Inventory Management Guide

Chapter 7. What Is Inventory Management Tracking?

Inventory tracking is the practice of monitoring your inventory in the warehouse. It has significant benefits and is crucial for the success of many businesses.

Welcome to Chapter 7 of Sellercloud’s inventory management guide. In this chapter, we’re going to cover inventory management tracking.

Inventory tracking is crucial in the modern e-commerce industry and serves more purpose than you might think. Tracking is not just about delivery—it also plays an important role in the warehouse.

This chapter will explore how tracking has completely revolutionized inventory management and why so many companies depend on it to remain efficient.

Remember, if you ever feel you’re missing something, head back to the inventory management guide home page, where you can see all our chapters.

Why Is Inventory Tracking Important? 5 Reasons

We have mentioned tracking several times throughout the series of this inventory management guide, but what do we really mean by it?

For customers, ‘tracking’ is synonymous with ‘order tracking,’ where they enter a tracking code to see where their shipment is at a given time.

Order tracking reduces the time merchants spend dealing with customer calls as customers can see where their package is and when it will arrive and ask the merchant if there are any concerns. 

It is also helpful in letting them know if the expected delivery time has changed due to unforeseen circumstances.

‘Inventory tracking,’ on the other hand, is all about tracking inventory in the supply chain and throughout the warehouse.

Arguably, inventory tracking is the most important thing for businesses to do to balance inventory and meet customer demand.

Inventory tracking has an enormous impact on inventory management. It can keep you more organized, which has a knock-on effect on customer service, your financials, and many other business areas.

Tracking is more complex than it used to be because many sellers practice omnichannel selling (selling on multiple platforms) and may use different couriers based on convenience.

In Chapter 6, we discussed inventory management software. In the best-case scenario, inventory management software should have inventory tracking built-in. 

Even better, it should be real-time tracking. Today, real-time inventory tracking is the standard; without it, you will fall behind your competitors—don’t settle for anything less. As always, it’s all about maximizing efficiency.

(Note: Some e-commerce marketplaces will have tracking features, but here, we’re talking about inventory tracking—not order tracking.)

Inventory tracking helps with the following:

1. Inventory Forecasting

When you track incoming and outgoing inventory, you can build a picture of how much inventory you’re using in a certain period—your inventory turnover ratio.

You can then use this information to forecast how much inventory you need to order from suppliers for the coming period.

Are sales declining for one product and increasing for another? Perhaps it would be wise to decrease orders for the former and increase orders for the latter.

You can automate that with forecasting and be more prepared when to order more stock than without it.

Furthermore, this data enables your business to forecast for seasonality, such as the holiday season, and avoid excess inventory, which is expensive to store in more ways than one.

2. Reporting

How will you get accurate inventory reports without proper inventory tracking in place? You simply can’t.

Aside from forecasting, reporting helps companies analyze trends, which can help with data-informed decision-making.

This can relate to your partners, employees, and numerous other areas of your business.

It also helps you identify problems. For example, if a product is being frequently returned for a certain issue, you will be aware of it because of the tracking and reporting features.

On top of that, you can set goals and KPIs that work for your business and create custom reports. Not all businesses are the same, and things need to be done in a way that works for you.

3. Warehouse Visualization

Tracking products is immeasurably useful to see where the inventory exists within the warehouse. This is called warehouse visualization.

Not only is warehouse visualization extremely helpful for pickers, but it also helps warehouse managers organize incoming and outgoing inventory more efficiently to ensure enough space.

They may notice some products are better suited to certain areas of the warehouse than others, depending on how quickly they exit the warehouse.

Furthermore, inventory can move around a warehouse a lot before it is even sold, and with every location change, there’s a risk that a product could break, be misplaced, or even be stolen.

If records are not updated, and products move around a warehouse (or to a new warehouse), they can be hard to locate and lead to late deliveries.

Tracking makes it easier to locate inventory by keeping accurate records of every location change.

4. Tracking Incoming Inventory

You can also track inventory incoming to your warehouse from your suppliers. Knowing when inventory will arrive from suppliers can help you organize and optimize space for the delivery.

Furthermore, you can prepare if the supplier’s delivery is late or they have production problems. In certain circumstances, you may even need to switch to another supplier.

Tracking supplier shipments can also strengthen your company’s relationship with suppliers.

Using a system that shares tracking data between suppliers and the company can make it easier for them to work together and communicate. If there is an issue, both parties will be notified.

5. Tracking Returns

Tracking is also important for returns on the reverse journey back to the warehouse.

Preparing for when they will arrive and understanding the issue beforehand helps avoid surprises and process the return faster when it reaches the warehouse.

If the customer rejects a product, you’ll want to know why. The product could be damaged, and someone may need to assess if it can be fixed and resold or if the only solution is to destroy it.

Alternatively, the customer may have rejected the product, which can happen if the wrong product was shipped, it came in the wrong size or color, for example, or an item was missing from the shipment.

There are also situations where the courier could not complete the shipment because the customer was unavailable or could not find the address. In this case, the inventory is likely reusable.

Tracking these returns also helps with reporting. It can help you get to the bottom of a bigger problem and help you find a way to prevent them from reoccurring.

(Likewise, tracking software should boost efficiency and lower these issues, but they will still happen.)

You should learn about Return Merchandise Authorization (RMA) numbers and labels, which are the standard used for returns tracking.

How Does Inventory Tracking Work?

Most companies use UPC or QR barcodes, but a range of different codes are also used (check Chapter 5 for more on barcodes).

Whenever an item is scanned in the warehouse, its location is updated and time-stamped, and other data is changed if necessary.

For example, when the inventory arrives at the warehouse, when it is processed, moved, picked, and when it’s ready to leave the warehouse, plus who may have handled the inventory.

Accounting systems can sometimes offer inventory management tools that can help with tracking. However, they’re not usually the best because it’s not the primary focus of their technology.

Similar to how we explained in the previous chapter, ERP (Enterprise Resource Planning) software may offer inventory management features, but it’s not their primary focus.

For real efficiency, accuracy, and customization, go for a system where inventory management and tracking are their bread and butter, like Sellercloud.

It is worth mentioning that some companies outsource their inventory management to third-party services, so they don’t need to concern themselves with tracking.

Amazon’s FBA (Fulfillment By Amazon) and Walmart’s WFS (Walmart Fulfillment Services) are two examples of such services.

Some companies with large enough resources can build their own systems, but this is an enormous investment that only very large companies can undertake.

Such an undertaking is perhaps only worth it if building your own system is cheaper in the long run, and your company has certain operational peculiarities.

Can You Use Excel (Or a Spreadsheet) For Inventory Tracking?

No, not really. Using a spreadsheet for inventory tracking is a pretty poor idea. The biggest problem with Excel or any other spreadsheet tool is that there is no real-time tracking, so changes must be added manually.

Not only does that take a lot of time, but it also leaves room for human error.

What if you’re busy and need to update the tracking status of several products but forget one or two or change the status of one or two products incorrectly?

That can become a problem later on when the spreadsheet says you have a different amount of stock than you have.

You can end up selling stock you don’t have or telling customers a product is out of stock when, in actuality, it is sitting in your warehouse! Either way, you’ll frustrate customers.

When tracking is automated, human error is eliminated. Even the most organized person will make mistakes, and just one is enough to cause several more problems down the line.

You might also forget to do important things, like prepare for peak season if it’s just around the corner. A spreadsheet won’t notify you about that, while software inventory management software might.

Spreadsheets will also lack the reporting capabilities that you’ll need.

You might have the data in front of you but not the knowledge or time to organize it into insights that will help you. Furthermore, some of that data could be incorrect.

Excel is workable for small businesses with low sales volumes but not ideal for large businesses with large volumes and complex operations—it’s just unthinkable, even laughable.

Theoretically, you could use Google Sheets and integrations to update tracking data, but this still doesn’t live up to the level of software specifically made for inventory tracking.

Tip: If you are a small business using tools like Excel, Google Sheets, or even an old-fashioned notebook, set a goal to move to a software provider at some point.

What Are Some Inventory Tracking Best Practices?

If you’re already tracking your inventory, well done—you will see how much easier it makes everything, but there are some things you can do to make inventory tracking even more effective.

Track the Right Things with the Right Tech

First, ensure you’re using tracking in the right places for the right reasons. Tracking inventory should be helpful, not a burden.

If you spend a lot of your time tracking inventory management metrics you don’t find beneficial—consider cutting those to focus on what’s helping you increase efficiency.

Over time, you may change how you track inventory, refining it to what makes the most sense to you.

In the best-case scenario, for proper inventory tracking, you should be using software—obviously, this may be out of the question cost-wise for smaller businesses.

However, larger businesses really need software to keep up with it all. Skipping out on inventory tracking could be costing your company dearly.

Ideally, software that can automatically update tracking to avoid human error and give employees back some time.

It is not advised to use multiple software services for different tracking tasks. Information can get lost between services. It is much more efficient if all the tracking-related tasks come from one tool.

Companies with Multiple Warehouses Need Suitable Tech

Bear in mind that inventory tracking can be challenging if your company has more than one warehouse.

In this case, you ideally need a system that can work across multiple warehouses to see the total inventory across them, not just at one location.

Inventory gets moved around a lot between warehouses (not just within warehouses), and you should be able to account for inventory in all locations.

If you have multiple warehouses, ensure you can use this tech efficiently without becoming a burden.

Track Incoming Batches of Inventory

Another best practice is to use ‘batch’—sometimes called ‘lot’—tracking.

A batch is an order of goods that are manufactured together, and it is useful when tracking an order from the supplier to the warehouse instead of individual products.

The batch will have a batch number used to track the goods.

The batch number is very helpful if there is a product recall (where the manufacturer recalls products back to their facilities because of a potential issue), as you will be able to locate all the products of that batch.

Use Alerts

You can also create alerts when certain actions are needed. For example, has some stock been sitting around for a long time without being sold?

It may mean that this stock is becoming obsolete, and it may be time to consider an appropriate way to remove it from the inventory to free up space for something that sells better.

Remember to Do a Physical Stock Count Every So Often

Remember to do stock counts occasionally to ensure the tracking information you have relied on is correct.

Don’t be fooled into thinking that now you’re using inventory tracking software, errors won’t occur—they still will here and there, and you must stay on top of them.

Manual cycle counts can also indicate if your tracking software is working. Manual counts should be planned and can target specific parts of your warehouse.

Lastly, if there are indeed any discrepancies, you should be able to edit the tracking information manually. 

Key Points From Chapter 7

Now you know all there is to know about inventory management tracking, remember these super vital key points.

  • Tracking inventory is not the same as order tracking. Order tracking is where you track a shipment to a customer. Inventory tracking is where you track inventory in a warehouse.
  • Inventory tracking helps companies forecast demand, update the product status, find it within the warehouse, and much more.
  • The most important thing as an inventory management professional is to ensure that stock levels are accurate and that they accurately reflect the levels you currently have. 
  • Excel and other spreadsheets can be used to track inventory, as can pen and paper, but these methods are inadequate compared to software designed for inventory tracking.
  • Follow best practices when employing inventory tracking—track what you need, track incoming batches, use alerts, and remember to do the occasional physical inventory count.

In Chapter 8, we will cover Multichannel Inventory Management.

Chapter 6. What Is Inventory Management Software?
Chapter 8. What Is Multichannel Inventory Management?