What is warehouse inventory tracking and how can your business best use it?
Midsize business

What is warehouse inventory tracking and how can your business best use it?

Warehouse inventory tracking is the process of determining what items you have in stock, how many, and where they’re located in your order fulfillment process. As businesses juggle more SKUs, expand their warehouses, and tighten turnaround times, monitoring inventory levels in real-time isn’t a luxury—it’s essential.

The key to inventory management is getting the insights you need without bogging your team down with tedious tasks like counting and number crunching. As you’ll see in this article, you can strike that balance with the right tools and proper planning. But first, let’s cover the basics.

What is warehouse inventory tracking?

Warehouse inventory tracking refers to any system, software, or program that tracks SKU levels within a warehouse. This gives warehouse companies clear insights into how much volume they can ship at any given time, where it’s stored, and where it’s heading next.

Warehouse inventory tracking is used most commonly among product-oriented businesses such as retailers, wholesalers, and manufacturers. Tracking can be done with free tools, software, or ERP systems. Regardless, investing in warehouse inventory control is crucial for sellers of all sizes.

Warehouse inventory tracking in action

Let’s consider two hypothetical companies to demonstrate the value inventory tracking:

Company A manufactures bicycles and knows they have 750 mountain bikes in their Texas warehouse and 400 commuter bikes in their California warehouse. Based on their lead times, they can pinpoint how many SKUs of each bike they need to place a purchase order, so they don’t stockout or carry any excess inventory.

Company B thinks they still have a few dozen mountain bikes between their two warehouses, but they haven’t done an inventory count since last week and decide they’ll reorder when they have adequate cash flow.

You can guess which company will meet their customers needs and operate more efficiently,

What does inventory tracking software do? Three key benefits

Inventory tracking software puts the tools you need to automate inventory management at your fingertips. Rather than relying on clunky spreadsheets, a software solution delivers real-time insights so you can spend less time crunching numbers and more time growing your business.

Here are three competitive advantages to be gained from QuickBooks Enterprise inventory management software:

1. Automated forecasting

Determine how much inventory is on hand, on a sales order, on a purchase order, and your reorder point—all in just a few clicks.

2. Real-time inventory updates with cycle count

Cycle counting enables you to check inventory levels without counting every item in the warehouse. Simply scan and upload inventory counts from multiple warehouses to a central dashboard to find or adjust discrepancies.

3. Custom reports

Every company’s inventory is unique—their reports should be too. QuickBooks Enterprise lets you track inventory the way you want with industry-specific reports that you can tailor to your unique needs.

Inventory tracking vs. warehouse management systems: what’s the difference?

While inventory tracking is dedicated specifically to analyzing the products you have on hand, warehouse management is the overarching system that monitors, optimizes, and scales day-to-day processes. In other words, inventory tracking is just one facet of warehouse management.

In addition to inventory tracking, warehouse management systems (WMS) can include functionality such as barcode scanning, radio-frequency identification (RFID), and automated invoicing.

Three inventory tracking systems

How you track inventory depends on the size, scale, and nature of your business. Let’s take a look at three common systems.

1. Spreadsheets

If you only carry a few SKUs and aren’t dealing with huge sales volumes, spreadsheets like Excel can be a cost-efficient way to track inventory. That said, it can quickly eat up time, not to mention the risk of human error. If you feel you’re outgrowing spreadsheets, it’s best to act sooner rather than later.

2. Barcodes

With a barcode system, each item has a label that links to information such as description, location, and price. These labels are scanned with barcode scanners to quickly track items as they move in and out of the warehouse and automatically update inventory levels.

Barcode data can be transferred to a computer for analysis, but it works best when synced with a comprehensive inventory management system.

3. Inventory management software

Software lets you skip the spreadsheets and put inventory management on autopilot. Whether you sell five or 50,000 products, you can track items down to the specific bin or pallet, so you make decisions backed by data, not guesswork.

Three challenges of inventory tracking

Inventory management can be challenging, as 43% of retailers ranked inventory management as their biggest challenge. Let’s examine three common issues you might run into.

1. More inventory, more complexity

Growth is exciting, but it can also complicate warehouse operations. If you carry a lot of SKUs, tracking inventory can get tricky, especially if your warehouse isn’t optimized for efficiency. Expanding into more distribution centers can also complicate your supply chain management, as you’ll have to track inventory across multiple locations.

Bottom line: the more inventory you have, the more organized you have to be.

2. Inventory fluctuates by the minute

Tracking inventory would be a breeze if all your products sat still in a single location, but products are in a constant state of flux: from vendors to warehouses to customers, not to mention returns and exchanges. In some cases, an item might only be in your warehouse for a few hours. Without real-time insights, it’s nearly impossible to know where items are at any given time.

3. Tracking inventory takes time

Time is your most precious asset. Hours spent monitoring stock levels are hours that could be devoted to customer engagement, your pricing strategy, or other work that directly grows your business.

We’ve pointed out the problems, now let’s explore some techniques to solve them.

Inventory management strategies

Choosing the right inventory management strategy can make or break your business. This depends on the size, scale, and nature of what you sell. Keep in mind that you may need a mix of techniques to achieve optimal results.

First in, first out (FIFO)

As the name implies, FIFO means the first items to come into the warehouse are the first items you sell, use, or dispose of. If you carry inventory that has a risk of spoiling or becoming obsolete, FIFO is crucial for prioritization.

Just in Time (JIT)

JIT is an inventory replenishment technique where materials are purchased and received only when they’re required for production—hence “just in time.” If you’re trying to run lean and streamline your order management process, JIT could be the way to go.

Backordering

Backordering is the process of selling inventory, even if you don’t have it in stock. This can help you keep cash flow steady during unexpected demand surges. However, if you’re consistently selling more inventory than you can ship, that could be a sign you’re not carrying enough safety stock.

Cross-docking

Cross-docking is the practice of transferring goods from an incoming supplier to an outgoing delivery vehicle without putting them away in storage. This usually requires a staging area at your warehouse where inbound items are sorted and transferred. If your backlog is growing, cross-docking can improve your order fulfillment time, cut down on last-mile carrier costs, and get customers their orders faster.

Best practices to improve your warehouse inventory management system

Regardless of how you track and manage your inventory, sticking to these principles will keep your warehouse running smoothly.

1. Designate a warehouse manager

Your inventory management strategy is only as good as the people who oversee it, and that starts with a warehouse manager. This position is dedicated to leading employees, resolving problems, and engaging with inventory management software.

2. Optimize your warehouse layout

The physical layout of your warehouse is a key factor for efficient operations. Keeping inventory items in the right place enables pickers to assemble orders quickly and get them out the door faster. One way to improve the organization of your warehouse is with slotting, which is the process of grouping inventory according to size, order velocity, and other factors.

3. Establish a workflow

Standardizing your warehouse operations reduces the likelihood of misplacing items and ensures your whole team is on the same page. Your workflow should address key points such as:

  • How do we receive new inventory?
  • Where do we place new inventory after it’s received?
  • How is inventory tracked when it arrives, when it’s moved and when it leaves?
  • How often do we audit our inventory?

Leveraging inventory management software will ease the burden on your employees so they can put tedious tasks on autopilot and focus on high-level strategy.

Final thoughts

In a world where supply chain efficiency can make or break a business, tracking inventory can’t be left to guesswork. Whether you have one warehouse or your stock is spread across multiple locations, it can be stressful to figure out where everything is and what it’s worth. That’s why QuickBooks Enterprise bundles your accounting, inventory, and order fulfillment in one platform. You stay organized, and your customers stay happy. It’s a win-win.


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