Why You Need an Inventory Tracking System for Your Business

Inventory Tracking System

What is inventory tracking: Manual vs. automated

Inventory is a stock of goods an organization accumulates before finally putting it up for sale or disposing it after its utilization. Once an asset has been acquired by a company, its utilization needs to be monitored constantly until disposal. Doing this is extremely vital as stock levels need to be optimal at all times for the smooth operation of your business. Failure to do so will result in unwarranted delays, pulling down productivity and halting workflows. Hence, several companies are looking into employing an inventory tracking system in their companies. There are two kinds of methods available- manual and automated.  

A while back, before technology revolutionized the business world, organizations made use of the card system or “Kardex” to account for purchase orders. The quantity bought or sold was written at the back of the card for the item and totaled at the end. Present day companies sometimes carry out a similar process by entering their transactions into spreadsheets. On the other hand, fully automated programs completely eliminate the need for manual labor, as they operate on unique ID scanners and maintain data securely on the cloud. Whenever a new transaction takes place, a notification is sent to alert the respective departments.

Inventory tracking system: Finding the perfect fit

An inventory tracking system enables companies to forecast stock levels and streamline work operations. Contingent upon the nature of the business and requirements of the employees, there are various tracking mechanisms to choose from:

Price tag system

Each asset is attached with a tag in order to track its movement. After a purchase is made, the price tag is taken off and kept aside as proof of purchase. These tags are then collected and recorded in a database of sales, in order to verify the remaining inventory.  This method is ideal for small businesses operating with a few customers and/or a small inventory. Larger companies should steer clear of the tag system because of the extensive manual labor involved.

POS system  

Inventory Tracking System barcode

POS system, or the point-of-sale system, tracks items at the cash register at the time of checkout. As items are scanned, the inventory database is automatically updated, allowing you instant access to current stock levels. In this way, POS lets you monitor your company’s sales and the existing demand for your products. Knowing which items are faring well and should be restocked helps boost revenues and right-size your inventory. This method is ideal for retail and hospitality businesses.

Barcode scanning

Barcode scanning is considered one of the most effective and popular methods for labeling assets. Barcodes are attached at the back of goods which can be read with hand-held barcode scanners. The relevant information for each barcode is stored in a computerized database and can be fetched at all times with a scanner. Barcodes are an efficient way of providing identification for goods and can also be incorporated with other methods like the POS system to improve utility.

RFID

The latest technology deployed by organizations worldwide is RFID tracking, which uses radio waves to communicate between an RFID tag and a reading device. These tags include a microchip that can store data for the asset it has been attached to. An RFID reader can communicate with this microchip by either reading or writing data to it using radio waves. RFID readers do not require being in close proximity to tags and can be deployed at different points-of-interests in a company to monitor the movement of assets and fetch relevant data for inventory tracking.

Having the ability to scan without physically being near the item, RFID lets you take mass actions at once. Additionally, you can also use them to strengthen security by placing readers at critical points (like exits) and enabling them to trigger alarms in cases of unauthorized acquisition. You can also create bundles and packages to check out large inventory shipments and in turn, save time.

Why should you track your inventory?

The majority of organizations focus on management strategies, which allows them to increase accuracy and efficiency. In order to achieve your business objectives, it is imperative to tackle issues that arise at the grassroots. Similarly, for companies to improve their inventory optimization, it is critical that they overcome the following challenges:

  • Low product turnover: Product turnover refers to the rate at which inventory-at-hand is sold or used. Mainly related to low manufacturing, low product turnover occurs when firms fail to accurately track and predict demand. The level of sales relative to your existing inventory is much less, resulting in excess inventory.
  • Inventory shortage: If you face constant delays in workflows due to shortage of stock, this again implies that in-house demand has been miscalculated. This is one of the most common issues faced by firms and can be solved by keeping tabs on the consumption of each product.  
  • Lack of visibility:  From the point of purchase to sale, every step of your supply chain needs to be closely monitored in order to ensure successful execution. An absence of a robust inventory tracking system means no access to real-time data. This hinders decision making and forecasting in the long run.

What to keep track of: Core inventory metrics

inventory tracking system metrics

Big data and analytics have transformed the business world, especially where supply chain and inventory management are concerned. The reason behind this is simple; easily accessible real-time information provides insight regarding business progress and lets you tackle common roadblocks. Here are a few key inventory metrics every organization should keep track of:

Current stock levels:

This KPI should be a fundamental data point for your inventory tracking system. To start off, you should implement a strategy to count a representative sample of stock based on date or location. If you opt for an automated solution, doing this regularly would be hassle-free. Once you’ve added all your inventory data to the tracking system database, you can view stock levels for all items instantly. Having specific data on current stock levels lets warehouse and logistic managers know the location and quantity of each item.

Inventory carrying costs:

To give an approximate estimate of the money tied up in inventory, it is critical to keep a count of the following inventory costs:

  1. Labor
  2. Rent  
  3. Utilities
  4. Storage  
  5. Security
  6. Theft

After you create a database for this KPI, you can use it to devise strategies for controlling carrying costs. Doing so helps optimize inventory tracking, along with making it cost-efficient.  

Write-offs and write-downs:

Often goods become damaged, lose their value, and can no longer be sold to the market. These goods are categorized as ‘inventory write-offs’. Similarly, ‘inventory write-downs’ refer to goods that have diminished in quality over time, but can still be sold for a marginal profit. A large number of write-offs and write-downs indicate that you may be suffering from poor inventory management. Common reasons for this include purchasing duplicate stock that ends up being wasted and miscalculating requirements.

Inventory turnover:

As one of the most important KPIs to consider, inventory turnover allows you to monitor sales with respect to existing inventory. This KPI allows you to assess your cash flow, working capital, and inventory costs. It is calculated by comparing the cost of sold goods with the average inventory. A low rate would indicate over-stocking and a high rate would indicate under-stocking. This KPI helps you decipher what changes you need to make to your inventory routine. For in-depth analysis, you can compare your numbers with the industry average to ensure your metric is in the optimal range.

Order cycle time:

This KPI lets you track the time that has elapsed between the order being placed and shipped. The objective is to lower the order cycle time to improve efficiency and customer satisfaction. The longer it takes to assemble orders, the greater the obstacles involved. In order to resolve this, you need to diagnose which link in the management chain is lagging behind. To make it more comprehensive, companies can also monitor order status and fill rate.  The main purpose behind monitoring the order status is to closely supervise the state and location of goods until they reach the customer. The fill rate is indicative of how successful you have been in satisfying demand with your current stock.

Implementing inventory tracking: Best practices for all industries

Inventory Tracking System Best Practices

Having established the need for an inventory tracking system, a company should try to get the most out of its tracking setup. In order to optimize utilization, you need to implement rigorous procedures to get the desired results.  A robust stock management program can help your business achieve its targets in the following ways:

Implement replenishment control  

Failure to replenish stock in a timely manner causes unexpected delays in work operations. Last minute inventory procurement can take longer than usual and incur more costs. To avoid such setbacks, it is recommended to create purchase orders well in advance so that stock levels can be replenished timely. This can be done by creating a minimum threshold level so that a receipt is generated every time the limit is reached. Vendors can be informed in advance so that the required goods can be bought on time.

Eliminate discrepancies with internal auditing

With numerous goods in your inventory, monitoring transactions at all time can be quite tedious. Poor record keeping results in discrepancies which lead to inventory and financial losses. The best way to avoid such discrepancies is to carry out frequent audits. Doing so allows you to track the condition, usage, ownership, and quantity of your stock. Wherever an inconsistency between assumed inventory and actual inventory is identified, you can use your tracking system data to understand the cause behind it. Depending on the inventory tracking system you choose, you can specify convenient time intervals for conducting audits.

Record usage history to meet demand

Running low on stock or buying excess inventory is a sign of inaccurate forecasting. Changing market demands means that companies need to adjust their stock levels accordingly. Overstocking in such situations results in early disposal and wastage. The best way to avoid surplus is to carefully record usage trends over time to study how consumption has evolved. Sometimes, newer versions of a certain item replace obsolete models or a cheaper edition becomes available. To gain such economies of scale, it is necessary to take into account previous patterns of utilization to determine future demand.

Enable lifecycle management and timely disposal

How can you ensure that stock items are disposed on time? An inventory tracking system lets you run depreciation reports for each item to ensure timely disposal. Lifecycle Management can help predict how long an asset can be utilized and when the ideal time to dispose it would be.  Each item has its own devaluation rate which needs to be carefully noted in order to avoid unforeseen downtime.

Customize reports for greater accuracy

Organizations stocking up on several kinds of items need to develop a system to differentiate between them all. An easier way to do this is to add customized descriptions for items to your database. By improvising suitable templates, you can add relevant details for each item in order to facilitate your employees. Detailed entries will allow them to easily search and isolate the assets they require. Reliable information promotes informed decision-making, boosting your company’s efficiency levels.  

Record locations with secure checkouts

According to a survey, around 36.7% of inventory shrinkage is due to employee theft, vendor fraud, and administrative errors. This mainly occurs due to an absence of an efficient checkout mechanism. Labeling all existing assets with a Barcode or a QR Code lets you scan items before they can be issued for use. Login enabled checkouts allow you to record current and previous locations for an item as well. Automatically updated data on asset whereabouts increases transparency in daily activities and lets you control fraudulent usage. In cases of unauthorized access, you can trace back checkout history to find the person responsible.

Accelerate business progress with an inventory tracking system

Implementing an inventory tracking system has become extremely essential for improving business performance for all enterprises. Once you decide which features your organization needs from an inventory tracking solution, the next task is to identify liabilities within your company and set new targets. A recommended way to achieve this is to create benchmarks to help you focus on current progress and examine how far you’ve come over time. Once you figure out the loopholes in your management strategy, you will be able to devise corrective actions.

After you have planned the required changes for your stock control program, it’s time to monitor the results.  For this, you can use your inventory system to generate progress reports. An in-depth analysis of these reports reveals the modifications needed to improve turnover rates. Regardless of size, every business keeps on evolving, which is why you need a strong support system to back up your organization. By choosing the appropriate program to help you track KPIs, you can enable faster response rates for optimal inventory utilization.  

About EZOfficeInventory

EZOfficeInventory is an inventory tracking software that helps thousands of companies track assets and inventory, conduct maintenance events, cut costs and streamline processes all over the world. We offer a free 15-day trial – no credit card required!