"Now where did I leave that inventory," you say as you walk dazedly through your warehouse.
That scenario is a bit dramatic, but it can certainly feel that way when you discover your inventory numbers are off. Properly tracking inventory usage and variance is key to making the most out of your products.
Luckily, it doesn't have to be as hard as it seems. We've put together a comprehensive guide to better track inventory control (see what is inventory) and understand how to calculate ending inventory.
Inventory tracking is essential. Read on to find out how to track your inventory, limit inventory variance and dead stock (see dead stock meaning), improve inventory, and download a free inventory spreadsheet.
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What Does Inventory Tracking Mean?
Inventory tracking is the process of tracking all products and SKUs in your possession, in transit to and from your warehouses, and the quantities available in all locations. Tracking inventory levels is vital for order fulfillment and warehouse operations. When done poorly, it can hurt customer satisfaction, increase overhead expenses, and even cause a bullwhip effect that hurts your entire supply chain.
The Benefits of Tracking Inventory
Since your real-time inventory levels directly affect your warehousing and sales operations, there are many benefits of inventory tracking. Here are the top three:
First, you’ll be able to make proper decisions about product ordering. Calculating optimal reorder points, performing demand planning and forecasting, and more are all made easier when you have insight into inventory levels and movement. This, in turn, leads to greater ability to increase sales and maximize profits.
Second, you’ll save money across the board. When your inventory is under control, you don’t need to spend as much on storage, the transfer of goods, purchasing, and employee salaries. With less money earmarked for inventory, you can invest it in eCommerce marketing to increase your sales and continue to grow your business.
Third, your warehouse staff will appreciate having insight into your exact inventory levels and locations. The more information they have, the more productive they will be. You should start using warehouse management software if you haven't been already. Order fulfillment speed is also increased and your staff will waste less time searching for missing items or sifting through an overwhelming amount of inventory. This also leads to more satisfied customers.
The Challenges of Tracking Inventory
Unfortunately, inventory tracking also has a number of challenges for any business that is participating in tracking. Here are three challenges that you may face when tracking inventory:
First, tracking inventory can be an onerous task as your inventory grows. The more materials you have, the more work it takes to track them, and the more it will cost you. This makes it very difficult for small businesses to scale quickly as warehousing costs grow quickly and your staff can be easily overwhelmed. If you lack warehouse labels or have poor warehouse layout design, this can be even harder.
Second, inventory is constantly moving, so it takes a lot of effort and software to do inventory planning successfully. You likely have standing inventory you’re trying to sell, but you may also have safety stock, dead stock, in transit inventory, decoupling inventory, and even inventory you’re bulk shipping to account for. That's assuming no shipping issues arise, either! With so many moving parts, it’s easy to make a mistake. Inventory tracking software can help, but you still need to perform audits and train your staff to always track inventory movement.
Third, inventory tracking is time consuming. Accurate inventory audits typically take hours, especially as your business grows. You can mitigate this by performing advanced inventory cycle counts or using a perpetual inventory tracking system. Software is helpful, but also necessary when your inventory reaches a certain size. You can’t afford to waste too much time and miss out on sales just for effective inventory tracking.
How to Keep Track of Inventory
Maintaining inventory accuracy requires investing time, energy, and money. Inventory tracking is one of the most important inventory control methods. It can also be one of the most labor-intensive, so it's vital that you stay on top of it.
Inventory levels influence all decisions you make and can quickly increase or decrease your revenue. They can be tracked manually or perpetually. We've broken out how these work below.
How to Track Inventory
The simplest way to track inventory is to manually count your inventory every two weeks and compare the numbers versus sales. That's known as periodic inventory.
There is also perpetual inventory, where inventory management systems like BinWise are used and integrated into your business's POS. This gives you access to your inventory data 24/7 and shows you how much inventory you have available at any given time. BinWise simplifies the monitoring and scanning of your entire beverage inventory via BinScan, our easy-to-use free mobile app. Learn more about BinWise and get convenient reports on your variance, last day sales, and everything else about your inventory.
There are a number of efficient inventory tracking programs and tools that you can use to better understand your inventory levels. Choosing the right inventory management solution takes time and effort, and only you can determine what is best for your business.
Keeping Track of Inventory Best Practices
There's no single best means of efficient inventory tracking, but there are a few best practices that all businesses should adopt.
Here are six ways you can manage inventory more easily in your business:
- Establish KPIs. You need to set specific goals for your inventory, otherwise you simply have goods sitting around with no plans. Inventory turnover ratio, economic order quantity, reorder point (see the reorder point formula), and frequency are all good places to start. Turnover is often calculated using the inventory turnover formula.
- Use ABC inventory analysis. This analysis will give you insight into the value of your inventory. With that information you can prioritize the stock that is most important to your bottom line. An ABC analysis is also a great way to automate inventory replenishment, as you don't have to guess which of your goods are high demand products.
- Keep a safety stock on hand. Buffer stock, or safety stock, is additional inventory you keep in case demand suddenly rises. This allows you to fulfill orders and avoid needing to look up backorder meaning.
- Optimize your cycle inventory. The speed at which your stock sells, or turns over, is vitally important to understand. This will help you avoid stocking items that don't sell quickly in an online marketplace or elsewhere.
- Use the FIFO inventory method. One of the first-in-first-out inventory costing methods is where your business sells goods with new inventory going first. It allows you to rotate stock more quickly and avoid products expiring or going bad in storage.
- Increase packing efficiency. Picking and packing is a time-consuming practice that causes and is a result of poor inventory management, or not using any inventory management software at all. Look at where products are located in the warehouse and move them as needed for ease of access. You can also look into kitting if there are multiple SKUs that often sell as a single SKU number and ship together.
Inventory Tracking System
An inventory tracking system is any dashboard, software, or program that tracks inventory levels in real-time. This type of inventory management and tracking is known as perpetual inventory and lets you access data on the fly.
Inventory Tracking Software
Inventory tracking software is one of many inventory tracker apps (mobile, desktop, or both) that provides a perpetual inventory count. This is how automated inventory tracking is done. The app is generally integrated into your point of sale (POS) and updates instantly every time an item's barcode is scanned as it's sold or shipped. This kind of software platform may also have features for inventory forecasting.
Inventory software requires an up front investment and a monthly payment to use. It also takes a large time investment to integrate the software and provide an initial inventory count. However, it offers many long-term benefits to a business and eliminates the need for full, physical inventory counts every month. Running an order fulfillment process without the right software is difficult and time consuming.
How to Track Inventory Manually
If you're interested in manually tracking inventory, you'll need to physically take inventory at least twice. Once to establish baseline stock levels and again to determine usage. These two inventories are usually taken on the first and last days of the month.
Manual inventory tracking via pen and paper is much more labor-intensive than using tracking software, but can still make use of technology. This is by making use of a spreadsheet to track the data you collect.
Inventory Tracker Excel: Inventory Tracking Spreadsheet
Manual inventory is best tracked using an inventory tracking spreadsheet. You must keep track of initial inventory, ending inventory, and received inventory. This will allow you to determine usage and shrinkage rates.
Ideally, you will bring a laptop or other portable device with you during the inventory to update it as you go. However, you can also print out a sheet and write in your data.
How to Keep Track of Inventory In Excel
To keep track of inventory in Excel, you first need to build out an inventory tracking spreadsheet. We've provided a free template below, so that's taken care of.
To start, set aside enough time to take a full, manual inventory. Bring the spreadsheet with you and note each item counted. Then, at the point you want to discover usage, repeat the process.
Next, add in any inventory received in between the two inventories. Finally, compare the data in the spreadsheet against transactions data to determine any waste or incorrect information. Now you have a great inventory summary report that can be shared with anyone else on your team.
Free Inventory Tracking Excel Template
Manual inventory tracking can be time-consuming, tedious, and error-prone.
To help make things easier for you, we've put together a simple inventory tracking sheet. Just download the inventory tracking template, change the sample data to your own, and begin tracking! This is a must have for any order processing team.
Does That All Track?
Tracking inventory is one of the most important parts of running a successful business. A wise inventory manager, warehouse manager, or business owner (see inventory control manager salary and warehouse manager salary) will perform a complete inventory at least quarterly and use their data from physical or perpetual inventories to improve their inventory management practices. These strategies are also an important part of our inventory control guide.
One of the best inventory tracking processes is managing your product lead time. This will let you avoid issues with supply and meet demand in a timely manner while increasing your profits. Start by doing an inventory audit to see where you should put your effort. You should also manage inventory even after selling it by using an order management system.