Dive into the intricacies of inventory tracking systems, enriched with practical examples. Discover how to select an apt tracking method tailored for your business, and uncover the essential features it must encompass.
Understanding Inventory Tracking
Inventory tracking refers to the mechanisms and techniques employed by businesses to oversee the movement of raw materials or finished goods across the supply chain. It’s an indispensable aspect of revenue generation, aiming to maintain optimal stock levels to fulfill customer needs.
Defining Inventory
In financial terms, inventory is classified as a current asset on the balance sheet, signifying materials or goods that generate revenue upon sale. The methodologies for inventory management vary greatly. Some supply chain strategies, such as lean or just-in-time approaches, perceive inventory as a liability and aim to keep it as minimal as possible, only replenishing when consumer demand necessitates.
Decoding Inventory Tracking System
An inventory tracking system meticulously monitors every stage of your supply chain, encompassing order placement, transit, receipt, storage, order fulfillment, and if necessary, return, exchange, and warranty processes.
Companies utilize precise, real-time inventory tracking data to minimize costs, examine supply chain trends, and boost revenue. Often, these tracking capabilities are integral components of broader inventory management systems.
Inventory Tracking in Practice
The way you track inventory influences various business operations, from accounting, purchasing, and sales forecasting, to customer relationship management, quality control, and order fulfillment.
The specific tracking methodology largely depends on the nature of the inventory, and its movement and storage patterns. Here are some examples:
Inventory Turnover: Turnover is a ratio indicating the frequency of stock rotation within your supply chain—from receipt of raw materials to the point of sale—over a defined period. Higher turnover typically signals increased sales, while low turnover may indicate excess stock.
Supplier Inventory Tracking: Understanding the when and where of your incoming stock improves management of distribution centers and warehouse logistics, aiding in efficient receipt and storage processes.
Customer Returns Management: Improper handling of customer returns can lead to inaccuracies in stock levels, result in surplus inventory, and induce costly errors in stock replenishment.
Handling Damaged Goods: Damaged inventory can inflict significant financial losses. Maintaining current data on loss points enables effective risk management and problem resolution.
Approaches to Inventory Tracking
Inventory tracking methods largely depend on your industry, product type, and stock volume. Let’s explore some key supply chain management concepts, technologies, and tools.
Manual Tracking: Often, businesses not ready for a digital tracking system resort to pen-and-paper tracking, periodically updating a master datasheet, categorizing all inventory or updating it per transaction.
Card System: Kanban, also known as the visual sign or card system, is a just-in-time (JIT) method designed to prevent stock surplus. Rather than predicting demand, it’s a pull system where cards track stock and signal replenishment needs. Originating from Japanese automakers, “Kanban” is Japanese for “sign”.
Spreadsheets: Spreadsheets can organize large data volumes but manual input and management can lead to errors and inefficiencies, and isn’t scalable.
Integrated Accounting Systems: Merging accounting and inventory management systems provides a robust inventory tracking tool, offering detailed insights into your stock and its financial implications.
Inventory Management Systems: These systems track stock, predict demand, and generate reports, offering customer support and training. They show optimal results when combined with accounting and payment processing.
Open Source Software: Some small businesses use open source software for inventory management. These platforms typically offer interfaces, basic dashboards, and limited tracking features, but may lack advanced functionalities and customer service, creating potential data silos.
Software-as-a-Service (SaaS): SaaS solutions with inventory tracking features are ideal for startups not ready for comprehensive enterprise solutions, providing real-time stock monitoring.
Cloud-Based Software: Most SaaS solutions are cloud-based, mobile-friendly, and integrate with other software. These provide scalability, flexibility, and cost-effectiveness, particularly for businesses tracking inventory across multiple locations.
Custom In-House Solution: Companies with sufficient resources may opt to develop a tailored, on-premises inventory tracking system. The benefit is a bespoke system with custom features and dedicated tech support.
Third-Party Providers: Retailers and entirely online businesses often outsource inventory management to third-party logistics (3PLs) providers. This strategy can reduce costs of physical warehouses and allows drop shipping management, but introduces potential challenges like additional costs, loss of control, unsynced systems, and communication issues.
Selecting an Ideal Inventory Tracking Method for Your Business
The choice of the optimal inventory tracking method hinges on multiple variables, such as the extent of your warehouse activities, user licenses, budget, and feature-set. Evaluate how a tracking approach dovetails with your strategic objectives like production planning or sales forecasting.
Benefits of Inventory Tracking
Employing inventory tracking technology yields precise, actionable insights, significantly influencing your financial results and customer relations. Here are some key advantages:
Economic Efficiency
Inventory tracking software, with its automated replenishment feature, ensures you avoid overstock while fulfilling customer orders effectively. Data and demand-driven restocking—considering historical sales, seasonal fluctuations, and promotions—facilitate informed inventory decisions, optimizing space and reducing costs.
Space Optimization
With demand forecasting and planning tools in inventory tracking software, you can accurately anticipate inventory requirements at specific supply chain points. This understanding of inventory cycles results in optimal warehouse space utilization.
Increased Transparency
Reports based on tracking data eliminate guesswork in your supply chain, providing a clear overview of vital metrics like available stock, order fulfillment rates, and inventory turnover.
Improved Customer Experience
Quick deliveries enhance customer satisfaction and drive revenue. Inventory tracking solutions offer real-time inventory updates to customers, and some systems can even dispatch automated tracking notifications.
Strengthened Supplier Relationships
Companies and suppliers can exchange tracking data specific to their industry for rapid trend identification. Depending on the configuration, the two parties can integrate systems for increased transparency and insights.
Overcoming Inventory Tracking Challenges
Adopting inventory tracking systems and methods may pose certain challenges, often surfacing when your business grows.
Efficient Scaling: Manual inventory tracking can be time-consuming and inefficient. Scaling such manual procedures to accommodate inventory growth or customer demand isn’t the best solution. Consider transitioning to tracking software or a comprehensive inventory management platform with automated reordering and procurement features.
Handling Multi-Location Logistics: Companies with multiple warehouses or global supply chains require a system offering consistent, real-time tracking of materials and goods. Aggregating and sharing this data can be challenging with incompatible systems.
System Integration: Using separate systems for inventory tracking, accounting, or demand planning can be redundant, time-consuming, and error-prone. Modern inventory management software integrates all these systems for streamlined ordering and improved financial management.
Boosting Inventory Tracking Efficiency
Inventory constitutes a significant expense for businesses of all sizes. Efficient tracking of inventory movement and timely delivery is crucial. Here are some strategies to enhance your inventory tracking efficiency:
Move Beyond Spreadsheets: Manually tracking inventory using spreadsheets can be inefficient and error-prone. Transition to a tracking system that reduces manual tasks and updates data in centralized databases automatically.
Conduct Frequent Cycle Counts: Regular cycle counts help rectify inventory record discrepancies. Carry out high-frequency, regular counts of specific sections as part of daily operations. Assign specific workers to specific areas for consistent cycle counting.
Monitor More Than Just Movement: Pay attention to staffing decisions, seasonal demand, and purchasing schedules. Seek cost-saving opportunities at every stage as stock moves from supplier to warehouse to customer.
Adopt Industry Best Practices: Analyze your supply chain for potential improvements. Learn from industry peers, adhere to proven inventory management formulas, and invite feedback from frontline employees on perceived inefficiencies. Document your inventory tracking methods as best practices for future reference.
Automate Tasks: Inventory management systems offer automated features for data tracking and stock replenishment. Capitalize on these to reduce manual tasks.
Leverage Digital Solutions: Use barcode scanning and mobile devices to reduce human error and data duplication. Barcodes or advanced RFID tags can enhance financial accounting, keep reports current, and facilitate best practices like cycle counting.
Perform Regular Audits: Frequent inventory audits help identify inefficiencies and detect serious issues like theft, damaged goods, or spoilage.
Implement Lifecycle Management: For highly perishable inventory like food and beverages, employ a system that determines when to cycle products and dispose of raw goods. Use lifecycle management features to mark old inventory and send alerts for supply chain delays.
Customize Reports: Many inventory management systems offer real-time tracking reports and customizable forecasting tools. Regularly input data from purchase orders and invoices to keep the system updated. Run reports to manage seasonal or regional demand fluctuations by identifying low stock levels by location.
Optimizing Supply Chain via Inventory Tracking
Monitoring inventory throughout the supply chain enables cost-saving opportunities. For instance, comparing transportation and storage expenses across various carriers and regions can yield the most economical solutions. Inventory tracking is a critical component in achieving your inventory management Key Performance Indicators (KPIs).
Contemporary inventory management systems track order volumes from suppliers and predict arrival times using GPS integrations. Upon order receipt at the warehouse, a central database is updated automatically, providing real-time stock levels to users across multiple locations.
Inventory Tracking: Common Queries
Who Needs Inventory Tracking?
Inventory tracking is essential for businesses of all scales and sectors. It significantly influences the balance between customer satisfaction and inventory supply-demand. In larger organizations, specific roles, such as an inventory manager, may oversee inventory tracking. Regardless of the title, the responsibility lies with the individual in charge of inventory management, providing accurate product availability data to guide decision-making in supply chain management and sales.
What is an Inventory Tracking List?
An inventory tracking list, a component of inventory control, organizes stock according to category, description, quantity, and location. These lists, updated and maintained through manual records or digital inventory tracking software, aid in streamlined inventory management.
How to Track Inventory Without Cost?
Small businesses with limited inventory and workforce can employ manual inventory tracking using spreadsheets to avoid software expenses. Free open source inventory tracking software is also available online. However, these systems are prone to human errors and lack scalability, integrations, customer service, and customization features, limiting their long-term effectiveness.
How to Monitor Warehouse Inventory?
Employing an inventory management system or warehouse management software with tracking functionalities can aid in managing multiple warehouse locations, order tracking, delivery scheduling, and storage space management.
How Can NetSuite Enhance Your Inventory Tracking?
Inventory tracking is a crucial element of inventory management, requiring a tool that’s flexible, scalable, and seamlessly integrates with existing systems. NetSuite’s inventory management system provides native tools and features to track inventory movements. It enables tracking inventory across various locations, automatic management of re-order points, demand forecasting, and distribution planning. Discover more about NetSuite’s inventory tracking and warehouse management systems.
