduce human errors, increase efficiency, and provide accurate data.
- RFID tagging: This is a method that uses radio frequency identification (RFID) tags and readers to track inventory items. RFID tagging can provide more information than barcode scanning, such as the location, temperature, and expiration date of the items.
- Inventory management software: This is a software system that integrates with other systems, such as accounting, purchasing, sales, and CRM, to track and manage inventory. Inventory management software can automate tasks, generate reports, analyze trends, and provide insights.
Global demand for inventory tracking
The global demand for inventory tracking is expected to grow in the coming years, due to several factors, such as:
- The rise of e-commerce: E-commerce has increased the volume and variety of inventory items that need to be tracked and delivered to customers across different channels and locations.
- The need for efficiency: Businesses need to optimize their inventory levels, reduce waste, avoid stockouts, and improve cash flow.
- The impact of COVID-19: The pandemic has disrupted the supply chains and demand patterns of many industries, creating challenges and opportunities for inventory tracking.
According to a report by ResearchAndMarkets.com, the global market for inventory management software was valued at $2.73 billion in 2020 and is projected to reach $5.56 billion by 2026, growing at a compound annual growth rate (CAGR) of 12.4%. The report also identifies some of the key players in the market, such as Oracle Corporation, SAP SE, Microsoft Corporation, Zoho Corporation Pvt. Ltd., and ShipBob Inc.
Frequently asked questions
Q: What is the difference between inventory tracking and inventory management?
A: Inventory tracking is a part of inventory management. Inventory management is the overall process of planning, organizing, controlling, and optimizing the inventory of a business. Inventory tracking is the specific process of monitoring the quantity, location, and status of the inventory.
Q: What are the benefits of using barcode or RFID inventory tracking?
A: Barcode or RFID inventory tracking can offer several benefits such as:
- Faster and more accurate data capture and transmission
- Reduced manual labor and human error
- Improved inventory visibility and traceability
- Enhanced security and quality control
- Better compliance and reporting
Q: How often should I update my inventory data?
A: The frequency of updating your inventory data depends on the nature and volume of your business transactions. Ideally, you should update your inventory data as soon as possible after each transaction to ensure accuracy and timeliness. However, some businesses may choose to update their inventory data periodically such as daily, weekly, or monthly depending on their needs and preferences.
References:
http://publications.cta.int/media/publications/downloads/1749_PDF.pdf
https://web.archive.org/web/20100425054824/http://www.bsu.edu/web/scfrazier2/jit/mainpage.htm
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