Supply chains all around the world keep facing disruption issues. That’s a serious problem but the solution was found. There are great ways of tracking a company’s inventory so that managers react on time and offer supply to customers’ demands. Failing to do so can cause significant losses.
Any business has space for improvement. To improve a business strategy, it’s wise to consider inventory tracking. In this article, learn why inventory tracking is so important and find out more about its benefits to a business.
Understanding Inventory Tracking
Inventory tracking is a strategy or system used by a business or organization to track materials or products that pass through a supply chain. The goal is to keep monitoring the levels of stock. Thus it helps to generate profit thanks to keeping enough products or materials in stock.
What is an Inventory?
An inventory of a business or organization is an asset that shows the levels of materials or products that become profit upon completing a sales transaction.
The inventory is also an asset that requires monitoring. There is more than just one method of inventory management. The main goal of the management system is to keep adequate levels of supply depending on the demand of customers. Thus, monitoring a supply chain is a must.
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What is an Inventory Tracking System?
The inventory tracking or management system is a strategy based on tracking the inventory during all the stages as it passes through the supply chain.
The system is tracking inventory as soon as there is an order and when it is passed to a transition stage, receiving, storing, and order-fulfilling of products or materials. It also tracks the return, exchange, and even warranty procedures if the system has such a function.
Companies use systems that work in real-time and offer high accuracy. That way, it is possible to reduce unnecessary expenses while supplying the demand. The data collected through tracking systems enable an analysis of supply chain trends and thus positively affects a company’s revenue.
What does the System Track?
When it comes to automated inventory tracking systems, they often offer to keep track of various processes that occur within a supply chain. It’s also possible to analyze the data received through monitoring. Usually, the system provides a business with the following information and functions.
Up-to-Date Stock Volumes
Keeping the system updated gives management an understanding whether the organization has enough materials or goods to keep business processes. The system indicates whether these processes fulfill customers’ existing orders or provide the supply chain with new items. Thanks to this function, a business can tell how much of what item it has.
It’s the basic and one of the most important parts of the system since it provides the whole system with valuable information.
The Location of Stock
A successful business never has its stock in one location at all times. If such a situation occurs, it might signal the stock becoming slow-moving or even dead stock.
The stock passes through different locations. For example, it enters the warehouse of the business. Then it moves forward and is being categorized by the staff. Upon categorization, stock moves to storage. Then the stock moves forward, for example, to a store where a customer buys it or directly to the customer if it’s an online store.
It’s essential to keep track of the stock to know its location. A business can find the stock and move to the needed location.
The Accuracy of an Inventory
It’s a function representing a Key Performance Indicator or KPI. It shows the stock levels that have been tracked, the actual stock level in the organization’s possession, and the ratio between two indicators.
In a perfect world, the number should be the same. But in the real-world, miscalculations, theft, shortage of supply from suppliers occur all the time.
The accuracy of an inventory shows whether the stock is sufficient. Just like the stock volumes, the accuracy of the inventory is an essential part of the business to flourish.
The Costs of Carrying the Tasks
The mentioned function represents the expenses on holding, storing, and even owning an inventory. These expenses include the following:
- payment on rent;
- salaries for staff working within the inventory;
- storage expenses;
- bills on maintaining the inventory;
- expenses on security to keep the inventory protected.
Keeping track of the expenses required to maintain the inventory indicates how long a business can keep the inventory without losing money.
Such concepts as slow-moving or dead stock are two main reasons why it becomes not cost-effective to maintain the inventory. Finding and selling dead or slow-moving stock will help raise profit and reduce the cost of maintaining the inventory.
Evaluation of the Inventory
When it’s time to prepare a business’s financial statements, inventory evaluation will come in handy. Evaluation of stock is a process of calculating the value of not yet sold items in the inventory.
Stock is an asset, so it has to be added to the balance sheet. But before doing this, the manager has to calculate its financial value. Calculating stock’s value helps to determine the inventory turnover to plan future purchases.
The Turnover of the Inventory
The inventory turnover function represents the rate at which the stock is sold. Such a function is essential to keep track of sales. If the value is high, it means better sales. If the value is low, it indicates issues within the business. If the rate of sales is lower, a business should re-evaluate the strategy to improve sales.
A reorder point or level is an indicator that signals at which point the stock of a specific item has to be refilled. For instance, the level of a certain material has reached the reorder point, so the system requests a refill.
The reorder point is a function that helps a business maintain an adequate stock level. As a result, the company won’t run out of specific items in stock, so the company will be able to meet its obligations on time and there won’t be any financial losses.
Inventory Tracking Methods
There are several methods of tracking the inventory, such as:
- manual spreadsheets;
- automated management software;
- inventory apps.
When it comes to choosing the best method of tracking, it depends on the specific needs of the business. Note, if the business keeps growing, there might be a need to check the strategy to prove its efficiency. If in the beginning manual tracking is sufficient to keep the business afloat, the situation may change as the business grows.
Using Manual Spreadsheets
It’s the cheapest option even though it requires someone to keep manual track of the stock. It’s a good option for small businesses not dealing with huge volumes of stock moving in different locations through a significant supply chain.
The manual spreadsheet is a good solution used by startups and small business owners. A retailer needs to create a spreadsheet and keep adding SKUs to start tracking manually.
It’s a must to create columns for product descriptions and the number of items in stock. Note, the mentioned method becomes inadequate when the business keeps growing.
Automated Management Software
Automated management software or system is one of the best solutions to track the stock and know how much of each item a business or organization has. Usually, these systems come with additional features to manage more than just one task.
With such software, it’s easy to track products without much human interference. The best available software enables a business to refill items in stock when needed and signal any dead stock to get rid of by selling.
If a business has more than a few items in stock, it’s reasonable to use automated management software. Moreover, it comes in handy if the stock changes locations all the time.
With the aid of such software as ShipBob, ShipStation, QuickBooks, etc., companies can improve their strategies. Instead of overspending on managing inventories, it is possible to track every item in real-time and manage products or materials with better results.
Similar to the stock management software, apps help with tracking items in an inventory in real-time. Based on the data from such apps, managers can make the best decisions. Inventory apps put an end to miscalculations that result in dead stock.
By using apps, it is possible to track stock in any location, auto refill items when the levels are low, and complete other important tasks.
Manual vs. Automated Types of Inventory Tracking
Choosing between different types of inventory tracking requires understanding the needs. If the business is small and has several items in stock, manual inventory tracking is sufficient.
But it is typical for businesses to prefer automated stock tracking methods. Such a solution is perfect when a business deals with a lot of items or different stocks constantly moving through the supply chain. It doesn’t require human interference, and all the processes are automated.
Why is Inventory Tracking Important?
The inventory tracking system is a must if a business wants to flourish. Implementing the tracking system to a business strategy enables multitasking. For example, the system can run the following tasks:
- Improve stock visibility. The system sees the stock as soon as it enters the warehouse and until the items are sold. Managers are aware of how much of each item an organization has.
- Eliminate shortage problems. With management systems, companies never face any shortages since they are notified of a need to refill stock.
- Improve forecasting of the inventory. Most stock management systems forecast when a business needs refills. Moreover, a lot of automated systems even predict trends within the supply chain, so it’s possible to improve the business strategy.
- Multiple warehouse tracking. Whether the stock is located in multiple warehouses or simply moves within different locations, it is possible to track every item by using automated software.
- Detecting issues. Having details about the stock enables a business to make good decisions. Management systems detect miscalculations, negative trends, shortages, etc.
Whether you have a small business or just a small stock, the importance of inventory tracking can’t be underrated. Keeping track of items in stock helps in decision-making and increasing revenue.
The Bottom Line
You might think that as long as the business is good at sales, it’s successful. And you are correct, but it’s possible to improve its performance. Whether small or big, every flourishing business relies on an effective stock tracking system.
Tracking systems determine inventory turnover, locate dead or slow-moving stock, plan future purchases, increase sales. Moreover, the system eliminates the risk of overbuying or shortages, and it also helps to forecast demand for certain goods. With that said, investing in inventory tracking greatly improves business performance.
Author: Charles Lutwidge