how to keep track of inventory

How to Track Inventory Accurately and Efficiently

by infomax

Inventory is one of the most critical assets for any business that sells products. Whether you operate a small boutique, an online store, or a large warehouse, keeping track of inventory ensures you have the right products at the right time. Proper inventory tracking helps prevent stockouts, reduces excess inventory, saves money, and improves customer satisfaction.

This article provides a detailed guide on how to keep track of inventory effectively, including strategies, tools, and practical tips for businesses of all sizes.

What Inventory Tracking Means

Inventory tracking is the process of monitoring products as they move through your business—from supplier to warehouse to customer. It involves knowing exactly how much stock you have, where it is located, and when you need to reorder.

Key Goals of Inventory Tracking:

  • Maintain accurate stock levels.

  • Prevent overstocking or stockouts.

  • Optimize storage space and reduce holding costs.

  • Improve order fulfillment and customer satisfaction.

  • Support financial reporting and decision-making.

Pro Tip: Accurate inventory tracking forms the foundation for broader business strategies, including inventory planning, forecasting, and supply chain management.

Types of Inventory to Track

Before implementing a tracking system, it’s important to understand the types of inventory your business handles:

  • Raw Materials: Components used to create finished products.

  • Work-in-Progress (WIP): Items being manufactured but not yet complete.

  • Finished Goods: Products ready for sale.

  • Maintenance, Repair, and Operations (MRO) Stock: Items like cleaning supplies, tools, or office materials needed to run the business.

Tracking each type may require different approaches, depending on how quickly it moves and how critical it is to operations.

Why Keeping Track of Inventory Matters

Failing to track inventory can lead to serious business problems:

  • Lost Sales: Stockouts prevent customers from buying products.

  • Increased Costs: Overstocked or obsolete items tie up capital and storage space.

  • Customer Dissatisfaction: Delays or unavailability hurt your reputation.

  • Inaccurate Reporting: Business decisions rely on accurate inventory data.

  • Reduced Efficiency: Time is wasted locating missing items or reconciling errors.

Example: A small electronics store that doesn’t track inventory may accidentally sell the same product twice, leading to customer frustration and returns.

Methods to Keep Track of Inventory

There are several approaches to inventory tracking, ranging from simple manual methods to advanced digital systems.

1. Manual Tracking

How it Works:

  • Record stock levels in spreadsheets or paper logs.

  • Update each time stock arrives or is sold.

Pros:

  • Low cost and simple to start.

Cons:

  • Prone to human error.

  • Time-consuming for large inventories.

Tips for Success:

  • Use clear templates for easy updates.

  • Schedule regular checks to verify accuracy.

2. Barcode Systems

How it Works:

  • Each product is assigned a unique barcode.

  • Scanners track items as they arrive, sell, or move between locations.

Benefits:

  • Reduces human error.

  • Speeds up inventory updates.

  • Integrates with software for real-time tracking.

Pro Tip: Barcode systems work well for both small businesses and larger operations, especially when managing multiple SKUs.

3. Inventory Management Software

How it Works:

  • Software tracks stock levels automatically.

  • Generates alerts for low stock and provides reports on trends.

Benefits:

  • Real-time inventory visibility.

  • Automated reordering for high-demand items.

  • Historical data for forecasting and planning.

Popular Options: QuickBooks, Zoho Inventory, TradeGecko, Fishbowl, and NetSuite.

Tip: Cloud-based solutions allow multiple locations to update inventory in real time.

4. Cycle Counting

How it Works:

  • Instead of counting all inventory at once, select a portion to count regularly.

  • Focus on high-value or fast-moving items more frequently.

Benefits:

  • Reduces disruption to operations.

  • Maintains accuracy without full physical counts.

Tip: Schedule counts monthly or weekly depending on business size.

Best Practices for Effective Inventory Tracking

Implementing strategies alongside tools ensures accuracy and efficiency:

Maintain Accurate Records

  • Record every sale, return, and delivery.

  • Update stock levels immediately to avoid discrepancies.

  • Include details like batch numbers, expiration dates, or supplier info for perishable or regulated items.

Categorize Products

  • Use methods like ABC Analysis to prioritize tracking:

    • A Items: High-value, high-demand items.

    • B Items: Moderate value, steady demand.

    • C Items: Low-value, slow-moving products.

  • Focus effort on A-items for tighter control.

Regular Audits

  • Conduct periodic physical counts to reconcile with recorded data.

  • Identify missing, damaged, or obsolete inventory.

  • Adjust stock levels in the system to maintain accuracy.

Use Technology Wisely

  • Integrate barcode scanners, RFID tags, or mobile apps.

  • Automate alerts for reorder points.

  • Generate detailed reports for sales trends, slow-moving items, and seasonal fluctuations.

Maintain Supplier Communication

  • Share inventory updates with suppliers to prevent delays.

  • Discuss lead times and minimum order quantities.

  • Use multiple suppliers for critical items to reduce risk.

Common Inventory Tracking Challenges and Solutions

Even with the right system, businesses face obstacles:

1. Stockouts

  • Cause: Poor forecasting or delayed supplier shipments.

  • Solution: Monitor trends and maintain safety stock for high-demand items.

2. Overstocking

  • Cause: Ordering too much without considering sales velocity.

  • Solution: Use historical data to guide purchases and implement reorder points.

3. Human Errors

  • Cause: Manual updates, misplaced stock, or miscounts.

  • Solution: Barcode systems and cycle counting reduce mistakes.

4. Slow-Moving or Obsolete Inventory

  • Cause: Products lose relevance or demand declines.

  • Solution: Offer discounts, bundle items, or adjust future orders to avoid excess.

Pro Tip: Inventory tracking is a continuous process. Regular reviews and updates are key to long-term success.

Inventory Metrics to Monitor

Tracking key performance indicators (KPIs) helps businesses optimize inventory:

  • Inventory Turnover Ratio: Measures how often inventory is sold in a period.


     Turnover = Cost of Goods Sold ÷ Average Inventory

  • Days of Inventory on Hand (DOH): Average number of days inventory is held before sale.

  • Stockout Rate: Percentage of times items are unavailable when needed.

  • Carrying Costs: Total cost of holding inventory, including storage, insurance, and depreciation.

Monitoring these metrics helps identify inefficiencies and make informed decisions.

Integrating Inventory Tracking with Overall Business Strategy

Accurate inventory tracking supports broader business goals:

  • Cash Flow Management: Reduces funds tied up in excess stock.

  • Customer Satisfaction: Ensures products are available when needed.

  • Sales Planning: Guides promotions, discounts, and product launches.

  • Operational Efficiency: Improves order fulfillment and reduces waste.

Example: By keeping real-time track of inventory, an e-commerce store can plan seasonal promotions and avoid stockouts during peak sales periods.

Pro Tip: Inventory tracking works best when combined with inventory planning, forecasting, and supply chain management.

Low-Cost Inventory Tracking Tips for Small Businesses

Not every business needs expensive software. Affordable options include:

  • Use simple spreadsheets with clear columns for product name, quantity, and location.

  • Label products with numbers or stickers for easy identification.

  • Conduct weekly checks for high-demand items.

  • Store slow-moving items in separate, clearly marked bins.

Even small improvements in tracking can prevent costly errors and improve efficiency.

Conclusion

Keeping track of inventory is essential for business success. Accurate tracking reduces stockouts, prevents overstocking, lowers costs, and improves customer satisfaction. Whether using manual methods, barcode systems, or inventory management software, consistency and attention to detail are key.

By implementing best practices—like regular audits, categorizing products, using technology, and monitoring metrics—businesses of all sizes can maintain control over their stock. Accurate inventory tracking also supports long-term growth, cash flow management, and strategic planning.

Remember, inventory tracking is an ongoing process. Regularly reviewing and updating your system ensures that your business always has the right products at the right time.