What is Inventory Tracking and How Do I Use it?

Not being able to get your product in time can upset customers, but keeping them in stock can enable a more seamless purchasing experience. Not only does it affect you (and your financials), but it also involves several other stakeholders, from customers to suppliers. A high inventory turnover rate indicates health, in that your product is selling well. If anything, you’ll need to order more product faster to account for and capture the demand.

Grocers must ensure that only the items they ordered have been delivered and that the vendor hasn’t substituted items it has on hand for those out of stock. When customers shop at physical stores, the items they select are removed from inventory when the store’s POS system scans them. Grocery stores that produce food on-premises—such as pizza, bread, and salads—also manage the inventory of foodstuffs and ingredients that aren’t for sale directly. The inventory of certain types of goods, such as soda and snacks, is managed by their vendors (known as vendor-managed inventory) and is counted as inventory by the grocer as the vendor adds those items to shelves. In conclusion, inventory—be it raw materials, WIP, or finished goods—plays a critical role in business operations. Understanding what inventory is, recognizing the different types of inventory in accounting, and employing effective inventory models can significantly enhance your business’s efficiency and profitability.

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This is especially true for those of that own ecommerce businesses as it’s an important part of the supply chain. Many small businesses with only a handful of products use manual inventory tracking methods—like inputting their products into spreadsheets—to monitor their inventory levels. In these cases, manual tracking is cheap and doesn’t require extensive training to implement.

To maximize efficiency you can employ inventory tracking software for your business. With time, collecting data about your stock, inventory movements, and sales at different times in a year will gather enough information for your system to be able to predict your demand. This is called inventory forecasting, and the more data your system has, the more accurately it can forecast your demand. The items are already generating purchases https://www.bookstime.com/articles/early-payment-discounts through the company’s website, but team members can’t locate the products to fulfill these orders. Eventually, the shipment is found, but it’s too late to fulfill the orders, and the items can’t be sold until the following year, if at all. Businesses continue to adapt to these challenges, which include wild swings in product demand, an increase in ecommerce purchases and a continued desire for fulfillment speed and convenience.

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The warehouse management system based on RFID can improve efficiency, increase inventory visibility and ensure the rapid self-recording of receiving and delivery. If you’re working with low volumes of products and limited sales, a spreadsheet may be all you need to track your inventory. Create a spreadsheet with the SKU of each item listed, the quantity of each item and the location. Check your stock at least twice a month to establish base inventory levels, calculate monthly sales and inform your forecasting. Deciding to upgrade from your paper- or spreadsheet-based manual inventory tracking to a digitized, sophisticated software approach can feel like a big step. Efficiently managing your supply chain means knowing how much stock you have and making accurate sales and demand forecasts.

One important characteristic of a retail inventory is that it integrates closely with a POS system, meaning your cash register. Depending on the type of product or item being sold, individual items may be identified with bar codes or Radio-Frequency Identification (RFID) tags. These are assigned when items are checked into inventory and then checked out of inventory when they’re sold. Some POS systems even identify what is inventory tracking the location of the item, perhaps in a specific warehouse or possibly even where it’s sitting on the store floor. Bar coding, item location, and bin identification are also functions you’ll find in many inventory systems. Using order history data from an inventory tracking system with a 3PL, you will have the ability to better predict demand and understand seasonality (when sales are likely to spike).