We explain inventory tracking systems and give examples of how they work. Learn how to choose the right inventory tracking method for your business and some of the critical features it should include.

In this article:

What Is Inventory Tracking?

Inventory tracking is the systems and methods a company uses to monitor how raw materials or finished goods move through the supply chain. Fundamental to generating revenue, the goal is to have the right amount of stock to meet customer demand.

To maintain trust in their tracking systems over time—whether manual or software-based—businesses rely on regular cycle counts (small, scheduled checks of a portion of inventory), periodic audits, and consistent record-keeping alongside ongoing tracking.

What Is Inventory?

On a balance sheet, inventory is a current asset representing materials or goods that convert to revenue with a sales transaction. There are several approaches to inventory management. Supply chain approaches that strive to keep inventory low, lean, or until demand drives supply see it as a liability.

Key Takeaways

  • Tracking inventory can help businesses balance stock levels, fulfill orders faster, and enhance supply chain operations.
  • Inventory tracking data lays the groundwork for inventory management strategies such as demand forecasting and stock allocation.
  • Tracking methods range from simple manual spreadsheets to advanced software platforms that integrate real-time inventory data with other business systems.
  • The right inventory tracking method depends on a business’s pain points and growth objectives— there’s no one-size-fits-all solution.

Why Is Inventory Tracking Important?

Inventory tracking gives companies detailed information on stock levels, movement, and availability across the supply chain. This transparency helps them develop strategies that reduce waste and inefficiencies without leaving customers waiting due to stockouts. Here are some key ways companies use inventory tracking to strike that balance:

  • It increases operational efficiency: Whether done manually or with automated tools, inventory tracking helps businesses keep accurate stock records and avoid time wasted searching for products or fixing errors. Even basic systems can reduce chaos to improve day-to-day operations.
  • It helps reduce waste and spoilage: Tracking expiration dates and inventory levels helps businesses catch aging or excess stock before it expires or becomes unsellable. Ongoing monitoring and regular audits can also uncover deeper issues, such as poor storage conditions or slow order fulfillment, that lead to spoilage or unnecessary waste.
  • It reduces the risk of shortages: By monitoring stock levels and setting clear reorder points, businesses can prevent stockouts that lead to lost sales and unhappy customers. While many advanced inventory systems can send real-time alerts or automatically generate purchase orders when inventory drops, even manual tracking can help maintain product availability.
  • It improves customer satisfaction: Accurate inventory tracking helps keep products in stock and ready to ship, reducing backorders, delays, and cancellations. It also allows customer service representatives to give reliable updates about product availability and delivery timelines.
  • It informs forecasting: Historical inventory data reveals sales patterns, seasonal trends, and product lifecycles that help improve demand planning. Businesses can then compare current stock levels against forecasts to identify misalignments and adjust future projections.
  • It helps identify issues quickly: Inventory tracking can reveal discrepancies that point to theft, loss, damage, or data entry errors. Regular cycle counts, reconciliations, and audits help spot when and where shrinkage occurs, so businesses can take corrective action before small losses become costly problems.

Is Inventory Tracking the Same as Inventory Management?

Inventory tracking is a core component of inventory management. It’s focused on monitoring the location, quantity, and status of goods in real time. Inventory management builds on that data to meet broader objectives, such as setting reorder points, forecasting demand, and coordinating with production, returns, and other business functions.

For example, if inventory tracking data shows 50 units of Product A in Warehouse B, managers can compare that to sales forecasts and upcoming production schedules. If it’s not enough to meet projected demand, the company could trigger a transfer from another warehouse, adjust reorder quantities, or update production schedules—all actions that fall under inventory management.

While accurate tracking data is essential to inventory management, tracking alone isn’t enough. Even the most sophisticated inventory tracking systems are only useful if the data is contextualized and used to achieve specific goals, such as reducing stockouts or speeding up order fulfillment. Recognizing the distinction between tracking inventory and actively managing how it’s used helps companies select tools that match their operational needs, from basic tracking systems to full-scale platforms with forecasting and ERP integration.

What Does Inventory Tracking Monitor?

Inventory tracking monitors important data points across the supply chain to help businesses understand what they have, where it is, and how it changes over time. This includes updates on stock quantity, location, movement, expiration dates, reorder points, and more.

  • Stock levels: The quantity of each item available for sale, production, or shipping across all locations. Tracking stock levels helps managers meet demand without overstocking, tying up capital, or risking stockouts. Stock level data also feeds into inventory valuation used in financial reporting.
  • Reorder points: Minimum inventory thresholds that signal it’s time to replenish inventory. Whether tracked manually or through automated software, reorder points help businesses avoid stockouts by prompting timely purchasing. These thresholds should be reviewed regularly to reflect changes in demand, supplier reliability, and lead times.
  • Stock locations: Precisely where items are—whether within warehouses, storage zones, across facilities, in transit, or on store shelves. Stock locations support faster retrieval, reduce errors, and make sure materials or products are available when and where they’re needed across the operation.
  • Stock expirations: The shelf life of time-sensitive inventory such as food, pharmaceuticals, and chemicals to prevent waste and comply with safety regulations. Expiration data helps businesses prioritize older stock, plan timely usage or promotions, and maintain traceability for audits or recalls.
  • Stock movement: How inventory flows through receiving, storage, production, and shipping. Monitoring movement creates a paper trail if goods are damaged or go missing. It can also support process improvements that can reduce lead times, such as reorganizing inefficient warehouse layouts.
  • Stock discrepancies: Variances between recorded inventory and actual counts, which can signal issues such as theft, damage, data entry errors, or supplier shortages. Early detection allows businesses to investigate root causes before missing inventory impacts operations or profitability.

What Is an Inventory Tracking System?

An inventory tracking system follows inventory every step of the way through your supply chain: from order to transit, receiving, storage, and order fulfilment—and the returns, exchange, and warranty processes if applicable.

Organizations use accurate, real-time inventory tracking data to reduce expenses, analyze supply chain trends, and drive revenue. These tracking features are often part of inventory management systems.

Inventory Tracking Examples

How you track inventory impacts your accounting, purchasing, sales forecasting, and customer relationship management, as well as the production side, such as quality control and order fulfillment.

How you track depends on the type of inventory and how it is moved and stored, such as these:

  • Inventory turnover: Turnover is a ratio that reflects how many times stock has cycled through your supply chain—from the receipt of raw materials to the moment the product is sold—in a given period. A higher turnover usually means more sales, and a low turnover usually shows too much inventory.
  • Tracking inventory from suppliers: Knowing when and where your stock will arrive helps you better manage distribution center and warehouse logistics, such as receiving and put-away tasks.
  • Customer returns: If not managed correctly, customer returns can create errors in stock availability. They can cause surplus inventory and create costly mistakes in stock replenishment.
  • Damaged goods: Damaged inventory is a devastating business expense. Keep up-to-date data on where losses occur to manage risk and fix recurring issues.

Inventory Tracking Methods

Inventory tracking methods vary depending on your industry, what kind of product your business sells, and how much you stock. Here are some supply chain management concepts, technologies, and tools to consider.

  • Manual tracking: Those who aren’t ready to invest in an inventory tracking system often track their inventory using pen and paper. With this method, you’ll need to update a master data sheet that categorizes all inventory either at regular intervals or whenever there is a transaction.
  • Card system: Kanban, also known as the visual sign or card method, is a just-in-time (JIT) system designed to limit excess stock. Rather than try to predict demand, Kanban is a pull system, where cards are used to track stock, production, and inventory and signal when more is needed. The system was developed by automakers in Japan, and the name Kanban comes from the Japanese word for sign.
  • Spreadsheets: Spreadsheets organize and categorize massive amounts of data. But manually entering and managing the data is prone to mistakes and is not efficient or scalable.
  • Accounting systems: Integrating accounting and inventory management systems gives you a powerful tool for inventory tracking. It not only shows detailed views of your inventory and stock, but how different inventory decisions affect your company’s finances.
  • Inventory management systems: Inventory management systems track stock and inventory, forecast demand, and generate reports. They also have customer support and training options. They’re most useful when integrated with accounting and payment processing.
  • Open source software: Some small businesses turn to open source software for inventory management. These platforms usually provide interfaces, basic dashboards, and some tracking features. But they often lack many of the advanced features, such as integrating with the rest of your systems, creating what’s known as a data silo. Another drawback is the lack of customer service and training.
  • Software-as-a-service (SaaS): A SaaS solution with inventory tracking features allows you to keep an eye on stock easily. This is particularly useful for startups that aren’t ready for a comprehensive enterprise inventory management solution.
  • Cloud-based software: Most SaaS solutions are cloud-based and mobile-friendly. They also integrate with other software. Businesses that need to scale inventory management for multiple users tracking stock across locations benefit from the flexibility and cost-savings that cloud solutions provide.
  • In-house solutions: Organizations with enough internal resources to plan, design, develop, and deploy their on-premises inventory management systems may decide to build custom inventory tracking applications. The advantage is a system tailored to match specific business needs with custom features and in-house tech support to help troubleshoot system issues.
  • Third-party providers: Outsourcing inventory management and logistics to a third-party logistics (3PLs) provider frees up space, time, and resources for retailers and ecommerce businesses that are 100% online. These 3PL companies receive, store, move, and track inventory for their customers. With this strategy, you avoid the expense of physical warehouses and use drop shipping to manage inventory but add the potential problems of added costs, loss of control, systems that aren’t synced, and communication issues.

Manual vs. Automated Tracking Methods

Manual inventory tracking methods like spreadsheets and paper ledgers have low upfront costs but can become inefficient as businesses grow. Staff must physically count goods, making the process slow, labor-intensive, and error-prone. Even with digital tools, such as spreadsheets that include automated calculations and data validation, manual entry errors can accumulate over time, leading to discrepancies between recorded and actual inventory—especially when stock is spread across multiple locations or SKUs.

Automated tracking systems rely on barcodes, RFID, and cloud-based software to capture inventory data in real time with minimal human input. These tools automatically update centralized databases at key points, such as receiving, storage, and shipping, to facilitate faster, more accurate inventory control. While they typically require a higher upfront investment, automated systems often lower long-term labor costs and reduce errors. They also support regular cycle counts through built-in tools that schedule and guide counts without disrupting operations. Many also integrate with ERP platforms and include features like automated reordering, inventory analytics, and scalable workflows that adapt as operations grow.

How to Choose the Right Inventory Tracking Method for Your Business

Selecting the right inventory tracking method means selecting the approach—manual or automated, simple or soft-ware driven—that fits your business’s complexity, growth stage, goals, inventory challenges, and budgetary restrictions. This can range from basic spreadsheets and visual counts to barcode systems, RFID technology, or fully integrated platforms.

  • Assess your business complexity: Consider factors such as inventory volume, SKU count, number of locations, and projected growth. Simpler tracking methods, like spreadsheets and manual logs, may work for smaller businesses, but high product variety, multiple sites, or rapid scaling often call for automated systems that can handle greater complexity and reduce manual effort.
  • Identify specific pain points: Look at where your current tracking approach falls short. Frequent stockouts? Slow fulfillment? Inventory bloat? Unreliable reporting? Choose a method that directly addresses the most pressing challenges. For instance, businesses struggling with stockouts may benefit from systems that support automated replenishment, while those facing overstock issues might prioritize tools with demand forecasting capabilities.
  • Align with strategic objectives: Your inventory tracking method should support broader objectives, such as improving delivery reliability, expanding into new markets, or boosting operational efficiency. For example, if customer experience is a priority, choose a method that allows real-time, centralized inventory visibility so customers and teams always have access to accurate stock information.
  • Evaluate integration capabilities and user experience: Choose a tracking method that works with your existing accounting, POS, or order management systems to avoid manual and duplicate data entry. Just as importantly, the method should align with your current workflows to help teams adopt the new approach with minimal resistance.
  • Calculate total cost of ownership: Look beyond the initial purchase price. Consider implementation, training, maintenance, downtime, and integration expenses. Some inventory tracking methods also require added investments in tools such as barcode scanners, RFID readers, or automated equipment.
  • Consider scalability needs: While manual methods like spreadsheets may work for small teams or low-volume operations, they lose efficiency as product lines, users, or locations increase. Choose a tracking method that can grow with your business and keep operations running smoothly, even as complexity increases.

Inventory Tracking Benefits

Implementing inventory tracking technology provides accurate, actionable data that directly impacts your bottom line and customer relationships. Here are some examples of the benefits:

  • Cost-efficiency: Inventory tracking software’s automated replenishment feature helps avoid overstock while making sure you’re able to fulfill customer orders. Relying on data and demand-based replenishment—which takes into account historical sales, seasonality, and promotions—drives inventory decisions that help you manage space and lower your costs.
  • Space savings: You can accurately predict inventory demand at specific points in the supply chain with demand forecasting and planning tools in inventory tracking software, ordering inventory in time for production but not too early. This insight into inventory cycles translates to optimized warehouse space.
  • Enhanced clarity: Reports on tracking data remove error-prone guesswork in your supply chain. They offer a clear picture of important measures like stock on hand, order fulfillment rates, and inventory turnover.
  • Customer satisfaction: Faster delivery improves customer satisfaction and helps drive more sales revenue. Inventory tracking solutions provide real-time inventory status to customers, and some systems can send automated tracking updates directly to customers.
  • Supplier satisfaction: Companies and suppliers can share tracking data specific to their industry and use it to spot trends quickly. Depending on the setup, the two organizations can even integrate systems for more transparency and insights.

Inventory Tracking Challenges

Implementing inventory tracking systems and methods comes with challenges that often occur when expanding your business.

  • Scaling up: The labor and effort involved in manual inventory tracking is a drain on time. Scaling manual tracking processes to match inventory growth or customer demand is the wrong approach. Consider upgrading to tracking software, or a complete inventory management platform, that provides automated features for reordering and procurement.
  • Multi-location logistics: Companies with multiple warehouse locations and global supply chains need a system that provides continuous, real-time tracking of materials and goods shipped, received, and stored. Gathering and sharing this data can be challenging across solutions that can’t communicate.
  • Disparate systems: Performing inventory tracking with one system and using another for accounting or demand planning is time-consuming, redundant, and vulnerable to errors. Modern inventory management software integrates all systems for more efficient ordering and better financial management.

How to Make Inventory Tracking More Accurate

Inventory is a substantial expense for most businesses, regardless of size. Understanding how it moves and delivering it promptly to the correct destination is crucial. Here are some steps to make your inventory tracking more efficient:

  1. Ditch the Spreadsheet

    Manually tracking inventory with spreadsheets is time-consuming, prone to error, and hard to scale. Upgrade to a tracking system that minimizes manual tasks and automatically updates data in centralized databases.

  2. Perform Regular Cycle Counts

    Cycle counting helps identify and rectify any inventory record discrepancies. As with any process, it is helpful to understand your performance, if it is improving, and how you perform compared to industry benchmarks. You can perform cycle counting by scheduling high frequency, regular counts of sections or bays as part of everyday operations. Use inventory cycle counting methods to do counts daily and assign specific workers for particular areas.

  3. Track More than Movement

    Keep an eye on staffing decisions, seasonal demand, and purchasing schedules. Search for savings in every step as stock moves from supplier to warehouse to customer.

  4. Implement Best Practices

    Study the supply chain for opportunities to improve the movement of stock through your organization. See what others are doing in your industry and follow inventory management formulas. And ask frontline employees where they see inefficiencies in tracking. Use this information to create best practices and document your inventory tracking methods for ongoing reference.

  5. Automate Manual Tasks

    Inventory management systems and standalone software applications have automated features for data tracking and replenishing stock.

  6. Digital Data

    Use barcode scanning and mobile devices to minimize human error and problems like duplicated data. Using barcodes or advanced radio frequency identification tags (RFID) improves your financial accounting, keeps your reports up-to-date, and allows you to implement best practices like cycle counting.

  7. Audit Internal Systems

    Conducting frequent inventory audits help you spot and track inefficiencies. They also detect more significant issues such as theft, damaged goods, and spoilage.

  8. Enable Lifecycle Management

    Food, beverage, and other highly perishable inventory requires a system that identifies when to cycle products and dispose of raw goods. Use lifecycle management features to flag old inventory and trigger alerts when there are supply chain delays.

  9. Customize Reports

    Many inventory management systems feature accurate, real-time tracking reports and forecasting tools that are customizable. Input data from purchase orders and invoices frequently to keep the system up to date with actionable information. For example, you can run reports to help determine low stock levels by location to manage seasonal or regional demand fluctuations.

Tracking Inventory Through the Supply Chain

Tracking inventory at every stage in the supply chain helps you find ways to save money. For example, you can compare transportation and storage costs across different carriers and regions to find the most cost-efficient solutions. Tracking inventory is an important step to meeting key performance indicators (KPIs) for your inventory management.

Modern inventory management systems track the number of units ordered from suppliers and estimate arrival time using GPS integrations. A central database receives automatic updates when the warehouse receives the order. And accurate stock levels are instantly available for all users in multiple locations.

Get Real-Time Inventory Tracking With NetSuite

As businesses expand their inventory, staff often face increasing responsibilities, such as allocating stock across multiple locations and fulfilling orders through an increasing number of sales channels. NetSuite Inventory Management is a scalable solution that helps reduce these operational pressures through real-time inventory tracking across warehouses, retail stores, drop shippers, and third-party logistics partners.

The system’s automated tracking capabilities monitor inventory at every stage of the supply chain—from initial purchase order to final delivery—using tools like lot tracking, serialization, cycle counting, and bin management. Built-in analytics help inventory teams maintain the right stock levels to fulfill customer orders while minimizing excess inventory and carrying costs. And because NetSuite integrates inventory data with accounting, order management, CRM, and other tools, companies can seamlessly align inventory tracking methods with broader objectives.

Whether through basic spreadsheets or advanced automated systems, inventory tracking provides businesses with the transparency they need to prevent stockouts, reduce excess inventory, and improve customer satisfaction. As operations grow more complex, tracking methods must too evolve, from manual recordkeeping to real-time systems that monitor inventory across locations, channels, and supply chain stages. With the right approach and tools in place, inventory tracking becomes a foundation for assessing efficiency, increasing profitability, and improving order fulfillment.

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Inventory Tracking FAQs

Who uses inventory tracking?

Inventory tracking is vital to businesses of all types and sizes. It plays an important role in the relationship between customer satisfaction and inventory supply and demand.

In larger companies, there may be a role specifically for this, such as an inventory manager. But whatever the title, inventory is tracked by whichever employee is responsible for overseeing inventory management and providing accurate data on which products are available so business leaders can make informed decisions on supply chain management and sales.

What is an inventory tracking list?

Inventory tracking lists are a form of inventory control that organizes stock by category, description, quantity, and location. These lists are updated and stored with manual documentation or digitally using inventory tracking software.

How can I keep track of my inventory for free?

Small businesses with minimal inventory and few employees can use manual inventory tracking with spreadsheets to save on software costs. Also, there is free open source inventory tracking software available online. But these systems are prone to human error, missing features that can save your business money, not scalable, keep your data in silos, and lack customer service and customization features.

How do I track my warehouse inventory?

Implement an inventory management system and warehouse management software with tracking features. These solutions help manage multiple warehouse locations, track orders, schedule delivery, and manage storage space.

How can NetSuite improve your inventory tracking?

Inventory tracking is an essential part of inventory management. Decision-makers know they need a tool that’s flexible, scalable, and integrates easily with existing solutions.

NetSuite inventory management system offers native tools and features to help track how your inventory moves. Track inventory across multiple locations, automatically manage reorder points, forecast demand, and plan distribution.