Inventory Tracking Systems — Everything You Need to Know

The warehouse is a chaotic place, especially if you’re relying on manual inventory management processes. To combat this, many logistics providers use an inventory tracking system to make sense of the chaos and improve the efficiency of their operations.

With the right solution, you can improve inventory accuracy, reduce carrying costs, prevent stockouts, and consistently meet consumer demand. Here’s what you need to know. 

What Is an Inventory Tracking System?

An inventory tracking system is a technology-based solution designed to monitor and manage the flow of goods and materials in and out of an organization’s stock. It serves as the backbone of a company’s supply chain management strategy, ensuring that the organization maintains a balance between supply and demand. 

The system tracks every item from the moment it enters the business cycle to the time it leaves. This level of tracking provides real-time visibility into stock levels, order statuses, and more. 

By gathering real-time data on stock levels, you can minimize the costs associated with holding inventory while maximizing sales and fulfillment efficiency. This data is also valuable for inventory forecasting, allowing you to replenish in-demand stock based on fluctuating inventory turnover rates while avoiding dead stock. 

Automated inventory tracking also makes it easier to implement and monitor key performance indicators (KPIs) like average stock, turnover rates, carrying costs, and more. Each of these KPIs provides a piece of the inventory management puzzle. Together, they offer actionable insights that can inform decision-making and help you achieve your growth goals.

How Does Inventory Tracking Software Work? 

Inventory tracking software automates the tasks involved in monitoring and managing stock, replacing the traditional manual and error-prone methods. The software typically operates by integrating different components of inventory management into a cohesive system that includes purchasing, storing, selling, and restocking. The following discussion takes a closer look at how inventory tracking works. 

Real-Time Tracking

At the heart of inventory tracking software is its ability to provide real-time updates on stock levels. With traditional strategies, you face large margins for error due to a heavy reliance on manual processes. Tracking technologies use barcodes, RFID tags, or other identification methods to monitor the flow of stock as it moves through different stages of the supply chain.

This real-time data is crucial for decision-making purposes. Once you have accurate, up-to-the-minute information about stock, you can set reorder points that avoid stockouts and requisition new products just in time, which minimizes carrying costs. 

Automation of Tasks

Inventory tracking technologies also enable you to automate repetitive tasks. The top platforms can do everything from generating purchase orders when a stock falls below a certain level to updating sales channels with current availability. Automation reduces the staff workflow and minimizes the chance of human error. 

Increasing efficiency through automation saves time and ensures accuracy during order processing and inventorying. Staff will benefit, too, because they’ll be able to engage in more rewarding work and spend less time on redundant tasks. 


Modern inventory tracking software integrates seamlessly with other business systems, such as accounting software or commerce platforms. These integrations provide you with a unified view of operations in which inventory data directly influences financial reporting, online sales, and fulfillment processes.

By centralizing data, your business can achieve a more streamlined workflow and better coordination across different departments. Integration also reduces data blindspots, giving you a big-picture view of business health and performance. 

Analytics and Reporting

Beyond just tracking inventory, these systems offer powerful analytics and reporting tools. As a result, your business can perform these crucial tasks: 

  • Analyzing trends 
  • Tracking performance metrics
  • Generating reports on inventory turnover, cost of goods sold, and other KPIs

These insights are extremely valuable for strategic planning, helping you optimize inventory based on demand. 

Benefits of Inventory Tracking Technology

Inventory tracking solutions offer a wide range of benefits that impact your customers, team, and bottom line. There’s a common misconception that these technologies are only for huge brands. 

In reality, however, any business that wants to improve inventory management can benefit from a stock tracking solution. The key is to find a platform that integrates with your existing tech stack and aligns with your long-term goals.

Improved Visibility

Inventory tracking technology takes the guesswork out of stock visibility. At a glance, you can obtain real-time insights regarding stock levels. The technology uses RFID tags or barcodes and cloud-based software to monitor stock across locations and stages of the supply chain, from receipt to sale. 

Gaining immediate access to inventory data across multiple locations enables you and your team to have a 360-degree view of stock levels, movement, and status at any given moment. Enhanced visibility ensures you can respond swiftly to market changes and meet customer demands with greater precision. 

Increased Accuracy

The adoption of inventory tracking technology significantly reduces the tendency toward human error that typically accompanies manual inventory management processes. Automated systems ensure that every item is accounted for accurately, updating your stock levels in real time as sales are made and new stock is received. 

Increasing the accuracy of your stock helps you maintain customer trust by directly impacting order fulfillment. When you ensure that stock levels reflected online are precise, you can avoid overselling or under-stocking and the customer dissatisfaction associated with these mishaps.

Streamlined Inventory Forecasting 

Effective inventory management is not just about understanding current stock levels; it’s also about predicting future inventory needs. Inventory tracking technology empowers your business with data analytics and reporting tools that analyze sales patterns, seasonal trends, and customer preferences. 

Inventory forecasting has become more important than ever amid market uncertainty and rapidly changing trends. By enhancing your forecasting capabilities, you can optimize inventory levels and ensure you’ve got the right products in the right quantities. 

Better Supply Chain Management

Inventory tracking systems provide benefits that extend beyond your warehouse or retail store. By providing real-time data on inventory levels and movements, your business can improve coordination with suppliers, manufacturers, and logistics providers. 

This improved collaboration in turn ensures that inventory replenishment is timely and based on accurate demand forecasts. The result is a reduced likelihood of stockouts or excess inventory.

Furthermore, the ability to track products throughout the supply chain enhances transparency and accountability, enabling you to identify inefficiencies and mitigate risks. If a problem arises, you can pinpoint the source and fix it before the issue majorly impacts your bottom line. 

Reduced Costs

Inventory tracking technology offers cost savings along multiple fronts. First, it enables you to reduce labor costs associated with manual stocktaking and data entry. Your team can perform count-related tasks with lightning-fast efficiency. 

Additionally, increasing accuracy and improving forecasting capabilities minimize your holding and stocking costs. You can hold just the right amount of each SKU based on current trends and adjust as necessary to avoid the need for emergency replenishments. 

Furthermore, real-time data reveals slow-moving or obsolete stock. Use these insights to engage in strategic discounting or clearance initiatives to free up valuable warehouse space and cut your losses. 

Enhanced Control over Complex Stock

Volatile market conditions and rapidly shifting consumer demand have made stockouts more common. The frequency of stockouts within the U.S. has increased to over 35%. The more complex your inventory and supply chain, the greater your risk of experiencing stockouts.

Inventory tracking technology may not be able to resolve upstream supply chain challenges, but it can help you adapt to unexpected hurdles that may emerge. The technology is especially useful if you deal in complex stock, such as items with multiple variants (e.g., size, color). 

Which Businesses Should Adopt an Inventory Tracking System 

If you manage physical goods, investing in an inventory tracking system is vital. Retail businesses, both brick-and-mortar and online, will find these technologies particularly valuable. 

Manufacturing companies use inventory tracking to monitor raw materials, work-in-progress items, and finished goods, ensuring that production runs smoothly without costly interruptions due to material shortages. This system helps schedule production and manage supply chain logistics. 

Warehousing and distribution centers also benefit from inventory tracking. These technologies help them manage the storage and movement of goods. Such systems can additionally optimize warehouse organization, speed up order fulfillment, and improve shipment accuracy

Choosing an Inventory Tracking System

As you search for an inventory tracking system, it’s important to weigh several key factors to ensure the solution aligns well with your company’s operational requirements and growth ambitions. Here are some factors you need to consider. 


Whether you’re expanding product lines, increasing transaction volumes, or entering new markets, you need a system that can adapt to you. Therefore, you should prioritize a cloud-based platform that offers add-on modules and customizable features. Such a platform will support the long-term growth of your business and help you face new challenges as they emerge. 

Integration Capabilities

Inventory tracking solutions represent a valuable asset to your business, but it is only one portion of your technology stack. If you want to get the most out of your new investment, you need a solution that integrates with other business tools like accounting software and CRM systems. 

This integration fosters a seamless flow of information across different departments. In turn, you can ensure data consistency, reduce manual data entry errors, and enhance overall operational efficiency.

Industry-Specific Functionality 

Identify any industry-specific tools or features you need and make a list of non-negotiables. Compare the items on your list to the capabilities of each platform you are considering. This approach allows you to quickly eliminate unsuitable platforms from your list and focus on solutions that will provide the most bang for your buck.

For instance, if you deal in perishable goods, you’ll need features like batch tracking and expiration data management. In contrast, if you operate in retail, you may need robust multi-channel inventory tracking. 


Always demo products to ensure they are user-friendly and intuitive. A steep learning curve will cause friction among your team and lead to change resistance. Don’t just demo the product yourself. Involve people from multiple areas of your business so you can get multiple perspectives on the product. 

Ready to Change the Way You Track Inventory?

From improved stock visibility to more reliable inventory forecasting, the right inventory tracking system does a world of good for product-centric businesses. By investing in a system that aligns with your operational requirements and growth ambitions, you can ensure you stay ahead of the curve and continue to meet the evolving needs of your customers.