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.

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.

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, 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 reoccurring 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 Solution:
    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.

How to Choose the Right Inventory Tracking Method for Your Business

Choosing the right inventory tracking method comes down to various factors, including the scale of your warehouse operations, user licenses, budget and features. Consider how a tracking method aligns with your strategic business goals like production planning or sales forecasting.

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, ensuring inventory arrives 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 re-ordering 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 Efficient

Inventory is a substantial expense for most businesses, regardless of size. Understanding how it moves and ensuring it arrives promptly at 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.

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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 NetSuite Can 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 re-order points, forecast demand and plan distribution. Learn more about NetSuite’s inventory tracking and warehouse management systems.