What is inventory tracking?
Inventory tracking is the process of overseeing and tracking a company’s stock. This includes monitoring inventory parts, locations, and quantities. Inventory tracking is necessary when trying to utilize company budgets effectively and meet customer demands efficiently.
Inventory tracking’s role in the supply chain management process lies in maintaining accuracy at every stage of the supply chain. Inventory tracking and management is regarded as one of the first steps in the supply chain. It lays the groundwork to guarantee available resources that will eventually be finished products in consumers’ hands at the end of the supply chain.
As items move through the inventory process, the necessity for careful monitoring increases. Implementing a successful tracking system can give companies the tools they need to optimize their inventory strategies and entire company structure.
Inventory tracking is just one aspect of inventory management. Keeping track of inventory counts and ensuring complete precision can be extremely time-consuming and tedious. This is why some companies utilize inventory management software to automate this process. Inventory management software allows a company to monitor sales, purchases, deliveries, and even reveal errors in the tracking process, all in one interface.
Types of inventory to track
Before finding a suitable inventory tracking method, a company must identify what items they plan to track. Inventory categories may differ based on company needs and product portfolio, but most companies can categorize their inventory materials into four different types.
- Raw materials: Materials used for the production of company assets. This includes direct materials used to make products and indirect materials that are not physically part of a product but are needed in the production process.
- Project supplies: Items being used in the process of ongoing company projects. This includes labor, construction equipment, and packing and shipping materials.
- Completed items: Goods that have gone through production and manufacturing and are considered fulfilled.
- Repair supplies: Materials kept in inventory to be used in necessary repairs or regular production maintenance.
Benefits of inventory tracking
A successful inventory tracking plan should help companies manage their inventory effortlessly. The benefits of inventory tracking describe what it can do to help a company run more efficiently, both in and out of the inventory management process.
- Enhance accuracy. Putting extra care on tracking inventory creates fewer opportunities for discrepancies in inventory counts. Making a list and checking it twice will only allow for a more precise inventory management process altogether.
- Improve productivity. Inventory tracking creates an environment where all inventory statistics and data are reliable and up-to-date. When information is reliable, companies can move with agility and ease. Inaccurate inventory creates setbacks, and more time is spent righting wrongs than remaining on task.
- Increased customer loyalty. As inventory tracking allows efficiency to occur, the company’s product will move smoothly through the inventory process. When order fulfillment speeds increase due to that efficiency, the customer receives their product faster than anticipated. This customer satisfaction creates customer loyalty in the future.
- Reduce excess costs. When inventory is not adequately kept up, there are higher risks of shortages and surpluses. A company may choose to purchase or avoid purchasing items if they assume they already have a certain amount in stock. An inaccurate inventory count can mean extra costs or fewer resources available.
- Allocate costs effectively. As costs are reduced, companies will be able to allocate inventory budget more constructively. Inventory tracking opens more space for spending money on inventory necessities. The needs are also made clearer with inventory tracking, as up-to-date information makes inventory needs more apparent.
- Prevent losses. As the inventory tracking system improves, a company is less likely to lose or misplace items. As a result, the time and money that may have been spent looking for or replacing these items is no longer wasted.
- Gain supply chain visibility. By uncovering issues within the inventory tracking process, a company can realize which systems of the entire supply chain need redevelopment. Getting feedback from supply chain teams like vendors and stakeholders can also reveal opportunities for overall improvement.
Inventory tracking techniques
If a company has inventory, it can implement an inventory tracking process. Keeping a close record of company stock is not limited to the size of a business or the budget allocated to inventory. There are various ways that a company can choose to track its inventory based on goals and needs.
- Manual tracking is the most basic of inventory methods, usually done with a simple pen and paper. Manual tracking, when done daily, can help a company gain more visibility into obvious issues or necessary purchases. This method is most popular among small businesses.
- Spreadsheets might be the right fit if a company finds manual tracking favorable but wants a more organized method. On a spreadsheet, inventory information can be updated and calculated without room for mathematical errors or miscommunication.
- A card system can be used to keep everyone aware of upcoming inventory needs. The “kanban” card in the card system helps the inventory team notify the company buyers of low stock. When employees notice an item needs to be repurchased or replenished, the card is filled out with information including item description, quantity, purchase date, location, part number, and expected date for repurchase.
- A barcode system gives companies the ability to customize barcodes based on their inventory organization standards. The barcodes are placed on each item and can be synced to a software system or app that updates the item’s whereabouts in real time. The barcodes can then be scanned as they move through the inventory process and populated in a barcode software system to ensure that they are accounted for at every step.
- A radio-frequency identification (RFID) system can be used to give companies a relatively hands-off approach to keeping inventory counts. RFID tags are placed on every item in inventory and emit a radio signal that carries all the essential information about the part. This information can be sent to a software system or app that keeps track of the item’s every move using those radio frequencies.
- Cloud-based software is ideal for companies that may need to access inventory information from anywhere in the world. The inventory counts can be updated constantly, with all information being synced to any device that uses the software. Some cloud-based software even offers the ability to utilize demand planning software capabilities, which will only help increase inventory management efficiency.
Inventory tracking best practices
Even after choosing the ideal tracking technique, there are still things that can be done to ensure inventory count accuracy at every step. Here are a few key tips to keep in mind when tracking inventory:
- Prioritize labeling. When receiving any item that plans to join the company inventory, labeling that item as soon as possible should be of the highest priority. Depending on the method of inventory tracking, like barcoding or RFID tagging, the labeling may look different. Organizing the items according to the company system will make for a much smoother process as they are allocated into their inventory space.
- Utilize demand forecasting. Customer demand planning can help a company predict just how much inventory may be needed at a given time. In addition, keeping historical demand data along the way is essential for preparing inventory purchases. Using historical data helps to notice market trends and what the ideal plan may be for responding to changing conditions when it comes to future inventory.
- Keep backup stock. While demand planning is extremely useful, it is not guaranteed. Therefore, companies should consider keeping backup inventory that can help in a sudden demand influx. This stock should be nonperishable materials that can be stowed away for a rainy day.
- Take inventory in transit. A lot of companies prioritize keeping count of stock as it sits in the primary inventory location. As things move through the inventory process, the chances of losing an accurate count increase. Companies should assure that inventory is being counted at every step, especially when in transit.
- Conduct regular checks. Even after choosing a suitable tracking technique, a company should create a system for consistent inventory counting. This includes quality control to ensure all available inventory is usable. Keeping inventory information as up-to-date as possible will allow for a much smoother management process at every step.
- Automate the tracking system. With the continuing advances in artificial intelligence, inventory tracking software is becoming more reliable. Consider utilizing this software to streamline the counting process and make inventory management more efficient as a whole.
Inventory tracking vs. asset tracking
Inventory tracking and asset tracking are frequently confused because of their similar application in organizing company resources; however, the most significant difference between the two lies in what is being tracked and why.
Inventory tracking is the organization of items that a company actively uses or will use in product production. These items are being monitored constantly and will require replenishing as products are produced.
Asset tracking is the organization of valuable items. Physical items can include company furniture, vehicles, and computers. Other assets that can be tracked include software licenses, patents, and contracts. These items are usually consistently available and require little replenishing.
Unlike inventory tracking, companies typically don’t entertain too many options regarding how they track their assets. These days, companies prefer to track their assets digitally using asset IDs and a virtual tracking system or asset tracking software. Assets require extensive information because of their role in company finances. Assets need to be tracked efficiently to ensure the company is not paying excess taxes, and insurance claims can be made as soon as an item is identified as lost or stolen.
Asset tracking and inventory tracking are similar in many ways. One of those ways includes how they are organized. Both asset tracking and inventory tracking can be organized using methods such as barcoding and RFID tagging. Both can utilize tracking software to automate the counting and categorization process. Asset tracking and inventory tracking are also used to avoid shortages and surpluses, allocate budgets effectively, and save valuable time.
Asset tracking and inventory tracking are both needed to ensure that a company is aware of all company resources and that product production runs efficiently with all the necessary items to fulfill goals.
Alexandra Vazquez
Alexandra Vazquez is a Senior Content Marketing Specialist at G2. She received her Business Administration degree from Florida International University and is a published playwright. Alexandra's expertise lies in writing for the Supply Chain and Commerce personas, with articles focusing on topics such as demand planning, inventory management, consumer behavior, and business forecasting. In her spare time, she enjoys collecting board games, playing karaoke, and watching trashy reality TV.
