Blog Inventory What is inventory tracking? How it works + benefits
09 February, 2024

What is inventory tracking? How it works + benefits

Inventory tracking is the process retailers use to monitor their stock in order to make better business decisions. Proper inventory tracking ensures accurate stocking, reduced costs, and consumer satisfaction.

After advertising for weeks, prepping employees, and updating pricing in your POS system, the day of your big sale has arrived. The product is flying off the shelves when suddenly an employee comes up to you and whispers, with just a quiver of fear in their voice, “We’re running low on product.”

Inventory tracking is the process of monitoring all the inventory a business owns. It’s an important aspect of managing any retail or manufacturing business, as it can lower costs by as much as 20% by reducing instances of stockouts and overstocking. Tracking your inventory helps you assess the amount of stock you currently have against forecasted sales. From there, you can properly fulfill orders to ensure customers leave your store or website happy. 

Read on to learn how an inventory tracking system can benefit your business, plus essential inventory tracking methods to begin tracking inventory efficiently. 

What is an inventory tracking system?

An inventory tracking system helps keep a record of all inventory information through real-time tracking and updates. From information about the quantity and location of merchandise to sales trends, inventory tracking systems can monitor many facets of inventory management.

Inventory tracking systems monitor: 

  • Quantity levels: This metric tracks the amount of stock left of an item, which is an important factor in tracking other aspects of inventory, such as inventory turnover and demand.  
  • Location information: Tracking location not only helps in knowing where an item is physically located in your warehouse but can also show if stock is not moving for some reason, such as poor sales in a certain area or delays in processing. 
  • Inventory turnover: Turnover indicates the rate at which inventory is sold. A higher inventory turnover ratio means that sales are good, whereas a lower number may indicate poor processes or sales strategies. The target inventory turnover metrics will depend on the specific industry and nature of your business. 
  • Supplier details: Tracking supplier details shows you when inventory is set to arrive, helping you plan for restocking. 
  • Returns: Tracking the number of returns for an item is important, as it can indicate quality issues if the product is regularly not meeting customer expectations. 
  • Damaged goods: Keeping track of damaged goods will help you understand supply or other process issues, such as shipping and handling.
  • Demand and sales trends: These metrics can provide valuable insight into trends, such as seasonality, where sales may rise or dip, and help inform stocking decisions.

graphic showcasing methods of inventory tracking

5 inventory tracking methods

There are many different ways to track inventory. Some require significant hands-on work and calculations, such as using spreadsheets, while others may require far less oversight. Here are five examples.

1. Spreadsheets

Although it may seem old school, many organizations still favor using spreadsheets such as Excel or Google Sheets. This method of inventory tracking requires entering information manually. As expected, even if you’re using an existing inventory list template, spreadsheet management is labor-intensive and prone to errors. However, this method can work for small businesses with a low inventory volume to track. 

2. Third-party logistics provider (3PL)

Third-party logistics providers, or 3PLs, are a way to outsource all of your inventory management and tracking. A 3PL will handle the logistics of packing and shipping inventory and keep detailed records. This is a great option for retailers that are 100% online and don’t have brick-and-mortar locations, as the 3PL will handle product fulfillment from start to finish.

3. Vendor-managed inventory (VMI)

Some businesses may choose to utilize vendor-managed inventory (VMI), where the vendor is responsible for assessing supplies and continuously determining the amount to ship. The retailer shares stock information with the vendor and they then can handle all ordering and shipping.

4. In-house solution

Businesses with the resources (i.e., time, staff, money, knowledge, etc.) may choose to implement an in-house inventory tracking system. This means developing and executing a system specifically designed to manage the needs of a single business. 

Large enterprises often utilize this inventory tracking option, as it allows them to have full control over their inventory management.

5. Inventory management software

Inventory management software is a great solution for those looking to streamline their inventory management processes. The software tracks inventory automatically, ensuring accuracy. Users can also set an auto-refill threshold, automatically ordering more inventory when the stock falls below a certain amount, ensuring items never run out. The software will also provide a breadth of data and insight into consumer behaviors, returns, and inventory turnover.

graphic stating the benefits and challenges of inventory tracking

Inventory tracking benefits

There are many benefits to tracking inventory. Of course, keeping accurate inventory records is instrumental to proper decision-making when it comes to ordering. Tracking inventory can also provide valuable data about consumer habits, helping you better understand customer behaviors and increase satisfaction. Here are some benefits of inventory tracking: 

  • Enhanced cost-efficiency: Monitoring stock levels allows you to get a clearer view of products that are doing well versus those that aren’t, therefore avoiding overstock or low-turnover products. 
  • Elevated customer satisfaction: Accurate inventory accounts give customers reliable stocking and shipping information. Additionally, the data provided by inventory tracking ensures only quality products and vendors are used, such as flagging any consistent product returns or damaged goods. 
  • Boosted supplier satisfaction: Monitoring stock can help retailers improve relationships with their suppliers by better forecasting inventory and working together to meet customer needs. 
  • Accurate inventory counts: Accurate inventory feeds into the many other benefits of inventory tracking, ensuring that in-demand stock is always available and that all products are accounted for. 
  • More efficient use of capital: Effectively managing stock levels means you’ll have better visibility into the stock that isn’t selling, thereby freeing up capital (both money and space). 
  • Shortage prevention: Never run low or out of inventory again by keeping accurate records and receiving data that allows you to forecast better. 
  • Better inventory forecasting: With the data provided by tracking stock, you’ll be able to anticipate market trends and consumer habits, ensuring your stock matches what customers are looking for.
  • Improved space utilization: By tracking inventory, you’ll be able to identify stock that isn’t selling well and free up space for more of the stock that does move. 
  • Better order accuracy: Managing inventory levels supports order accuracy by better monitoring stock and flagging any issues that may arise during shipping.

Inventory tracking challenges

Although there’s no reason a product seller should not be tracking their inventory, they may face some challenges. These challenges mostly concern determining the best and most efficient way to track inventory. Here are some examples: 

  • Navigating multiple sales channels: Tracking inventory can be more challenging for businesses with multiple sales channels. For these types of businesses, it’s best to use inventory tracking systems that will monitor everything automatically, from different suppliers, shipments, warehouses, stores, etc. 
  • Addressing returns efficiently: An efficient inventory tracking system will have clear processes for logging returns, as well as metrics that will flag if certain items are being returned above a specific threshold to monitor for any quality issues. 
  • Optimizing time and resource allocation: Ideally, tracking inventory will help improve efficiency across your entire organization. This means that the ideal inventory tracking system needs to make things easier, not more difficult. 
  • Scaling: It’s important to utilize an inventory tracking system that will grow with your business. Otherwise, you may be forced to implement multiple unintegrated systems or change systems as your business grows. 
  • Integrating systems: Ideally, you will find one system that meets all of your inventory needs. However, with the many unique needs of a business, some organizations choose to use multiple systems, which don’t always work well together. This means it may be necessary to track and reconcile data in multiple places. 

graphic stating how inventory management software can help you

How to keep track of inventory efficiently

There are many things to consider when trying to track inventory efficiently. The specific factors will depend on your business’s unique needs, but here are some things to consider:

  1. Conduct frequent inventory audits: Performing regular audits is important for not just tracking inventory but also noticing any record discrepancies. 
  2. Prioritize digital data: Ditch manual data entry with pen and paper or spreadsheets for better record keeping.
  3. Utilize data for inventory forecasting: Use your data to better predict consumer trends and needs. 
  4. Monitor more than inventory movement: Get better data by tracking sales, returns, supply, utilization, and staffing.
  5. Implement automation: Automated inventory management will restock items when the threshold markers you set for low stock are auto-triggered, among many other processes that can be automated.
  6. Adopt lifecycle management: For perishable goods such as food, lifecycle management involves setting up reminders that trigger when items must be sold or disposed of. This ensures all sold products are safe to consume. 
  7. Tailor reports to your needs: Ensure all data you’re recording is tailored to your specific products and will help you make better business decisions. You’ll also want to track data based on things like location, types of merchandise sold, suppliers, etc. 
  8. Check on internal systems and processes: Regularly check processes to ensure data is being recorded correctly and that you aren’t missing anything such as theft, missing orders, or other delays in processing. 
  9. Support the entire lifecycle: Effective inventory tracking will track each step of a product’s lifecycle. From predicting customer needs to tracking supplies and buying habits and returns, each part of the inventory journey should be monitored. 

Simplify inventory tracking with Cin7

Inventory tracking is critical to a product seller’s success, but it doesn’t have to be complicated when you use the right inventory management techniques. From keeping accurate stock level records to predicting consumer demand, a good inventory management system can improve operations, reduce costs, and increase customer satisfaction. 

Looking to improve your end-to-end inventory management? Book a demo today to learn more about Cin7’s products.


What is the best way to keep track of inventory?

The best way to track inventory is to complete cycle counts every two weeks and compare it to sales. One of the most effective ways to do this is by using an inventory management system that automatically keeps track of inventory versus sales.

How do you do inventory monitoring?

Inventory monitoring requires you to keep a count of all inventory and compare it against sales and financial records. Whether you track inventory manually or outsource it, keeping good records of everything and having clear processes outlined to ensure accuracy is important.

Why is tracking inventory important?

Tracking inventory gives valuable insight into sales. It can indicate products that are selling well or poorly, identify areas where certain products sell well, and identify selling trends.

How do small businesses keep inventory records?

Small businesses may choose to track their inventory manually, such as with pen and paper or by using spreadsheets. They can also implement other methods such as a 3PL, VMI, an in-house solution, or inventory management software.

How do you track supply inventory?

Tracking supply inventory requires regularly checking stock levels and measuring it against sales. You can do this manually, or you might use inventory tracking software, a 3PL, or VMI.

How do big companies track inventory?

Big companies typically outsource their inventory tracking, such as using a 3PL, VMI, or inventory management software. If they have the resources, they may also have an in-house solution specific to their business.

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