A Guide to Inventory Tracking

Allison Champion
7 min read
June 10, 2021
Modified: March 20, 2023

Inventory tracking is the heart of every sales operation, but what is inventory tracking, specifically? It’s the process used to track and manage the quantity of products as they move in and out of your warehouse, which allows you to forecast inventory needs and compare them against what’s currently in stock. The art of inventory management involves finding a balance between having enough products in supply without ending up with a surplus that results in dead stock in e-commerce fulfillment.

As companies grow bigger in their product offerings and locations, with varying levels of inventory based on the region and availability, the need for an inventory tracking system becomes even more crucial to create and maintain a well-managed and successful e-commerce business.

The Need for an Inventory Tracking System

Whether you have an inventory planning software or tracking app, implementing an inventory management system is essential because it helps maintain organization and efficiency across the supply chain to verify your products are stocked accurately to service as many customers as possible. Inventory tracking technology such as Flowspace’s allows you to track real-time inventory levels for each SKU for product oversight across all warehouse or distribution center locations. 

Missteps in an inventory management system can lead to out-of-stock items or overstocked items, both which impede sales and can quickly become costly to your company. Having too much of an item in stock without the demand for it takes up storage space and can throw off the balance of your inventory tracking. 

On the other hand, customers expect a quick turnaround time when it comes to their shopping experience. When they shop your e-commerce store and see the items they want are out of stock, they have to decide if they’ll wait until a new shipment is ready or if they’ll research other brands that may have similar products to sell. 

The longer an item is unavailable, the higher the risk of a customer jumping ship and turning to another brand to fulfill the demand. It’s paramount that the number of items being ordered is the same or close-to-the-same number of items that are shipping out in any given sales period. This is achieved by monitoring your inventory level at its multiple stages.

Areas of Inventory Tracking 

It’s fundamental to know what’s available on the shelves versus what’s been marked for customer delivery. The right type of operational setup and inventory tracking software/technology can immediately identify when inventory is on the move. This ensures the most accurate inventory totals are kept up-to-date when customers visit your online store. When learning how to track inventory level, there are several areas to monitor, including:

  • Inventory from the supplier
  • Sales order returns from customers
  • Damaged goods

Supplier Inventory Tracking 

As a small business, you may create or receive your inventory from a single supplier and store it at home. However, as you begin to grow and scale your company, the need for more space and assistance through e-commerce fulfillment solutions will come into play. 

When dealing with multiple e-commerce fulfillment warehouses or distribution centers, it’s necessary to have an accurate track on how much inventory is stored and tagged for shipment at each place and across all suppliers, as applicable.

Customer Returns Tracking

It’s also important to know how to track inventory for customer returns as part of your total balance. When items leave the warehouse, these orders are subtracted from the total inventory count. However, this alone doesn’t account for any products in the process of being sent back.

By monitoring customer returns, it keeps a more accurate count of the items in stock. It also provides insight into which items may be sent back regularly, why they’re sent back, and what steps are needed to prevent customers from returning products. 

Damaged Goods Tracking

Along with customer returns, similar tracking for damaged goods is necessary as well. This is important to track because the items sold may not accurately reflect total sales if you have to issue refunds.

Certain returned items may be fit for resale, but those that are damaged can’t be reallocated as current inventory, at which point you may simply have to eat the cost of the product itself, in addition to associated packaging and shipping expenses.

Inventory Tracking Challenges 

Wondering how to keep track of inventory and trying to figure out what is inventory turnover? Learning how to keep track of inventory is challenging in many ways since operations are fluid. The amount of goods you have in stock can change from minute to minute. From customer returns and damaged goods, to split shipments and other shipping situations, anything can alter the availability of inventory you have at any given time or place. 

Anticipating challenges with product inventory management can mitigate inventory carrying costs. Inventory carrying costs is the total of all expenses related to storing unsold goods. These include storage, transportation, and labor costs, as well as lost opportunity and depreciation costs. Among the most common challenges in the inventory tracking process are:

  • Learning how to scale finished goods as sales increase
  • Finding time to maintain logistical needs for inventory data
  • Maintaining accurate stock orders and inventory quantities

Learning How to Scale Effectively

One of the biggest challenges any business faces is learning how to scale effectively. The methods and systems that may have worked for a company when first starting out are likely not able to sustain rapid business growth. Knowing how to adapt to changes and meet the rising demand of customers is crucial in order to maintain a high quality of service.

When there are more orders to fulfill on a daily basis, it can become increasingly difficult to track all SKUs accurately and ensure you’re both minimizing inventory carrying costs and maximizing profit. By automating the inventory tracking process, it will adapt to your business as it grows. With Flowspace, you can even track charges and data all in one platform as a means to help your business scale.

Finding Time to Maintain Logistics

A second common challenge when finding an inventory management solution is the amount of time it takes to track orders across multiple warehouses and ensuring everything is being stocked and shipped in a timely way. For smaller businesses, it’s typically easier to manually track how many shipments are going out in a day and the amount of inventory necessary to replenish. 

However, brands can become popular with an influx of orders overnight or steadily increase over time, outgrowing the current logistics strategy. Whatever the case may be, delegating logistic services to an e-commerce fulfillment center alleviates this burden and frees up your time to focus on other areas of the business, such as product development and marketing.

Maintaining Accurate Stock Orders

From learning how to calculate safety stock to perfecting the reorder point formula, stock order accuracy involves finding the right balance of your entire inventory so you’re not holding a surplus but you have enough in stock to meet customer demand at any given time. Demand forecasting tools are valuable when tackling this challenge. 

By using your store’s own historical data, a demand forecasting tool such as Flowspace’s can help with demand forecasting and anticipating when sales may spike to increase purchase orders or when there may be a slowdown of orders to prevent storage fees or dead stock.

Inventory Tracking Solutions

For every common challenge, there is an inventory tracking solution based on the stage of your business. These solutions range from using simplistic methods like spreadsheets and card systems to updated inventory tracking technology, such as apps and specialized software. 

A few of the main management techniques used when learning how to keep track of inventory include: just-in-time inventory management, safety stock inventory, and FIFO and LIFO methods.

Just-In-Time Inventory Management

The just-in-time inventory management method arranges all orders from suppliers in direct alignment with production schedules. This helps to reduce inventory costs because companies receive their items on an as-needed basis rather than ordering too much at one time. 

Safety Stock Inventory

Safety stock inventory is when extra inventory is ordered beyond the expected customer demand. This helps to prevent out-of-stock items and prepares companies for a higher influx in sales due to seasonal changes, recent promotions on certain items, and any other scenarios that may increase the average number of sales in any given period. 

FIFO and LIFO Inventory Tracking Methods

FIFO stands for first-in, first-out. This inventory tracking method prioritizes older inventory to be stored first before new inventory comes in to be sold. Alternatively, LIFO stands for last-in, first-out, which means newer inventory is typically sold first to prevent inventory from going bad. 

Depending on product shelf life, this can be an effective way to make sure your customers are receiving the freshest inventory possible, while making sure you’re not losing money for inventory that continues to be pushed to the back. 

Inventory Tracking Optimization with Flowspace

What is the importance of tracking inventory? It ensures you have a strong grasp of what’s coming in and what’s going out of your business in terms of sales at any given time. By optimizing inventory tracking methods, it better meets customer expectations in terms of product supply and delivery speed.

Having access to real-time inventory tracking allows you to manage product replenishment easier and improve the overall customer experience. Also, seamless integrations with key e-commerce platforms makes it simpler to find a solution that works for you. 

In short, inventory tracking is complex. Working with a 3PL company like Flowspace promotes optimization through automation, integrated inventory solutions, and an ability to forecast future demand. By outsourcing warehouse management, shipping, and other day-to-day operations through a 3PL company, it frees up time for you to focus on other essential areas necessary for continuing growth.

For more information about how Flowspace can help with your inventory tracking, submit a quote!

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Written By:

flowspace author Allison Champion

Allison Champion

Allison Champion leads marketing communication at Flowspace, where she works to develop content that addresses the unique challenges facing modern brands in omnichannel eCommerce. She has more than a decade of experience in content development and marketing.

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