A Complete Guide To Inventory Tracking: Methods, Best Practices & Top Tools

Key Takeaways

Inventory Bliss: Ensure your inventory is always organized and up-to-date as your business expands.

Growth Goals: Keep track of your scaling business to maintain steady growth and efficiency.

Orderly Operations: An organized inventory leads to smoother operations and customer satisfaction.

Success Sorted: Success comes with well-managed inventory and strategic growth planning.

Duck Delight: Having your inventory ducks in a row means better business performance and less stress.

As your business grows, you want to make sure you always have all your inventory ducks in a row. 

The last thing you want is an out-of-order inventory system. 

Imagine your inventory levels always lead to stockouts, there’s constant inventory shrinkage due to discrepancies, you have poor inventory forecasting, and your inventory reports that don’t actually tell you much. 

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Definitely not the state you want your inventory to be in. I want to show you how to avoid that. 

Here, you will find a complete guide to inventory tracking and how to integrate it into your business to ditch common ecommerce problems. 

Together, we’ll discuss the different inventory tracking methods that should be on your radar, best inventory tracking practices, and our compiled list of best tools.

What Is Inventory Tracking, and Why Does It Matter?

Inventory tracking is the process of managing a business's inventory cycle. This means monitoring and recording the flow of products to track inventory levels, sales, and orders. 

A well-established tracking system will use inventory management software to ease and facilitate inventory operations. 

Inventory management software accurately tracks inventory levels in real-time, automates reordering by setting reorder trigger points, forecasts product demand, and integrates with adjacent business systems like accounting and supply chain management software. 

Inventory tracking is an essential link in the chain of running a business. 

The process directly affects various aspects of business operations, customer experience, financial performance, and risk mitigation. 

Ultimately, the benefits of polished inventory tracking stem from all of these distinct tasks.  

What exactly is being tracked in your inventory?

When we’re talking inventory tracking… What exactly is the information being monitored? Here are some key components:

• SKU tracking. SKUs are codes that act as unique identifiers for the products in your inventory. SKU tracking is essential in inventory management, as it monitors product identification, inventory levels, and variants like color and size.
• Product details. Inventory tracking systems track information about your products. This includes product name, description, category, variant information, and anything else that distinguishes that product. 
• Stock levels. Tracking the quantity of each product in stock across all warehouses and storage facilities is important for keeping accurate inventory records. As well as preventing overstock and stockout problems, which can lower inventory costs by 10%. 
• Reordering and restocking. Inventory management involves setting reorder trigger points for automatic reordering to prevent stockouts. To prevent overstock, your inventory system must recognize the maximum inventory level your business can store. 
• Location tracking. In addition to tracking what your products are and their quantities, it’s essential to track where they are stored—whether in warehouses, storage sections, categorization layouts, or bins.  This allows you to locate specific products quickly during the picking, packing, and shipping. 

• Lot numbers. For items that need easy tracing, tracking lot numbers for product batches is crucial. Typically, for perishable goods, pharmaceuticals, and cosmetics, tracking the product’s batch number is vital for quality control and standard compliance. 
• Expiration dates. Some products are time-sensitive. Perishable goods, pharmaceuticals, and cosmetics need tracked expiration dates to manage shelf life and employ a FIFO system properly.
• WIP products. Inventory tracking systems also track quantities of products still in production. This accurately explains your business’s workflow and helps build efficient production schedules. Detailed WIP tracking clarifies the time and resources used in product development, aiding in cost allocation.

What are the challenges of inventory tracking?

Sometimes, inventory tracking isn’t all sunshine and rainbows. 

Like many aspects of running an ecommerce business, you may encounter challenges and pitfalls to work around. Here are some to consider so you know how to tackle them ahead of time. 

Human error

It’s normal to make mistakes—it’s important to recognize that. Here are some challenges that may occur due to common human errors:

• Mismatched data. Mistakes happen when manually inputting data. Wrong inventory quantities or SKUs will lead to inaccurate inventory levels, potentially leading to stockouts or overstock.
• Inconsistency in the business. Human error can occur when there is a lack of standardized procedures when handling inventory. Insufficient updates in inventory handling training can increase the chance of human error. 

Complexities of multichannel inventory

Managing inventory across multiple sales channels can be tricky and create headaches such as:

• Synchronization issues. Where stock levels are inconsistent or improperly updated across channels. This leads to misunderstood inventory levels, overstock, and stockouts. 
• Accommodating diverse and channel-specific orders. Different channels may have specific requirements for order fulfillment, such as differing shipping options. When fulfillment processes vary from channel to channel, this adds a layer of complexity to your inventory tracking. 

Disruptions in the supply chain

When working with outsourced suppliers, it shouldn’t surprise you when out-of-your-control disruptions sometimes get in the way. 

• Supplier delays and damages. Problems in transportation can cause delays, damages, and even complete product halts. This disruption in the supply chain is an excellent reason for stockouts and low inventory levels. 
• Changes in demand. Market trends are constantly in flux. Whether it be due to the holidays, season changes, or unexpected fads—these changes in demand often stress inventory levels. This can lead to being unable to fulfill potential orders due to underprepared inventory or having a surplus of inventory not in demand. 

Data discrepancies

When data sets don’t match, you know something is up. This can stem from:

• Poor system integration. Integration errors can cause data syncing issues when inventory tracking systems connect with other business systems.
• Too many data sources. Using numerous data sources can be tricky without proper and updated consolidation, leading to discrepancies. 

6 Top Benefits of Inventory Tracking

When practicing smart inventory tracking, good things follow. Here are a few benefits to inventory tracking:

1. Stock levels that are just right

Studies show that 34% of businesses have unintentionally sold a product that was unavailable in their inventory. 

Having good inventory tracking results in an accurate record of stock levels. 

Real-time inventory tracking means precise visibility into your inventory levels to make informed decisions in inventory management. 

This avoids the financial setbacks of overstock and stockouts that often lead to a loss in profitability. 

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2. Better cash flow management

When nailing your inventory tracking, managing your cash flow gets that much easier. 

• Free up cash. By avoiding excess slow-moving inventory, you free up cash that would otherwise be tied up in the carrying costs of unsold products. 
• Avoid slow-moving products. Your sales process becomes fluid when you spend less time holding inventory and less cash on holding costs. 
• Crystal clear finance plans. With a clear understanding of inventory levels, your business can appropriately plan and budget your finances. 

3. Improved warehouse efficiency

Many of the benefits of good inventory tracking stem from the inventory tracking software that your business integrates. 

Using software to streamline warehouse operations reduces the time typically spent with manual warehouse management. This means that you have more time to increase your business’s overall productivity. 

Good inventory tracking software allows for:

• Accurate demand forecasting using historical sales data.
• Streamlined reordering using reorder trigger points in inventory levels.
• Fast error detection with accurate and real-time tracking.

4. No more inventory shrinkage 

In a recent survey, 68% of retailers experience inventory shrink rates above the industry standard of 1.5%. 

Good inventory tracking means that your inventory records accurately reflect what you have on hand. 

With real-time tracking and detailed records of inventory levels, administrative errors are harder to slip through. 

This allows quick identification of data discrepancies, such as theft or loss, by analyzing inventory records for patterns and trends.

With good inventory tracking, you can adjust those data inconsistencies immediately to maintain accurate inventory records. 

5. High caliber reporting

With inventory tracking comes better reporting to help decision-making processes in the business. Good reporting derives from inventory tracking being:

• Accurate. Inventory tracking systems collect detailed data about stock levels and movements, a reliable source for creating inventory reports. 
• Up-to-date. Real-time updates on inventory allow businesses to create reports that reflect the most current state of inventory levels. Updated inventory reports are crucial for timely stock sales and purchasing decisions. 
• Integrative. Inventory tracking software often integrates with the other software you employ in your business. Seamless integration allows for comprehensive reporting on a broader business view, including aspects like supply chain management, financials, and more. 
• Predictive. Inventory tracking systems use historical inventory data records to predict incoming trends. When analyzing previous data sets to create reports, your business can prepare for events or seasons that change your inventory flow, like holidays.

6. Multiple location tracking

A majority of shoppers use more than one sales channel throughout their purchase process. 

This is why it’s important to simultaneously track your sales channels when it comes to inventory.

A key benefit of inventory tracking is managing stock across multiple locations.

Whether it’s retail locations, storage bins, warehouse locations, or all three, inventory tracking systems can manage it all.

Inventory tracking uses a centralized database to manage inventory information from a single platform. 

This ensures accuracy, consistency, and a broader overview of your business’s inventory levels. 

Inventory Tracking Methods You Should Know

73% of businesses still encounter inaccurate inventory data. 

It’s important to know all the inventory methods that are available to you so you can implement what works best for your business.

Additionally, it’s common for businesses to stack multiple inventory tracking methods together to track their inventory—depending on needs and budget. 

For instance, here is how businesses at different scales may combine inventory tracking systems: 

• SMEs. Small businesses may start with a manual spreadsheet system tied together with a barcode scanning system. 
• DTC brands. Growing brands may want to use an elevated inventory management system with RFID tagging. 
• Enterprises. Large ecommerce companies will tend to stack inventory management software with high-tech RFID tags, 3PL services, and more.  

Manual tracking using spreadsheets

Manually tracking your inventory involves recording inventory data onto a spreadsheet. 

When using this method, you must design a data spreadsheet layout, creating columns for inventory attributes like SKUs, product names, quantities on hand, reorder levels, and more. 

This method involves manually and regularly updating your records. 

Any inventory activity, like inventory received, sold, or moved across your locations, must be recorded on that spreadsheet. 

Inventory management software

Inventory management software systems streamline many day-to-day inventory processes.  

Within inventory management software, many great features can contribute to the benefit of your company. Lucky for you, we’ve compiled a list.

There are two types of inventory software:

• Cloud-based systems. These are systems that are accessed through the internet and hosted online.
• On-premise systems. These are systems that are managed internally and installed on a local server in the business. 

There are many benefits to employing inventory management software. However, the initial setup process can get tricky. 

Here are some key things to consider when employing inventory management software. 

Barcode scanning

When using a barcode scanning system, products are labelled with a unique barcode that acts as the product’s identifier. 

A product barcode is scanned when that product moves in, out, or around your inventory. 

When a product's barcode is scanned, the scanner inputs the barcode’s digital data into your inventory system. 

It’s important to note that barcode scanning is not a stand-alone system but works in conjunction with another inventory management system.  

For instance, an SME can use barcode scanning alongside manual tracking, or a larger DTC brand can use barcode scanning in conjunction with software. 

The inventory system records the product's movement and activity, whether newly acquired, sold, or transferred to a new warehouse location.

RFID tagging

Like barcode scanning, radio-frequency identification tagging (RFID) involves a tag with encoded product information and a reader to store collected data. 

RFID tagging uses a tag with a microchip to store information and an antenna to transmit the information to the reader. 

With RFID tagging, the reader emits radio waves that activate the tag for data. 

The data collected is sent and stored in a backend inventory management system. Then, this data can be recollected for many inventory management purposes, like tracking stock and observing inventory patterns. 

RFID tagging can work in tandem with various inventory tracking methods. 

Typically in growing DTC brands, RFID works together with inventory management software to track inventory operations. RFID scanning can be used alongside tracking methods like barcode scanning by integrating data into a centralized inventory management system. 

Card systems

Card systems involve using either physical or digital cards to manage inventory products. 

Product cards contain information about the inventory, like item descriptions, SKU numbers, product starting quantities, added or removed quantities of stock, and stock transactions like stock sold or received. 

Physical product cards must be manually updated and physically retrieved to read the mentioned product information. 

These cards are typically held in a cardholder attached to the product's storage location, bin, or shelf. 

Digital cards can be automatically updated through software and are accessed through search capabilities on any device. 

These digital cards work alongside inventory management systems and are stored as inventory records in management software. 

3PLs

Third-party logistics (3PLs) are outsourced specialized services that can assist your inventory management needs. 

3PLs take on the tasks of inventory tracking, managing stock levels, and order fulfillment for you so you can focus on other components of your business. 

The majority of 3PLs use software that integrates with your company’s ERP or inventory management systems. That way, you’re not in the dark regarding your inventory and warehousing. 

When considering integrating with a 3PL for your inventory management tasks, there are several factors to consider. 

Batch tracking

Batch tracking tracks inventory activities of certain batches of products, such as product location, history, and movement. 

A tracking system is used alongside batch tracking to record the movement of various batches. This can be done manually by recording batch movement onto a spreadsheet. 

Batch tracking commonly works with scanning technology like barcode scanning, QR code scanning, and RFID tracking.  

This method is especially relevant in products that require precise traceability, such as perishables, pharmaceuticals, and cosmetics. 

Product batches are allotted a batch number, and detailed information about production, expiry, raw materials, and location is recorded. 

Inventory Methods Comparison

While the methods covered above don’t exist in isolation, we can still compare them based on the details we’ve highlighted. 

Let’s see how they all compare in a handy table format:

Method	Cost	Key benefits	Key drawbacks
Manual tracking (spreadsheets)	Low	Cost-effective, easy to implement	High risk of human error, time-consuming
Barcode scanning	Medium	Accurate, cost-effective, user-friendly	Barcode quality issues, security concerns
RFID tagging	High	Automatic identification, read from a distance	Expensive, reading interference possible
Inventory management software	High	Real-time tracking, automation, integration	High initial cost, regular maintenance needed
Card systems (physical/digital)	Low	Cost-effective, easy to implement	Limited scalability, risk of human error
3PL (third-party logistics)	Variable	Expertise, scalability, cost savings	Limited control, integration challenges
Batch tracking	Medium	Excellent traceability, efficient recalls	Product-dependent, not suitable for all items

Top 10 Tools For Automated Inventory Tracking

Automated inventory tracking doesn’t appear from thin air.

Automated inventory tracking stems from the tools and solutions your business employs to manage your inventory.

Inventory tracking tools are software with unique requirements, designed to streamline the inventory tracking process. 

These tools help you manage, reorder, and report on inventory levels in real-time. Most importantly, many of these tools do these tasks hands-free—automating for your ease. 

Lucky for you, we’ve evaluated and compiled many inventory management tools to create a list of the best of the best.

Here are the top 10, in our humble opinion:

1. 1. WhereFour — Best for demand-driven inventory forecasting
2. 2. Cin7 Core — Best for manufacturers and product sellers
3. 3. MRPeasy — Best for manufacturers
4. 4. SkuVault — Best for its detailed restocking recommendations
5. 5. Settle — Best for CPG businesses
6. 6. Linnworks — Best for multichannel management automation
7. 7. Softengine — Best for handheld device operations
8. 8. KORONA POS — Best for multi-location inventory management
9. 9. Helcim — Best for small business inventory + POS in one
10. 10. Sage X3 — Best enterprise resource tracking (ERP) package

How To Choose The Right Inventory Tracking Method

With a ton of inventory tracking solutions available, choosing a method that is bound to work for your business can be overwhelming.

Here are 5 simple steps to help select your ideal inventory tracking method.

1. Assess your business size and needs

It’s important to understand what you’re working with. 

Evaluate the scale of your business. This includes understanding the degree of inventory volume, how many SKUs you use, the nature of your products (perishable or luxury), and how complex your inventory operations are. 

This also coincides with the scale of resources that your business has available, such as hands-on staff, technology, pre-existing inventory knowledge, and budget.

Also, identify what goals you hope to achieve with your incoming inventory tracking system. 

• Are you hoping to reduce overstock? 
• Improve your purchase order fulfillment efficiency? 
• Or maybe, reduce inventory holding costs? 

Your business’s goals will correlate with the inventory tracking system you choose.  

2. Make sure it integrates with your tech stack.

Your new inventory tracking system shouldn’t disrupt what you already have going on. 

Whatever technology you use, ensure your inventory tracking system seamlessly integrates with your current technology stack. 

When you introduce your tracking system, your ERP, POS, and CRM, among other systems, should continue to align.

Look for inventory tracking solutions that offer easy integration and smooth data exchanges between systems. 

When outsourcing, check with your tracking system supplier to confirm system integration support. 

3. Consider the costs

Different inventory tracking systems come with different price tags. 

Consider your business’s budget for an inventory tracking system that aligns with its established goals and needs. 

Keep in mind how much you are willing to spend for a more comprehensive system versus a more labor-intensive solution. And understand what those solutions will look like with your long-term inventory management. 

When evaluating inventory tracking solutions, consider both upfront investments and ongoing expenses. 

Then, consider whether initial investments are worth paying back long-term and whether continuous operational costs can be managed. 

4. Choose a system that’ll scale

When thinking about an inventory tracking system, it’s important to think about how that system will support you as you grow. 

When assessing your business’s current goals, understand how those goals may develop over time and what your goals may look like in the future. 

This will also affect which inventory tracking system you employ long term. 

It’s crucial to review your preferred system’s scalability and flexibility capabilities. Look for systems that are prepared for business growth, like cloud-based computing and advanced integration abilities. 

Also, look for systems that allow you to add new functionalities and customization. This enables your business to evolve, adding new components that fit your business.

5. Test it out and monitor

As good as a system may look, conduct testing to confirm your choice. 

Conduct a trial on your potential inventory tracking method. Start by running a pilot test by initially tracking inventory on a small scale. 

This may look like starting with tracking a single product line or a specific inventory storage location. From there, you can evaluate your first impressions and their effectiveness and flag where any potential issues may arise. 

You can make necessary adjustments from collected feedback and determine if you’re all in with the system. 

Make sure to continuously monitor your inventory tracking system’s performance. 

This way, you can see if you’re on track to hitting your business’s goals and make any necessary adjustments where needed. 

6 Inventory Tracking Best Practices For Total Accuracy

As with anything in life and work, there are good ways and bad ways to accomplish a task. Inventory tracking is no different. We want to put you on the path to doing things the good way.

 These are our best practices for accurate inventory tracking for your ecommerce journey.

1. Employ automation

Automation is key when it comes to accurate inventory tracking—saving up to 95% of the time spent on manual data entry. 

Automation in inventory management removes the risk of human error, the tension of manual labor, and any delays due to a lack of real-time tracking. 

There are many various to implement automation:

• Automate using inventory tracking software. Inventory management software streamlines daily inventory operations by automating tasks. Inventory processes, like inventory tracking, reporting, order processing, and stock reordering, can all be automated with inventory tracking software. 
• Automate data entry. You can still automate inventory processes without software. Employ automatic inventory data entry with barcode tracking, RFID tracking, and 3PL systems.

2. Perform regular audits and cycle counting 

Monitoring your inventory is essential to flag any errors or discrepancies before they get serious.

It’s important to regularly assess the effectiveness of your inventory tracking system during both the busy and slow times of the year.

Here are ways to do so:

• Regular audits. Regular physical inventory counts help balance the stock labels on hand with what you have in system records. This way, any data discrepancies due to theft or loss can be quickly identified and corrected. 
• Cycle counting. Try out a system where your inventory is counted on a rotating basis. This means that your physical inventory counts will occur at different times from year to year. This ensures that your inventory stays accurate, no matter the point in the year.

3. Real-time inventory updates

Knowing what your inventory looks like at any time is a huge benefit in inventory management. Real-time inventory tracking allows you to have a clear understanding of the current state of your inventory. 

This comes in handy when making important decisions regarding inventory management.

There are several ways to employ real-time tracking:

• Inventory tracking systems. Many inventory tracking systems offer real-time tracking. Systems such as inventory tracking software and expert 3PLs often include real-time tracking.
• A centralized system. Use a centralized inventory tracking system among all your integrations to synchronize all business systems. This will aim to display real-time stock levels to avoid inconsistencies in your business’s systems. 

4. Comprehensive staff training

The people that work for you should know what’s going on. 

A simple way of ensuring inventory accuracy is having inventory staff up-to-date on standardized practices and inventory operations. 

Staff training programs are a great way to get everyone on the same page.  

A comprehensive training program includes one that takes you through the day-to-day inventory tasks and how to handle them with accuracy and care. 

Tasks like moving inventory, recording inventory levels, and reporting inventory data can all be subject to human error.

So, it’s important to educate those on your team.

5. Take note of demand forecasting

One way to predict the future is to take a look at the past. Demand forecasting is a great way to know what potential inventory demands you may face and prepare in advance. 

There are a few things that go into accurate demand forecasting:

• Use historical data. Look at the patterns your business’s inventory is seeing. Recognize how those patterns can help you predict future demand, and adjust inventory levels accordingly.
• Pay attention to seasonal trends. T’is the season. Note seasonal market changes and scheduled promotions and adjust inventory levels accordingly. These tend to be major sales events around various holiday times like Christmas and BFCM. 

6. Employ inventory valuation 

Inventory valuation helps you recognize the financial value of your on-hand inventory. 

This helps you place a monetary value on your inventory and can be reflected in financial statements and decisions. 

Inventory valuation plays an important role in the financial accuracy of your inventory. 

Make sure to use the appropriate inventory valuation method for your products to accurately reflect the value of your inventory items. 

The method you use to value your inventory depends heavily on your products and brand.

Methods include:

• FIFO 
• LIFO 
• Weighted average cost
• Specific identification

Final Thoughts

Inventory tracking is an essential cog in the machine of the business. 

From monitoring the flow of inventory, to predicting inventory demand, to reporting on your inventory status—inventory tracking covers it all. 

The beauty about inventory tracking is that there is no one way of doing it. 

There are many ways to employ inventory tracking depending on the needs, scale, budget, and future of your business. 

Importantly, inventory tracking is made easy with inventory tracking software solutions to take some work off your plate. 

Automating inventory tracking is now made easy with the help of software solutions, streamlining day-to-day inventory operations.

Remember to keep an eye out on your inventory activities. 

It’s important to continuously monitor inventory turnover to gauge your sales performance. As well as keeping fixed reorder levels to prevent product stockout especially during busy sales periods. 

This way, your inventory management is in tip-top shape, all year around.

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Inventory Tracking FAQs

We can’t answer every question within the confines of a blog post, but we can append an FAQ section to try to answer any lingering questions you might have.

What features should I look for in an inventory tracking system?

Your ideal inventory tracking system depends on the nature and goals of your business. However, many inventory tracking system features consistently benefit businesses no matter the industry.

Here are a few:

• Automated inventory tracking
• Real-time inventory updates
• Multi-location inventory tracking
• Comprehensive reporting
• Integrations capability
• User-friendly interface

How do I choose the right inventory tracking system for my small business?

Choosing the right inventory tracking system can seem daunting, especially for a small business. However, when following these simple steps, the task at hand suddenly becomes easier:

• Assess what you want the system to do for your small business
• Understand your resources: your budget, your technology, your staff, etc.
• Make sure your new system can easily integrate into your business.
• Consider your financial capabilities: Can your small business manage the ongoing costs on your tracking system?
• Plan for the future growth of your business.
• Monitor your system’s performance to see if you’re aiming to hit your goal target.

How does RFID technology improve inventory tracking?

RFID technology can greatly improve your inventory tracking. Here’s how:

• Accuracy. The risk of data entry error is reduced because data is read from a microchip that doesn’t require manual data entry.
• Automatic identification. RFID tags can be read without a direct line of sight. Unlike barcode scanning, they can be read from further distances and from different angles.
• Integration. RFID technology typically integrates well with the adjacent systems in your business like your ERP, and WMS.
• Real-time data. RFID tags transmit data to readers in real-time, providing updated statuses on your inventory levels and movement.