Inventory tracking

By Annapoorna


Updated on: Apr 5th, 2022


4 min read

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Organisations of all scales give importance to inventory tracking to record the movement of goods in and out of business. Huge funds are in the form of inventory, and businesses need to know where the inventory is present at a certain time.

What is inventory tracking?

Inventory tracking is a method used by businesses to monitor their inventories continuously. The inventory tracking mechanism monitors raw materials, work in progress, and finished goods. Inventory tracking keeps track of inventory at every point of the supply chain, including ordering, receipt, production, storage, transit, and order fulfilment. Inventory tracking is incorporated at all business points, such as production areas, warehouses, wholesale and retail stores. 

How to track inventory?

The way inventory is tracked in the business impacts forecasting, purchasing decisions, customer relationships and accounting. Businesses can use various methods to track inventory depending on inventory type and how it moves. The following methods can be followed:

  • Manual inventory tracking: The card system is an old tracking method. It involves categorising the storage of goods based on their types and assigning cards to each category of goods. These cards track the inventory level and signal when restocking is needed. A stores representative must enter the required details, including entry, exit, place, and time of the event.
  • Spreadsheets: This method is similar to the above method, where data will be manually entered into spreadsheet software. This must be done with care since it is prone to errors and omissions.
  • Inventory management systems: Dedicated inventory tracking and management systems deployed by businesses can integrate the accounting and payments processes. They help to track inventory, forecasting demands and report generation. Businesses can buy inventory management systems online and modify them as per requirements. Systems may be offline software or cloud-based solutions.
  • Third-party providers: Inventory management can be outsourced to third-party logistics or 3PLs. They manage inventories by receiving, storing, shipping and tracking inventory. This helps businesses save on the storage cost and free up time to focus on other matters. However, there is a risk of losing control over inventories and issues with communication. 

Need for inventory tracking

Inventory tracking helps serve the following purposes:

  • Inventory valuation: Tracking inventory efficiently allows businesses to determine the cost of inventories at every step accurately. Costs incurred at each production stage can be identified, and a business can find the value of inventory it holds at any time. This will also help control costs incurred in the business. 
  • Inventory forecasting: Accurate inventory valuation at different stages helps the business forecast future demands for their goods efficiently. This will help the business plan for the future accordingly.
  • Avoid shortages: Inventory tracking gives an exact figure of how much inventory is held at a given point in time. This, coupled with accurate forecasting, helps replenish stock on time. This ensures there is no shortfall in the good requirement at any point in time.
  • Visibility of inventory: Inventory tracking in a business gives a real-time view of the types of goods available in the business. It helps identify when the inventory comes in and goes out and the location of the products at each stage. This helps save time in recording and verifying inventory items.
  • Error prevention: Consistent inventory tracking can help identify errors early and prevent unnecessary damages in the long run. This may include errors in updating the goods to the database, unexpected costs, or sudden shortfall in inventories and demand.
  • Accounting: Inventory tracking can also aid in the real-time accounting of items in the books of accounts. Accountants can track changes in inventory levels effectively, which helps them prepare relevant statements and reports. Inventory tracking also helps businesses manage their accounts receivable and accounts payable.

Inventory tracking is a simple task that can help boost businesses where goods are involved. Manual tracking systems can be helpful for smaller businesses. Once companies start to grow, they must migrate to a more efficient inventory tracking system. Inventory tracking will ensure that inventory data is up to date and efficiently. ClearOne is an invoice to pay software that allows you to track inventory at your fingertips with low stock alerts.

About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more


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