Before a company stocks the first batch of products for sale, it should consider planning its inventory tracking system.
Inventory tracking monitors the exact location and quantity of a company’s products at every stage of operations.
As customers place orders and stocks are replenished, inventory is constantly moving along a company’s supply chain. By implementing an efficient way to track inventory, companies can prevent issues like overstocking or understocking products and save on total costs.
What is an inventory tracking system?
An inventory tracking system monitors a company’s products in real-time across its entire operations. From on-hand stock to purchase orders in transit, tracking shows the exact quantity, location, and status of all inventory.
The types of inventory are different for every company, and can refer to raw materials, work in process inventory, or finished products ready for sale.
While startups and small businesses without much inventory can start with Excel spreadsheets, the majority of companies see more benefits using automated inventory management software or tracking tools.
The benefits of inventory tracking
Accurate inventory tracking benefits many areas of business beyond just stock management.
Information about on-hand inventory can directly affect purchasing, product pricing, and the end customer experience. Here are the main benefits of having accurate inventory tracking:
Efficient inventory and warehouse management
The main purpose of inventory tracking is to be able to easily access the real-time location and quantity of every product in your company. Armed with this information, products can be better organized to improve warehousing and workflow efficiency.
For example, best-selling products can be placed closer to the packing area to increase fulfillment speeds. A tracking system can also send notifications to the team’s mobile devices about delivery schedules so the warehouse can prepare enough receiving space.
Improved employee productivity
With an automated inventory system, employees no longer have to worry about misplaced products or doing manual inventory counts while juggling ongoing customer sales orders.
Not only does this reduce the likelihood of human error, but it also saves time and streamlines the workload. Employees are able to take a more organized and strategic approach, and have time to focus on more important tasks.
Better inventory demand forecasting
A good inventory system provides a rich source of historical sales data and seasonal trends. Looking at stock levels, inventory turnover, point of sale (POS) data, and other patterns leads to more accurate demand forecasts.
With these numbers, companies can avoid tying up too much cash flow with stocks they can’t sell, while also maintaining enough inventory to meet customer demand.
Avoid stockouts and overselling
A study from Harvard Business Review found that 21–43% of customers faced with a product stockout in one store won’t settle for an on-premise substitute. Instead, they’ll go to another store to find the product they want, resulting in an average sales loss of 4% for companies that fail to meet demand.
When selling on e-commerce platforms, where inventory levels may not be immediately updated, it can also be easy to oversell products that are no longer in stock.
These instances of product shortage and overselling can easily be avoided with accurate tracking, which syncs real-time inventory levels with all teams and notifies the purchasing team when it’s time to reorder.
Reduced operating costs
Tracking inventory items at every step helps companies discover ways to reduce costs in specific areas. One source of savings, for example, is by decreasing unnecessary spend on overstock, or products a business can’t sell at the projected pricing. Referring to past sales and making better purchasing decisions can save on storage, maintenance, insurance, and overall operating costs.
Another major area where tracking can help reduce costs is warehouse operations. The instant access to inventory data saves time spent locating products and speeds up customer sales fulfillment.
Increased customer satisfaction
Ultimately, the operational efficiencies brought by inventory tracking result in faster order fulfillment and happier customers.
Warehouse teams know exactly where a product is located, as well as when a specific SKU is running low and needs to be restocked so a company never loses out on sales.
Inventory management software can also be set to send real-time order updates to customers. This extra level of service reassures customers and reinforces the trust they have in your company to deliver.
Common inventory tracking challenges
While every company should track their inventory, there are some difficulties to be aware of during the process. The following are the most common inventory tracking challenges companies face:
Coordinating between various storage locations
A common challenge of complex businesses is tracking many inventory items through global supply chains before it reaches the end customer.
Every time a product is transferred, it requires a new cycle count in the inventory tracking system—not just for the location, but other updates in product status, such as any loss, theft, or breakage.
The more steps in a company’s supply chain management, the more times data needs to be updated and the more complex an inventory control system becomes as a result.
Selling inventory across multiple channels
Any business that sells through multiple channels (also referred to as multi-channel inventory) will experience periodic fluxes in inventory.
In fact, any significant scaling, such as introducing a new product line or promoting across ecommerce channels, elicits a change in inventory management.
To ensure all sales channels have enough products available to sell, a tracking system will sync inventory data across all sources and send instant notifications when it’s time to order more stock from providers.
Handling product returns
Product returns are part of doing business. Unfortunately, they can have a burden on warehouse storage, accounting and invoicing, and inventory tracking systems.
Returns require additional space and staffing to accommodate the unexpected stock. If a large quantity of inventory is returned, it may even hinder new stock shipments.
Companies have to enter the returned products back into the inventory, and notify any sales channels about the updated stock levels. If any replacements or refunds need to be sent to customers, these should also be logged into the inventory management system.
More efficient inventory tracking with QuickBooks
The most effective inventory tracking systems work across all functions of business, bringing together the necessary data to make management and analysis easier.
QuickBooks Enterprise provides functionality to monitor inventory visibility at every location, as well as audit stock levels in real-time without stopping warehouse operations. Your team can instantly update and access critical information, such as shipment dates and the value of customer orders, using convenient RFID or barcode scanners or mobile apps.
Providing a flexible and scalable platform with integrations for every step of your fulfillment operations, QuickBooks Enteprise automates inventory and order management from the warehouse to your customer.
Final thoughts
For manufacturers, wholesalers, and retailers, inventory is a main source of revenue and tracking each step of the supply chain is critical to success. Multiple factors, such as warehouse locations, available storage space, and reorder points are all part of an inventory tracking system.
While the process can be challenging, having the right tools in place streamlines and automates many of the routine steps. Inventory tracking software provides real-time tracking and comprehensive inventory reports so companies can make more informed decisions that directly affect their long-term profitability.
