Midsize business

What is a barcode inventory system and how can you use it?

A barcode inventory system is a method that helps businesses track inventory faster and easier. When a product has a barcode, it’s scanned with a handheld mobile device and synchronized with inventory management software in real-time.

While it’s possible to manage inventory by hand or with spreadsheets, these methods are cumbersome and prone to human error. That’s why many businesses opt for barcoding to get a better grip on their inventory.

Coming up, we’ll explore barcoding in-depth, how it works, and how your business can successfully implement it to optimize inventory management.

What are barcodes?

A barcode is simply a unique graphic with numbers or text, just like you see on products at the supermarket. The graphic represents data visually. When a barcode is scanned, the data from that product is instantly transferred to a computer.

There are two types of barcodes:

1D barcodes

One-dimensional barcodes are the most common type of barcode and are typically found on consumer goods. 1D barcode labels consist of a unique pattern of vertical black lines on a white background. The space between the lines allows the barcode scanner to identify the product information.

1D barcodes are essential for businesses with a large number of stock-keeping units (SKUs) since they help increase inventory accuracy and eliminate the need to track inventory manually.

2D barcodes

Two-dimensional barcodes use patterns of dots, squares, and other shapes to encode data. The complex patterns allow these barcodes to store more data than 1D barcodes, such as website information, images, and voice.

One of the most common examples of 2D barcodes is a QR code, which people can scan with their smartphone to visit a website.

What is the difference between SKU and UPC?

Many barcodes contain a UPC and a SKU code. These acronyms are often used interchangeably, but there are key differences.

A universal product code (UPC) is issued by the Global Standards Organization. The UPC consists of two parts: a 12-digit number and a machine-readable barcode (like the ones we mentioned earlier). The UPC identifies the manufacturer and the item—it remains the same, no matter which retailer is selling it.

On the other hand, a SKU code is unique to the individual retailer who sells the product. SKU codes are 8-12 digit alphanumeric sequences. Companies create their own SKU codes to provide information about a product’s price, size, color, or any other characteristics the retailer wants to include.

Take a national coffee brand for example—every bag, regardless of the store that sells it, will have the same 12-digit UPC. However, individual retailers may assign a unique SKU for detailed inventory tracking.

Now that you have a grip on what barcodes are, the next question is: why does your business need them?

Why use barcodes?

As a business becomes more complex, there are certain tasks that need to be automated in order to keep up with demand. Inventory control falls into this category for two reasons:

  1. Manual inventory counts are tedious and take resources away from more profitable activities.
  2. Keeping inventory levels by hand increases the risk of human error, which can result in costly miscalculations, oversights, and lost inventory. In fact, a recent study from the University of Cambridge found that an average person will make at least one data entry mistake every 250 keystrokes.

A barcoding system can help solve both of these problems. Instead of logging SKUs into a spreadsheet, you can simply scan the barcode which then updates your inventory records in a matter of seconds. You can track dozens of items in the time it would take to manually type a few characters.

Barcodes don’t just save time, though. It’s an important step towards making smarter, faster decisions about your business. Since barcoding systems generate real-time inventory data, you no longer have to wait for weekly inventory reports to see how certain products are performing.

In short, a barcode inventory system helps businesses spend less time finding things and more time selling them.

How does a barcode inventory system work?

Before implementing a barcode inventory system, it’s important to determine whether it’s right for your business. If you manage any type of physical inventory, you’ll likely benefit from this system.

  1. You store inventory in a warehouse: Managing hundreds or even thousands of items in a warehouse can be daunting without a system to track them.
  2. Your vendors or retailers require barcodes: Even if you can manage without a barcode inventory system, the vendors or retailers you work with will require barcodes for the items they purchase from you.

To better understand how barcode systems work, let’s consider an example.

Say you’re an eCommerce clothing retailer. You have hundreds of SKUs and you want to track inventory wherever it goes, whether you’re shipping items across the country or simply moving them around your warehouse. The barcode inventory system reduces the likelihood of products getting lost since they get scanned every time they change locations.

Furthermore, this system enables you to do real-time inventory analysis of items in your warehouse. Instead of scrambling to find the latest inventory report, you can simply log into your computer and see every item you have in stock and where it’s placed.

What are the benefits of a barcode inventory system?

Here are four key advantages that a barcoding system can give your business:

  1. A barcode inventory system significantly reduces the chance of human error when tracking inventory items, which leads to smoother supply chain management.
  2. Real-time inventory data helps you stay ahead of the sales cycle to maximize your profits and keep up with the order management process.
  3. Barcodes are versatile—they can be used to track and organize all sorts of data, such as price and product information within seconds.
  4. Barcode systems make employee training faster and cheaper since they only have to familiarize themselves with the technology instead of the inventory itself.

What are the drawbacks of using a barcode inventory system?

Although barcode technology is advantageous and cost-effective, there are a couple of drawbacks that should be recognized before moving forward:

  1. While barcoding generally saves time in the long run, it requires a significant amount of time upfront to label your items.
  2. Employees must remember to scan inventory when it’s received, shipped, or moved. Otherwise, the system can cause more confusion than solutions.

How to start using a barcode inventory system for your business

If you’ve decided that a barcode system is right for your business, these five steps will help you successfully implement it:

1. Define your SKUs

If you don’t already have a database of your stock keeping units (SKUs) or universal product codes (UPCs), now is the time to create one in order to make organizing inventory easier. Each inventory item should include some or all of the following descriptors:

  • Item dimensions
  • Purchase price
  • The minimum amount you need in your inventory
  • A physical description of the item

2. Choose a barcoding inventory software system

Barcodes don’t work unless they have an inventory software system to sync up with. QuickBooks Enterprise comes with barcode scanning capabilities designed specifically to reduce errors and automate more of your business. Here are a few key features:

  • With the QuickBooks Desktop Mobile App, your team’s Android devices become mobile barcode scanners.
  • Send orders to workers on the floor, scan inventory, and transfer data wirelessly.
  • Print barcode labels with sales prices to give your customers and employees the pricing information they need.

3. Determine the types of barcodes you want to use

The type of barcode you choose depends on how much information you need to code into them. If you have a relatively small inventory and only need to track limited information, 1D barcodes will likely be sufficient.

On the other hand, if you have an expansive database of SKUs and need to track detailed information, 2D barcodes (like QR codes) are likely the better option.

4. Create your barcodes

You will use your inventory software system to create the barcodes that correspond with your inventory. QuickBooks Enterprise has a barcode generator that creates a unique code for each item.

5. Apply barcodes to your inventory

This is the simplest part of the process and also the most important. Print your labels with a barcode printer and place them on each item. Make sure the tag is visible so it can be scanned easily.

Final thoughts

As your business becomes more complex, so does keeping tabs on all of your inventory. That’s where a barcoding system gives you an advantage.

The barcode scanning feature in QuickBooks Enterprise automates manual tasks so you can reduce the risk of incorrect unit counts and other human errors—not to mention you save tons of valuable time. What’s more, real-time inventory insights from mobile barcode scanners enable you to make accurate, data-backed business decisions.

Whether you sell five or 50,000 products, you need the right tools to keep inventory organized, minimize the risk of error, and keep customers happy. A barcode inventory management system can help you accomplish all of this in a matter of seconds.

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