In the swiftly evolving global business landscape, sustainability is not merely a buzzword anymore, but essential for operational efficiency and productivity.
A core pillar of sustainability is inventory tracking – a way to manage and assess essential inventory information. Accurate inventory tracking helps maintain adequate inventory levels that enable businesses to fulfill customer requests on time.Â
Regardless of the size and nature of a business, categorizing and managing inventory allows it to adjust to seasonal fluctuations and plan based on future forecasts.
This article gives a holistic view of the processes, methods, and challenges associated with inventory tracking and how an inventory tracking system can help implement it.
What is inventory tracking?
Inventory tracking is a systematic approach to procuring, and managing raw materials, components, and finished goods to run business activities smoothly. All businesses need effective inventory tracking to see how well they are managing their stock quantity and quality. Â
The ultimate goal of inventory tracking is to reduce operational inefficiencies by identifying the exact location and levels of inventory. In case, an inventory item is falling below the set threshold, it helps identify that so a corrective action could be taken.
Inventory tracking is a critical industrial practice that shapes the way businesses improve their administrative and operational efficiency. Without a system in place to record, track, and monitor inventory regularly, businesses are likely to incur significant costs due to inventory mismanagement. Inventory tracking systems help expedite this process by allowing extensive record management.
Methods of inventory tracking
Every business needs to account for several costs such as holding costs, and storage costs when it comes to managing inventory. Businesses can employ various viable strategies to minimize these costs, and strategically manage asset inventory and consumable inventory.
Let’s look at some ways different ways you can track inventory to improve the financial performance of your business:
Monitoring stock locations
Knowing the exact location of inventory helps decide where and why inventory is required. Clear stock locations ease the process of retrieving inventory when needed as the staff knows where to get an item from. This location information can be updated to keep track of all inventory movements and ensure that the staff has the most accurate information when picking an inventory item.
Additionally, for businesses that operate in multiple warehouses or locations, having location information facilitates smooth inter-warehouse transfers and overall inventory management. Consistently monitoring inventory location helps businesses wisely use and allocate their current inventory without feeling the need to procure new items.
Calculating inventory turnover
Inventory turnover is a widely used financial metric that helps determine the number of times inventory is sold and replaced over a specified time period.
A high inventory turnover is an indicator of high sales. Similarly, a low inventory turnover is considered a strain on a business’s financial capacity, indicating capital tied up in inventory.
Businesses use inventory turnover as a metric to analyze the state of their cash flow and identify areas that need improvement, such as overstocking or under-purchasing. This way, they can assess if the business has enough inventory to meet their current operational needs.
Analyzing carrying costs
This is the total cost associated with storing inventory, including depreciation, obsolescence, and labor costs. By analyzing the carrying costs, inventory managers can analyze the total expenditure incurred on maintaining inventory, and devise appropriate strategies to lower unreasonably high costs.
The metric drives managers to adopt a lean approach toward managing inventory i.e., timely identifying slow-moving or non-performing items and deciding on the methods to manage them. This way, managers can try to maintain a balance between carrying costs and the right amount of inventory, to avoid stocking unnecessary inventory.
Tracking inventory returns
Several factors can contribute to consistent returns including damaged items, incorrect deliveries, or customer dissatisfaction. Businesses track inventory returns to quickly identify an issue and rectify it, while also having an exact count of items and associated costs.
For instance, a clinic might have a high return of surgical equipment reflecting inaccurate orders or defects in the equipment. With this information, the quality assurance team can be prompted to check the items and ensure the next batch is error-free. This can be made possible with efficient medical inventory tracking.Â
High inventory returns can lead to a surplus that incurs high carrying costs. So, in such cases, an inventory manager can optimize space allocation.
A well-planned process to handle inventory returns reduces the financial impact unplanned inventory is likely to have on a business.
Benefits of smooth inventory tracking
The ultimate goal of inventory tracking is to achieve a balance between inventory levels and customer demand. To achieve this goal, businesses tailor their tracking processes according to their needs and requirements.
Once the process is standardized and fully implemented, it eliminates operational hindrances and allows inventory managers to channel daily activities, such as receiving, storing, and shipping items. Timely inventory management yields significant benefits including, if done using an inventory tracking system:
1. Accurate stock levels
Record information, including procurement date, quantity, vendor details, and location for effective warehouse management. Check if the inventory levels are under the current demand. Use strategies like cycle count, zone counting, or just-in-time inventory count to calculate the total inventory items available.
2. Timely alerts
Inventory tracking enables you to monitor stock levels regularly through alerts. If stock falls below a certain level then the system you use alerts you to take an action. This way, you know exactly what the re-order points are so you can make timely arrangements to avoid overstocking or understocking. If inventory falls below a certain threshold, the system will trigger an alert, prompting you to order new inventory.
3. Reporting and analysis
With comprehensive inventory tracking records, you can generate reports to analyze inventory procurement, use, and return patterns. Based on the report, decide if adjustments need to be made in the way inventory is currently being handled. Assess inventory consumption and forecast future demand to stay prepared and meet operational demand.
Consolidate data relevant to your current inventory consumption to arrange for the needed inventory.
4. Adherence to compliance
By checking the quality and quantity of inventory regularly, you can easily assess if you are adhering to the regulatory requirements or not. You can check whether the quality of inventory is up to the mark and whether the inventory is capable of serving its required purpose. Faulty items can be flagged and disposed of to avoid serious accidents. Replacements for the faulty items can be procured in a timely fashion to ensure consistent and unimpacted operations.
Challenges involved in inventory tracking
A business’s profitability depends on accurate inventory tracking. However, businesses are likely to encounter a few challenges that could hinder the process of inventory management, including:
1. Manual methods
Using spreadsheets to enter a large number of items can be tedious and time-consuming. Manual spreadsheets become unmanageable and difficult to integrate with other systems, especially when a business is rapidly expanding.
Additionally, fragmented and disarrayed information can make it difficult to track supplier information – delaying orders and hindering administrative processes.
2. Varying item complexity
Inventory items with different sizes, colors, and variations require a system that can help categorize and filter them. Manually entering item categories into the spreadsheet can lead to inaccuracy and slow down the data entry process.
For example, items with shorter shelf life require constant tracking to stay updated with the expiration dates. Manually tracking the dates can be tedious, whereas, with an inventory tracking system, you can enter the expiration date into the records once and you will be prompted automatically when the date approaches.Â
3. Collaboration issues
Synchronizing large amounts of data in one go can be difficult when the data is spread across multiple spreadsheets. This means users work in silos without having complete real-time information – leading to inconsistencies in inventory data. If users are based in different locations, then this limits their ability to share insights about recent updates to inventory – leading to lost inventory control.
4. High management costs
Employing individual employees to manage manual records and inventory can add to the labor costs of a business and lower profits. Likewise, managing supplier information can be complex because different locations are likely to have multiple vendors. If an emergency procurement needs to be done, then inventory managers would need to consult separate spreadsheets to contact the relevant supplier which can delay the order process.
Steps to tracking inventory efficiently
Automating the inventory tracking process helps maintain the agility and effectiveness of warehouse operations. Some necessary workflows for this include inventory forecasting, maintaining inventory repository, and streamlining vendor management.Â
An inventory tracking system serves as a powerhouse for accelerating inventory management and achieving efficiency. Here’s how you can use an inventory tracking system to establish inventory control:Â
1. Set up and customize
Setting up an account on an inventory tracking system is a simple and straightforward task. Inventory managers can make individual accounts for the team members and allow them access to the system through personalized log-ins and passwords. This increases the system’s security and eliminates the chances of data tampering.Â
Such a system facilitates easy data transfer by allowing managers to import, and transfer data in the form of PDFs, CSV, or Excel sheets. So, a business can directly import inventory items using previous records – regardless of the amount of inventory items.
With a user-friendly interface, managers can also design custom dashboards and set particular metrics to track over time. These metrics update based on changes in data that reflect a business’s inventory consumption and stock levels. The dashboards provide a holistic yet comprehensive view of a business’s ongoing operations, enabling managers to quickly analyze the overall situation of inventory.
2. Assign asset tags
An inventory tracking system allows inventory managers to design and assign asset tags to each asset. These tags can be tailored to encode specific inventory details into the barcode, making the information readily accessible.Â
Design and assign customized asset tags to track the location, usage, and condition of each inventory item. By labeling each item, managers can simply scan the barcode at the time of check-in and checkout. In case of a new data entry, the database updates automatically. For example, inventory levels update on their own if a new inventory item is checked in by scanning its barcode.
By linking the barcode with the central inventory repository, a manager can quickly retrieve data and make sure that they are always informed of the status/location of important inventory items. This way, you can detect ghost inventory – any stolen or missing inventory that show in business records as active. So, any mismatch in the actual inventory count and the records can be quickly identified.
3. Maintain stock levels
Reportedly, ordering and keeping the right amount of inventory reduces inventory costs by approximately 10%.
Set maximum and minimum thresholds to maintain accurate stock levels. If the level crosses the established thresholds, then the inventory tracking system will generate automatic alerts, notifying the user.
This way, managers can make informed decisions to avoid under-purchasing or over-purchasing. With full visibility into the stock levels, managers can decide the optimal budget that must be allocated to inventory – reducing the chances of too much capital invested in inventory. This helps avoid a cash flow problem and ensures that your business operates within the budget allocated to inventory management.
Managers can also generate and schedule reports on a daily and monthly basis to track inventory costs. With this capability, they can differentiate between carrying costs and purchasing costs so they can reduce the former cost to improve cash flows.
4. Conduct regular audits
Auditing inventory is a process that requires cross-checking physical inventory with the records to determine how accurate inventory tracking is. Auditors are impartial, accredited entities who determine if the financial records are accurate.
Wall-to-wall periodic inventory audits help assess the reasons for stockouts or overstocks and identify inefficiencies in the inventory management process. These underlying causes are highlighted to the auditors, allowing them ample time to review their current processes and fine-tune them.
Conduct inventory audits to prevent such inaccuracies; identify and highlight the inventory that needs to be replaced or removed. By addressing these operational inefficiencies, businesses can unlock the tied-up capital–freeing up resources that could be utilized otherwise.
5. Integrate with service ticketing systems
Customer service solutions such as Zendesk and Jira can be integrated with your inventory tracking system to update inventory in real time.
For example, if a tractor breaks down, then the on-site construction manager can generate a ticket on their Zendesk account to get it fixed. The ticket will be linked with the spare parts required for the repair work. The consumed inventory will be automatically deducted from your inventory tracking system, giving a count of the most recent inventory level.Â
With the two systems integrated, inventory managers can optimally allocate resources – improving operational efficiency. All inventory information is centralized and easily accessible on ticketing systems allowing service agents to quickly respond to internal or external business queries.
The integration allows robust data analysis and fosters a collaborative environment to update the inventory landscape.
Why is inventory tracking important?
Efficient inventory management, including regular inventory tracking, is the key to successful business operations. The decision to choose the right system equipped with advanced inventory tracking capabilities also determines business success.
Inventory tracking system offers a myriad of methods to streamline inventory tracking by pinpointing areas of potential improvement. It serves as a real game changer for businesses as it enables them to develop more sustainable operations.
It is advisable for modern businesses to leverage inventory tracking as a way to uplift their operations and improve the bottom line while involving minimum costs.Â
