In the swiftly evolving global business landscape, sustainability is not merely a buzzword anymore, but a guiding torch for operational efficiency and productivity.
An essential pillar of sustainability is inventory tracking – a systematic approach to procuring, managing, and storing raw materials, components, and finished products to run business activities smoothly.
Maintaining adequate inventory levels is critical to fulfilling customer requests on time. Regardless of the size and nature of a business, categorizing and managing inventory allows a business to adjust to seasonal fluctuations and plan in advance based on future forecasts.
This article gives a holistic view of the processes, methods, and challenges associated with inventory tracking and how an inventory management system can help implement it.
What is the inventory tracking process?
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.
All inventory management plans revolve around the following basic steps:
1. Receiving and identifying
Inspect received items for any damages and tag them with unique identifiers such as barcodes for tracking.
Enter inventory data into the inventory tracking system, including their procurement date, and transfer inventory to different locations if the need arises.
3. Monitoring inventory levels
Check if the inventory levels are in accordance with the current demand. Use strategies like cycle count, zone counting, or just-in-time inventory count to calculate the total inventory items available.
4. Triggering stock levels
Establish re-order points for all inventory to avoid overstocking or understocking.
5. Reporting and analysis
Generate reports to analyze inventory procurement, use, and return patterns. Decide if adjustments need to be made in handling inventory.
These steps can be customized to suit each business model. Through understanding and implementing the right inventory management process, businesses can reduce administrative issues and prevent wasting high-value inventory.
What are the challenges involved in inventory tracking?
Inventory tracking is a critical process for any business that sells physical goods. A wide range of stakeholders are associated with the process including suppliers and customers. In turn, the profitability of a business depends on accurate inventory tracking.
Businesses are likely to encounter a few challenges that could hinder the process of inventory management, including:
-> 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.
-> Varying product complexity
Products with different sizes, colors, and variations require a system that can help categorize items and simplify filtering them. Manually entering product categories into the spreadsheets can be prone to human error and difficult to update. For example, items with shorter shelf-life require constant tracking of the expiration dates which is inefficient if done with a manual system.
-> Lack of collaboration
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– negatively impacting accurate inventory count.
-> 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.
What factors does inventory tracking help manage?
There are considerable costs that every business needs to account for when managing inventory. To avoid these costs, businesses can take steps targeted to achieve process optimization and lower costs.
Let’s look at some ways different inventory management measures help improve the financial performance of a business:
-> Stock locations
Knowing the exact location of inventory helps strategically decide where and why inventory is required. Clear stock locations ease the process of retrieving inventory when needed as the staff knows where to go to get an item. 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.
-> 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.
-> 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 identify slow-moving or non-performing items and decide 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 levels.
-> 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 tech business might have a high return of Airpods reflecting technical damage in the produced batch. With this information, the quality assurance team can be prompted to check the items and ensure that the next production batch is error-free.
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.
How can the inventory tracking process be expedited with an inventory tracking system?
To maintain the agility and effectiveness of warehouse operations, adapting an automated system is a wise choice. This includes an inventory tracking system that has the capability to structure inventory management. Some necessary features may include helping forecast inventory needs, keeping a record of existing inventory, and streamlining vendor management.
An inventory tracking system serves as a powerhouse for accelerating inventory tracking processes.
Here’s how an inventory tracking system provides a well-structured platform to improve operational efficacy and what are the benefits of inventory management:
1. Set up and customize quickly and easily
Setting up an account on inventory tracking software 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 a system’s security and eliminates the chances of data tampering.
Modern systems facilitate 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.
Additionally, inventory solution providers extend customer support to their users. This includes onboarding, training, and helping managers with software queries. Onboarding is a smooth process that helps managers develop a deeper understanding of the system and analyze what capabilities are the most suitable for their business.
2. Assign asset tags
An inventory management system allows inventory managers to design and assign asset tags to each asset. These tags can be tailored to encode inventory details into the barcode, making this information readily accessible.
Asset tagging allows tracking 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 check-out. If any update is made to the data, then 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 visibility into the inventory allows the detection of ghost assets—any stolen or missing assets that show in business records as active.
So, any mismatch in the actual inventory count and the records can be quickly identified. This makes it easier to trace the last user to prevent potential thefts.
3. Maintain stock levels
The foundation of inventory management lies in maintaining the right levels of inventory. Managers can set maximum and minimum thresholds for inventory levels to make sure that they never exceed the thresholds. If the level crosses the established thresholds, then the inventory management system generates automatic alerts, notifying the user.
This way, managers can make informed decisions to avoid under-purchasing or over-purchasing. Reportedly, ordering and keeping the right amount of inventory reduces inventory costs by approximately 10%.
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 the 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.
While maintaining stock levels may seem like just another process in inventory management, it is one of the most significant ways of minimizing wastage and staying on top of the changing market trends through accurate demand forecasting.
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.
According to data, almost $1.1 trillion is tied up in inventory in the retail industry – equivalent to almost 7% of the U.S. GDP.
With such huge capital invested in inventory, even minor inaccuracies can turn into losses of billions of dollars. Audits help prevent such inaccuracies by highlighting 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 an inventory management system to update inventory in real time. For example, a tractor breaks down and the on-site manager generates 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 the inventory management system, giving a count of the most recent inventory level.
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.
The decision to choose the right system equipped with advanced inventory tracking capabilities is a determining factor in business success.
An inventory management 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, therefore, advisable for modern businesses to leverage inventory tracking as a mechanism to uplift their operations and improve the bottom line while involving minimum costs.
Frequently Asked Questions (FAQs)
1. How can small businesses track inventory?
There are multiple ways small businesses can track inventory including manual tracking, cloud-based inventory tracking systems, barcode technology, and auditing stock levels. The decision to choose the most suitable methods depends on the size, budget, and complexity of the inventory.
2. What are some techniques of inventory tracking?
Just-in-time (JIT), Economic Order Quantity (EOQ), ABC analysis, First in -First out (FIFO), cycle count, demand forecasting are some inventory tracking techniques. The technique a business adopts depends on the type of business and its size, industry, and nature of operations.
3. What does inventory management software do?
Inventory management software helps businesses streamline their inventory management processes by centralizing inventory data and providing real-time updates. Some features of robust inventory management software include order management, vendor management, reporting and analytics, inventory tracking, inventory thresholds, and barcode scanning.
EZOfficeInventory is a leading asset tracking software. It allows you to track, maintain, and report on inventory from anywhere, at any time. We offer a free 15-day trial – no credit card required!