Inventory Tracking Guide - Best Practices & Methods
2023 Comprehensive Guide to Inventory Tracking in Third-Party Logistics
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For retail and especially eCommerce businesses, knowing when your product is arriving inbound, through warehouse storage and finally shipping to the end customer is a critical aspect of efficient inventory management for businesses of all sizes. Properly tracking your inventory allows you to maintain optimal stock levels, reduce carrying costs, prevent stockouts, and improve overall operational efficiency. Below is a comprehensive guide to inventory tracking:
Let us begin by understanding the types of inventory you hold. This could include finished goods, raw materials, work-in-progress, or spare parts. Categorize items based on their attributes, such as SKU, category, or supplier.
Select an inventory tracking system that suits your business needs. This can range from simple spreadsheet-based solutions to more sophisticated inventory management software that integrates with your point-of-sale (POS) system or enterprise resource planning (ERP) software.
All your products should be set up with identification (SKU, UPC or barcode) to ensure accurate tracking. Barcodes are particularly useful for faster and error-free data entry.
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Define how often you will conduct physical inventory counts. This could be done weekly, monthly, quarterly, or annually. Regular counting helps identify discrepancies and maintain accurate stock records. Consider adopting a cycle counting approach, where a portion of the inventory is counted regularly (e.g., daily, or weekly). This helps spread out the workload and items of higher value or fast-moving items should be checked more frequently.
Use First-In, First-Out (FIFO) Method if your inventory includes perishable or time-sensitive items, use the FIFO method to ensure older stock is sold first, reducing the risk of obsolescence.
Record all sales and purchases promptly and accurately in your inventory tracking system. This data is crucial for accurate demand forecasting and reorder decisions. Whenever there is a transaction (e.g., sales, returns, or new purchases), update your inventory records in real-time to avoid discrepancies and confusion.
Keep track of the time it takes from placing an order to receiving the inventory. This helps in setting appropriate reorder points and safety stock levels. Be aware of seasonality that can affect lead times.
Based on historical sales data, lead times, and demand forecasting, determine the reorder points and safety stock levels for each item. Reorder points trigger replenishment orders, while safety stock acts as a buffer against unexpected demand fluctuations.
When appropriate categorize items using ABC analysis (based on value or importance) and apply different tracking and control strategies accordingly. High-value items may require more frequent monitoring.
If you have multiple sales channels (e.g., brick-and-mortar store, e-commerce platform), integrate your inventory tracking system with these channels to ensure real-time synchronization.
Professionally train your employees on inventory tracking procedures, the use of inventory software, and the importance of accurate data entry.
Regularly analyze inventory reports to analyze trends, identify slow-moving or non-moving items, assess carrying costs, and optimize inventory levels and turnover.
Continuous improvement and education are a staple for creating a positive work culture. Regularly review and refine your inventory tracking processes to adapt to changing business needs and market conditions. Learn from discrepancies or stockouts to enhance accuracy.
By implementing these inventory tracking practices, you can optimize your inventory management, improve customer satisfaction, and boost the overall efficiency of your business operations.
All your products should be set up with identification (SKU, UPC or barcode) to ensure accurate tracking. Barcodes are particularly useful for faster and error-free data entry.
The identification of product is a key requirement to proper inventory control, tracking and management. Below are the definitions to help understand the difference between SKU’s, UPC and barcode:
SKU (Stock Keeping Unit), UPC (Universal Product Code), and barcode are all unique identifiers used in inventory and retail management, but they serve different purposes:
SKU (Stock Keeping Unit):
A SKU is an internal code created by the retailer or seller to uniquely identify each product they carry.
SKUs are specific to the retailer and can vary between different companies even for the same product.
They help retailers track inventory levels, manage stock, and simplify internal processes.
SKUs can contain information about the product, such as style, size, color, and other attributes, making it easier for the retailer to differentiate between different variants.
What Is an Inventory Tracking System?
Inventory tracking is the process of monitoring and recording the movement and status of inventory items within a business. It involves keeping a detailed and up-to-date record of the quantities, locations, and attributes of products or materials in stock. The main goal of inventory tracking is to ensure accurate and real-time information about the inventory levels, enabling businesses to make informed decisions regarding purchasing, sales, and overall inventory management.
The inventory tracking process typically includes the following key components:
It is highly recommended that each product in the inventory is assigned a unique identifier, such as a SKU (Stock Keeping Unit) or barcode, to distinguish it from other items.
Whenever there is an inventory-related transaction, such as a sale, return, transfer, or purchase, the inventory records are updated in real-time. This ensures that the inventory levels reflect the most current data.
A good practice is to conduct regular physical inventory counts to verify the accuracy of the recorded inventory levels. These counts help identify discrepancies and ensure the recorded data aligns with the actual stock on hand.
Every sales transaction and purchase are recorded in the inventory tracking system, including details such as quantity sold, price, date, and customer information. This data provides insights into the movement of goods and helps in demand forecasting.
A great suggestion is to set appropriate reorder points and safety stock levels based on historical data and demand forecasting. Reorder points trigger reordering of items when stock levels reach a predefined threshold, while safety stock provides a buffer against unexpected fluctuations in demand.
When appropriate, we highly recommend categorizing products based on their value and importance through the ABC analysis. This categorization helps in prioritizing inventory management efforts and allocating resources effectively.
For businesses with multiple sales channels (e.g., brick-and-mortar stores, e-commerce platforms), inventory tracking systems can be integrated to ensure consistent and up-to-date inventory data across all channels.
Optimize your inventory strategy by tracking the inventory to generate reports and analytics to assess inventory turnover, identify slow-moving or obsolete items and calculate carrying costs.
Overall, inventory tracking plays a crucial role in maintaining optimal inventory levels, minimizing stockouts, avoiding overstock situations, and enhancing overall supply chain efficiency. It allows businesses to make data-driven decisions, improve customer service, and manage inventory-related costs effectively.
How Does Inventory Tracking Work?
An inventory tracking system, also known as an inventory management system, is a software tool or a set of integrated software applications designed to efficiently track, monitor, and manage all aspects of a company’s inventory. The primary purpose of an inventory tracking system is to provide real-time visibility into inventory levels, movement, and status, enabling businesses to make informed decisions about inventory control, purchasing, sales, and overall supply chain management.
The key features of an inventory tracking system typically include:
Product Identification: The system allows for the unique identification of each item in the inventory, often through the use of barcodes or SKU numbers.
Real-Time Updates: Inventory tracking systems provide real-time updates on inventory levels as transactions occur, ensuring accurate and up-to-date information.
Sales and Purchase Tracking: The system records sales orders, purchase orders, and other inventory-related transactions, including details such as quantities, prices, customer information, and supplier details.
Reorder Point and Safety Stock Management: The system can calculate and set reorder points and safety stock levels based on historical data and demand forecasting.
ABC Analysis: Inventory tracking systems can perform ABC analysis to categorize items based on their value and importance, helping businesses prioritize inventory management efforts.
Reporting and Analytics: The system generates various reports and analytics to provide insights into inventory turnover, stock levels, demand patterns, and other key inventory-related metrics.
Integration with Sales Channels: Many inventory tracking systems can integrate with various sales channels, such as online marketplaces and point-of-sale (POS) systems, to synchronize inventory data across different platforms.
Inventory Counting and Auditing: The system supports physical inventory counts and provides tools to reconcile and correct any discrepancies between recorded and actual stock levels.
Supplier and Vendor Management: Inventory tracking systems often include features to manage supplier information, lead times, and performance to optimize the supply chain.
Multi-Location Support: For businesses with multiple warehouses or store locations, the system can manage inventory across different facilities.
Forecasting and Demand Planning: Some advanced inventory tracking systems offer demand forecasting capabilities to predict future inventory needs based on historical data and market trends.
Inventory tracking systems come in various forms, ranging from simple standalone software for small businesses to more complex and integrated solutions for larger enterprises. Cloud-based inventory management systems have become increasingly popular, as they offer the advantage of accessibility from anywhere with an internet connection and often provide automatic updates and backups.
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How Can Inventory Tracking Benefit Your eCommerce Business?
For today’s eCommerce business inventory tracking is a requirement. Consumers today have an expectation to know where their package is from the moment the checkout box is completed. For the eCommerce business owner, knowing where that purchase order is, when it will clear customs and arrive at the dock is critical. Good inventory tracking can bring numerous benefits to an e-commerce business, helping it operate more efficiently, improve customer satisfaction, and increase profitability. Here are some keyways inventory tracking can benefit your e-commerce business:
Primarily, inventory tracking ensures that you always have accurate and up-to-date information about your stock levels. This prevents overselling and stockouts, allowing you to fulfill customer orders promptly and avoid potential order cancellations. With real-time inventory data, you can efficiently manage and process orders. The system can automatically update stock levels after each purchase, reducing the risk of overselling and streamlining order fulfillment. Inventory tracking helps you set up reorder points and safety stock levels based on historical data and demand forecasting. This enables you to replenish inventory proactively, ensuring that you never run out of popular products.
Additionally, the financial benefits are significant by maintaining optimal inventory levels, you can reduce the costs associated with excess inventory. Holding costs include storage fees, insurance, and the risk of product obsolescence.
With the additional demands placed by customers in a social media world, enhancing the customer experience becomes tables stakes. Accurate inventory tracking ensures that customers can see real-time product availability on your e-commerce website. This transparency builds trust and improves the overall shopping experience. Inventory tracking helps prevent fulfillment errors, such as sending the wrong product or incorrect quantities. This reduces customer complaints and the costs associated with returns and replacements.
Accurate inventory tracking provides valuable insights through reports and analytics. These data-driven insights can inform purchasing decisions, identify trends, and optimize inventory management strategies. With historical data and trends, inventory tracking allows you to better anticipate seasonal demand spikes. You can adjust inventory levels, accordingly, ensuring you have enough stock to meet peak demands.
Today’s eCommerce merchants sell across multiple platforms and inventory tracking systems must be integrated with your various sales channels (e.g., website, marketplaces). This synchronization ensures that inventory levels are consistent and updated across all platforms in real-time.
Streamlined returns management is vital as today’s return volume has seen double digit increases over the last five years. Inventory tracking simplifies returns management by updating inventory levels after receiving returned items. This ensures you have an accurate count of available products for resale.
Overall, inventory tracking is crucial for e-commerce businesses to maintain efficient operations, optimize inventory levels, and provide excellent customer service. It empowers businesses to make informed decisions, reduce operational costs, and remain competitive in the rapidly evolving e-commerce landscape.
Challenges with Inventory Tracking
Inventory tracking for eCommerce businesses presents several challenges that can impact their operations and profitability. Some of the main challenges include:
eCommerce businesses often deal with large volumes of orders and sales, making it crucial to have real-time updates on inventory levels. Any delay in updating the inventory system can lead to overselling, resulting in canceled orders and dissatisfied customers.
Many eCommerce businesses sell their products through various online platforms and marketplaces, such as their website, Amazon, eBay, Walmart, Target, Rakuten, etc. Keeping track of inventory across all these channels can be complex and requires integration between different systems.
Striking the right balance between maintaining enough inventory to meet demand without overstocking can be challenging. Stockouts can lead to lost sales and unhappy customers, while excess inventory ties up capital and storage space. Some products may experience seasonal spikes in demand, which can be difficult to predict accurately. Managing inventory during peak seasons requires careful planning and forecasting. eCommerce businesses may employ different fulfillment methods, such as dropshipping, third-party logistics (3PL) providers, or in-house warehousing. Each method comes with its unique inventory tracking challenges.
Increasingly dealing with returns and exchanges can disrupt inventory accuracy. Returned items must be checked for quality, and inventory levels must be adjusted accordingly.
eCommerce businesses are susceptible to inventory shrinkage due to theft, shipping errors, or inaccuracies in stock counting. Implementing effective loss prevention measures is essential.
Inconsistent data between various systems, such as inventory management, order processing, and accounting, can lead to errors and discrepancies in inventory levels.
Certain products, like perishable goods or items with expiry dates, require careful monitoring to avoid selling expired products and minimize waste.
Poor warehouse organization can lead to difficulties in locating and managing inventory effectively, resulting in order fulfillment delays and inaccurate stock levels.
These are some of the challenges that require implementing robust inventory management systems, leveraging automation and integration, adopting accurate forecasting techniques, and establishing efficient warehouse practices. Regular audits and analysis of inventory data can also help eCommerce businesses optimize their inventory tracking processes.
Best Inventory Tracking Methods
The best inventory tracking methods depend on the specific needs and nature of your business. The first step is to complete a needs analysis, also known as a needs assessment, which is a systematic process used to identify and evaluate the specific requirements, gaps, or challenges that must be addressed to achieve desired goals or outcomes. It is a critical step in problem-solving, decision-making, and planning, as it provides a clear understanding of the current situation and helps determine the best course of action to meet those needs.
Here are some widely used and effective inventory tracking methods include:
ABC Analysis: Categorize items based on their value and significance in terms of sales or inventory cost. Classify items into three groups: A (high-value, low-quantity), B (moderate-value, moderate-quantity), and C (low-value, high-quantity). This allows you to focus on managing high-value items more closely.
Just-in-Time (JIT) Inventory: Adopt the JIT approach to minimize carrying costs by receiving inventory only when it’s needed for production or customer orders. This method requires tight coordination with suppliers to ensure timely delivery.
Periodic Physical Counts: Conduct regular physical counts of inventory at predetermined intervals. This method ensures that recorded inventory levels match the actual stock on hand, helping to identify and correct discrepancies.
Perpetual Inventory Tracking: Utilize an automated system to continuously update inventory levels in real-time. Barcode scanning, RFID tags, or other technologies can help keep track of inventory movements accurately.
First-In, First-Out (FIFO): This method ensures that the oldest inventory is sold or used first. It is particularly useful for businesses dealing with perishable goods or products with a limited shelf life.
Last-In, First-Out (LIFO): The opposite of FIFO, this method sells or uses the most recently acquired inventory first. LIFO can be beneficial for tax purposes, but it may not reflect actual inventory costs during inflationary periods.
Serialized Inventory Tracking: Assign a unique serial number to each item in inventory to track its individual movements and history. This is especially helpful for high-value items or products with specific warranty or traceability requirements.
Batch Tracking: Track inventory in batches or lots. This is useful for products with manufacturing date, expiration date, or quality control requirements. It enables efficient recalls if a particular batch is found to be defective.
Demand-Driven Inventory Management: Utilize historical sales data, demand forecasts, and real-time sales information to adjust inventory levels dynamically based on customer demand.
Two-Bin System: Maintain two bins for each item: one bin for active inventory and the other for reserve stock. When the active bin is empty, it triggers a reorder, and the reserve bin becomes the active bin.
Vendor Managed Inventory (VMI): Allow suppliers to monitor your inventory levels and restock products when needed. VMI can help streamline the replenishment process and reduce stockouts.
Cloud-Based Inventory Management Software: Implement a cloud-based inventory management system that provides real-time data, automation, and integration with other business processes.
Choosing the right inventory tracking method(s) depends on your business’s size, industry, and specific inventory management goals. Combining multiple methods or customizing them to fit your business needs can be an effective approach to efficient inventory tracking.
Tips to Make Inventory Tracking More Efficient
Improving inventory tracking efficiency is crucial for optimizing operations, reducing costs, and meeting customer demands. Here are some tips to make your inventory tracking more efficient:
Start by implementing a robust inventory management system that automates tracking, updating stock levels, and generating reports. This reduces human errors, provides real-time data, and streamlines processes. Employ barcode scanners or RFID (Radio Frequency Identification) tags to track inventory and minimize manual data input errors.
Maintain a centralized database that integrates inventory information from all locations and sales channels. This ensures consistency and real-time visibility across the entire supply chain. For larger businesses, tie the information into an enterprise resource planning system.
Set par levels and reorder points to trigger replenishment orders when stock reaches a predetermined level. This helps avoid stockouts and overstocking. Additionally, perform frequent cycle counts of subsets of inventory items to reconcile data accuracy and validate the inventory levels recorded in the system.
Get your staff involved by providing continuous training and incentives that are tied to key performance metrics. Initial training is never sufficient, and the training cycle should include best practices, review of data and performance and feedback from the team that is involved in the daily operations.
Streamline processes to “touch” the inventory as few times as possible. This reduces the likelihood of misplacements and improves picking accuracy. Ideally, inventory should be touched at receiving, put-away, pick and packing.
Periodically assess and adjust your inventory policies, such as reorder points, safety stock levels, and lead times, based on changing market conditions and business needs.
If possible (aligns with business model) and if available collaborate with suppliers to manage inventory levels directly or hold consignment stock at their locations. This reduces the burden on your end and ensures timely replenishment.
By implementing these tips and continuously evaluating and improving your inventory tracking processes, you can enhance efficiency, reduce costs, and better meet customer demands.
How to Choose the Right Inventory Tracking Method for Your eCommerce Business
Choosing the right inventory tracking method for your eCommerce business requires careful consideration of your business needs, scale, industry, and operational processes. Here is a step-by-step guide to help you make an informed decision:
Start by understanding your specific inventory management needs. Consider factors such as the type of products you sell (e.g., perishable, non-perishable, serialized), sales volume, number of SKUs (Stock Keeping Units), and sales channels (e.g., online store, marketplace platforms).
Analyze the inventory-related challenges your business faces. Familiar challenges include stockouts, overstocking, slow-moving items, and manual data entry errors.
Familiarize yourself with various inventory tracking methods, as mentioned earlier (e.g., ABC analysis, JIT (Just in Time), FIFO (First In, First Out), perpetual tracking, etc.). Understand how each method works and what type of businesses it suits best.
Determine the level of automation and technology your business can handle. Assess if you have the resources to invest in barcode scanning, RFID technology, or sophisticated inventory management software.
Evaluate the costs associated with implementing and maintaining each inventory tracking method. Factor in the cost of software, hardware, employee training, and potential changes in operational processes.
Choose an inventory tracking method that can scale your business. Consider how it will accommodate future growth and adapt to changes in demand.
Ensure that the inventory tracking method you choose can seamlessly integrate with other business systems, such as your eCommerce platform, accounting software, and customer relationship management (CRM) system.
Consider your customers’ expectations regarding product availability, order fulfillment speed, and accuracy. The inventory tracking method you choose should align with your ability to meet these expectations.
Assess how each tracking method addresses potential risks, such as stockouts, inventory inaccuracies, and the impact of demand fluctuations.
Involve your inventory management team or relevant stakeholders in the decision-making process. Their insights and expertise can provide valuable input.
If possible, conduct a trial of the selected inventory tracking method on a smaller scale to assess its effectiveness before implementing it across your entire eCommerce business.
Choose a method that allows for customization to suit your unique business needs. Flexibility in adapting to future changes is essential.
If you are uncertain about the best inventory tracking method for your eCommerce business, consider seeking advice from inventory management experts or industry peers who have experience in similar setups.
Remember that inventory tracking is not a one-size-fits-all approach. It is essential to choose a method that aligns with your specific eCommerce business model and objectives. Regularly review and fine-tune your inventory management practices staying efficient and competitive in the dynamic eCommerce landscape.
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How Can a 3PL Provider Help With Inventory Tracking?
A third-party logistics (3PL) provider can play a crucial role in helping businesses with inventory tracking by offering specialized services and expertise. The services provided by a 3Pl can vary, so have a clear understanding of your needs before looking for the right partner. Here are some ways in which a 3PL provider can assist with inventory tracking:
Many 3PL providers utilize state-of-the-art inventory management software and systems. These systems enable real-time tracking of inventory levels, allowing both the 3PL provider and the business to have accurate and up-to-date information about stock levels and movements. 3PL providers use RFID technology to streamline the tracking process. This helps in quickly and accurately recording inventory movements and reduces manual data entry errors.
Centralized inventory data becomes critical as your company scales. By consolidating inventory data from multiple warehouses, distribution centers, and sales channels into a centralized system, a 3PL provider can offer businesses a comprehensive view of their inventory. This ensures better control and visibility over stock levels. Regular audits are conducted by 3PL providers to reconcile physical inventory with recorded data. This helps identify and rectify any discrepancies, ensuring data accuracy.
3PL providers track order fulfillment processes closely, from picking and packing to shipping. This helps businesses and their customers stay updated on order status and delivery times.
With access to historical data and trends, 3PL providers can assist businesses in demand forecasting and inventory planning. This helps optimize stock levels and reduces the risk of excess inventory.
For businesses dealing with serialized or batch-tracked products, 3PL providers can manage these requirements effectively, enabling traceability and compliance.
By outsourcing inventory tracking to a 3PL provider, businesses can benefit from specialized expertise and dedicated resources, enabling them to focus on core competencies while ensuring efficient and accurate inventory management throughout the supply chain.
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Inventory tracking has become an integral part of the eCommerce business. Customers want to know where their order is from the moment, they press the “buy” button until the time it safely arrives at their doorstep. Having a robust system that is integrated with multiple channels and carriers, with accurate and timely information is essential.
Why Choose Speed Commerce for Inventory Tracking?
Speed commerce has proven to be a trusted partner for retail and eCommerce businesses for over forty years. They have standard solutions that can fit the needs of most eCommerce businesses or can partner to provide customized solutions.
Speed Commerce has a strong record of accomplishment and extensive experience in the eCommerce and fulfillment industry. We utilize sophisticated inventory management software, barcode scanning, to enhance the accuracy and efficiency of inventory tracking.
Speed Commerce provides seamless integration, real time visibility and the accuracy and reliability that is built over decades of experience. Our award-winning customer support team is responsive and dedicated. In addition, offer a contact center to ensure your customers are supported 24/7/365. We offer cost-effective solutions with tangible benefits that will always outweigh the costs.
FAQs About Inventory Tracking
Inventory tracking is the process of monitoring and managing the movement of goods within a business, from the time they are received to the time they are sold or used. It involves keeping accurate records of stock levels, location, and movements to ensure efficient supply chain management.
Inventory tracking is crucial for businesses to maintain optimal stock levels, prevent stockouts or overstocking, improve order fulfillment, reduce carrying costs, enhance customer satisfaction, and make data-driven decisions.
An inventory management system automates and streamlines inventory tracking, provides real-time data, reduces errors, offers visibility across multiple locations, and helps in demand forecasting and planning.
The frequency of physical inventory counts depends on the size of your business, the rate of inventory turnover, and the level of accuracy required. Many businesses perform cycle counts regularly (e.g., weekly or monthly) to ensure data accuracy.
FIFO (First-In, First-Out) is a method where the oldest inventory is sold or used first. LIFO (Last-In, First-Out) is the opposite, where the most recently acquired inventory is sold or used first. Each method has different implications for inventory cost calculations.
By analyzing historical sales data and inventory levels, inventory tracking provides insights into demand patterns and helps in forecasting future demand, enabling better inventory planning and management.
Safety stock is a buffer quantity of inventory kept to protect against unexpected demand fluctuations or supply chain disruptions. It ensures that you have enough stock to fulfill orders even during unforeseen circumstances.
Yes, accurate and real-time inventory tracking allows businesses to proactively manage stock levels, set reorder points, and ensure timely replenishment, reducing the risk of stockouts.
To choose the right inventory tracking method, assess your business needs, consider the type of products you sell, evaluate cost and resource implications, and prioritize scalability and integration with other systems.
Remember that effective inventory tracking is essential for efficient operations and meeting customer demands. Consider implementing best practices and leveraging technology to optimize your inventory management processes.