Inventory tracking refers to the continuous process of monitoring and managing all of a business’s inventory. Inventory typically includes raw materials, unfinished goods, and finished products ready for sale. Through inventory tracking, businesses gain access to crucial data such as current stock levels, item locations, real-time delivery updates, and more. This process is crucial across various industries, including manufacturing, warehousing, and retail, to ensure smooth operations and avoid errors.
What Is Being Tracked?
Inventory tracking systems can monitor a variety of key information, such as:
1. Updated Stock Levels
Tracking updated stock levels helps businesses keep an accurate count of how much inventory they have on hand. This data ensures that businesses have enough stock to meet demand, whether they are manufacturing products or fulfilling customer orders. Accurate stock levels are also the foundation for tracking other important inventory metrics.
2. Stock Locations
Inventory doesn’t stay in one place for long. Items move through the supply chain, from sorting to storage and eventually to shipment. Monitoring the location of each item is vital to ensure fast retrieval and proper management. If your stock stays in one place too long, it could signal that the items are not selling as expected, adding unnecessary carrying costs.
3. Inventory Accuracy
Inventory accuracy is a critical KPI (Key Performance Indicator) that measures the relationship between tracked inventory levels and the actual physical inventory present. Ideally, these numbers should match. However, discrepancies may occur due to theft, damage, miscalculations, or supplier shortages. Monitoring inventory accuracy helps identify and address these issues, ensuring smooth business operations.
4. Carrying Costs
Carrying costs refer to the total expenses related to holding and storing inventory, including rent, labor, storage fees, utilities, and security. These costs can indicate how long a business can afford to store certain inventory before it becomes unprofitable. Slow-moving or dead stock often contributes to higher carrying costs, making it essential to remove or sell such inventory to reduce unnecessary expenses.
5. Inventory Valuation
Inventory valuation involves determining the financial value of unsold inventory. This process is crucial for businesses preparing financial statements and understanding the worth of their remaining stock. It also plays a key role in calculating inventory turnover.
6. Inventory Turnover
Inventory turnover refers to the rate at which a business sells its inventory. A high turnover rate indicates strong sales, while a low rate suggests weaker performance. Understanding inventory turnover helps businesses assess sales performance and make necessary adjustments to their sales strategy.
7. Reorder Levels
Reorder levels are the specific stock quantities at which businesses should replenish inventory to avoid stockouts. By setting appropriate reorder levels, businesses can ensure that they never run out of critical items, preventing lost sales opportunities.
Why Do You Need Inventory Tracking?
1. Better Stock Visibility
Inventory tracking provides a clear view of your stock at every stage of its lifecycle. From the moment it enters your warehouse to the moment it is shipped, you can access detailed information about each product’s location, stock levels, and associated purchase or sales orders.
2. Avoiding Stockouts
Accurate inventory tracking allows you to know exactly what you have in stock and what needs replenishing. This helps prevent stockouts, ensuring you can fulfill orders without delays. According to a Peoplevox survey, 34% of businesses experienced late deliveries due to not realizing their stock was depleted at the time of order placement.
3. Better Inventory Forecasting
Tracking inventory over time allows businesses to predict future demand and make informed purchasing decisions. This reduces the risk of over- or under-stocking, which can lead to costly inefficiencies. A McKinsey report found that businesses could lower inventory costs by 10% simply by improving stock forecasting.
4. Multiple Location Tracking
For businesses with multiple warehouses or storage locations, tracking inventory across all locations can become increasingly complex. A comprehensive inventory tracking system that consolidates data from all locations can simplify management, helping businesses reduce errors, streamline operations, and improve coordination between sites.