"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.
Read on to find out how to track your inventory, limit inventory variance and dead stock (see dead stock meaning), and download a free inventory spreadsheet.
How to Keep Track of Inventory
Keeping track of inventory 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 an inventory management app or software is used and integrated into your business's POS. This gives you access to your inventory data at all times and lets you have more control over inventory tracking.
There are a number of inventory tracking programs and tools that you can use to better understand your inventory levels. Only you can determine what is best for your business.
Keeping Track of Inventory Best Practices
There's no one best way to track inventory, but there are a few best practices that all businesses should adopt.
Here are six ways you can make inventory tracking easier for 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.
- 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.
- 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 plan reorders and avoid stocking items that don't sell quickly.
- Use the FIFO inventory method. One of the first-in-first-out inventory costing methods is where your business sells inventory in order of arrival. 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. 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 is known as perpetual inventory and lets you access data on the fly.
Inventory Tracking Software
Inventory tracking software is a digital program or application that provides a perpetual inventory count. It is generally integrated into your POS and updates instantly every time an item is scanned as it's sold or shipped. This software can even provide valuable information 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
To track inventory manually 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 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 sales data to determine any waste or incorrect information.
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 management team.
Does That All Track?
Tracking inventory is one of the most important parts of running a successful business. A good owner or inventory manager (see inventory control manager salary) will maintain control of their inventory and use data from physical or perpetual inventories to make smart decisions. It's also an important part of our inventory control guide.
One of the best ways to use inventory level data is to manage your product lead time (what is 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.