What is inventory tracking? How to start tracking your inventory

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It’s not easy to build a thriving ecommerce brand. 

Besides having a strong value proposition and great talent, you must monitor industry trends and adapt to consumer demands, shipping delays and product shortages. To manage all this and delight your customers, you need the right inventory tracking processes and real-time inventory data.

Supply chain disruptions have plagued nearly every industry since the COVID-19 pandemic began. According to data from IHS Markit, a part of S&P Global, “supply chain resilience” is the most pressing challenge for executives across industries. 

Businesses continue to adapt to these challenges, which include wild swings in product demand, an increase in ecommerce purchases and a continued desire for fulfillment speed and convenience. All this, along with product and raw-material shortages, has made inventory management more important than ever.  

Implementing efficient inventory tracking can help you meet customers’ expectations and avoid running out of stock. Learn how to start tracking your inventory more effectively to drive growth.

Why is inventory tracking important?

This may seem like an obvious question, but with only 43% of small businesses tracking their inventory (according to 2022 research), it clearly deserves our attention.

In this post, we’ll not only go over why inventory tracking is so important for eCommerce businesses but also:

  1. Inventory tracking best practices
  2. Challenges to effective inventory management (and how to overcome them)
  3. Key tools, software, and equipment to streamline your inventory tracking

Let’s start by outlining some of the reasons why inventory tracking is so important:

1. Avoiding stockouts

Inventory tracking helps ensure you never run out of stock, so your customers can always find the items they need when shopping on your site.

Stockouts are one of the easiest ways to lose customers, as most prospects will immediately go to a competitor when faced with an out-of-stock product.

2. Managing reorder points

Good inventory management also prevents overstocking by setting reorder points — which help track when it’s time to restock.

Reorder points must be set in tandem with safety stock for each product you sell.

Safety stock is the amount of inventory you keep on hand in case of unexpected demand or an unforeseeable shortage from a supplier.

Setting these reorder points can be tricky, as they’re determined by unique variables like supplier lead time and customer demand.

Check out our blog post on the safety stock formula for more information.

3. Meeting customer demand

Knowing exactly how much inventory you have on hand and when it will be replenished helps you meet customer demand more quickly, especially when you start stocking your products on multiple sales channels.

4. Understanding the true value of inventory

With an accurate picture of your on-hand and in-transit inventory, it’s easier to understand the value of your inventory at any given time — so you know the exact worth of what’s in your warehouse.

This can help you understand how much of your capital is tied up in stock and how much is available for reinvestment into other business areas.

5. Analyzing business performance

Inventory tracking also provides insights into how your business is performing, so you can make more informed decisions about inventory investments and pricing strategies.

What is an inventory tracking system?

Inventory tracking means having insight into inventory levels and location. This includes what’s on store shelves, in warehouses, on its way to customers or headed back to you as a return. Some businesses manually count inventory or track it with spreadsheets. In the long run, however, using an automated inventory tracking system is more efficient for managing stock as your business scales.

An inventory tracking system, also called an inventory management system, provides an overview of stock levels to help you manage your supply chain efficiently. Another important aspect of managing your inventory is assigning a stock-keeping unit (SKU) to your products. 

This unique identifier — often a scannable barcode — can be used to track inventory from receipt to warehouse management and through to order fulfillment. This means you can track how much of each product you have and where each item is located. Unlike universal product codes (UPCs), SKUs are unique to your business and can be customized to fit your needs. 

That customization is especially important as you track your inventory across warehouses and sales channels. Customers expect orders to be delivered quickly; the best way to ensure this is by staying informed and making data-based decisions. 

Inventory management systems contribute to better forecasts by using historical data. This makes it easier to predict and forecast the potential demand for specific products at specific times.

What is an example of inventory tracking?

The impact of proper inventory control isn’t always evident. For example, consider a business that uses a manual system to log new products as they come into the warehouse.

The business believes that this system functions well. But one day, an employee forgets to document a new shipment of seasonal items. The items are already generating purchases through the company’s website, but team members can’t locate the products to fulfill these orders. This leads to refunds and a poor customer experience. Eventually, the shipment is found, but it’s too late to fulfill the orders, and the items can’t be sold until the following year, if at all.

The company could have avoided this fate if it had an automated inventory management system for tracking inventory. With centralized oversight, the company can split stock into groups, track each item throughout the order and delivery process, and transfer stock between warehouses. Automated inventory management software also helps such companies with the timing and scope of restocking decisions.

The Common Benefits of Inventory Tracking

The benefits of inventory tracking

The ability to use real-time data to view your inventory across all your locations and listings helps ensure that you have the right products in stock at the right time. By fulfilling orders without delay or stockouts, you also deliver a world-class customer experience

Here are some of the most common benefits of inventory tracking.

Optimizing orders

Efficiently managing your supply chain means knowing how much stock you have and making accurate sales and demand forecasts. Accurately tracking your inventory also enables you to optimize reorder points. Accurate forecasting and order management are especially important for meeting your brand’s shipping guarantees and adapting to seasonal changes in demand. 

Inventory tracking software requires an upfront investment, but a properly implemented system will save your business money in the long run. Automation and other time-saving features mean fewer manual processes. Those manual processes have hidden expenses, including the cost of human error. More accurate demand forecasting, meanwhile, can lead to savings on storage costs because you can better predict warehouse needs and avoid over-ordering inventory.

Getting back time 

Giving your warehouse staff deeper-level insights into your inventory levels and where each item is located within the warehouse means they can do their jobs more efficiently. When warehouse staff can easily find specific products by consulting a centralized system, they’ll work faster, avoid frustration, meet shipping expectations and fulfill orders in the fastest and most efficient way possible. 

Improving customer experience

Customers have more options than ever for making purchases. They expect a simple, easy and effective buying experience regardless of the sales channel or platform, along with on-demand customer service. To grow your ecommerce business, you need to be able to meet your customers in new ways and on whatever channel they frequent. Managing product listings across these channels and fulfilling orders is impossible without inventory tracking.

The challenges of inventory tracking

Though effective inventory management has numerous benefits, it also presents challenges for ecommerce businesses. Your business needs complete visibility across the enterprise and accurate, up-to-date, synchronized inventory data. 

Read on for a few challenges you should consider when tracking inventory.

It’s a financial investment

Deciding to upgrade from your paper- or spreadsheet-based manual inventory tracking to a digitized, sophisticated software approach can feel like a big step. You’ll need to dedicate time, money and staff up front to get going. However, while getting started takes considerable effort and changes to your processes and culture, you’ll recoup that investment over time thanks to increased efficiency, smarter forecasting and time saved on time-consuming manual inventory tracking.   

There are many moving parts

The whole aim of your ecommerce business is to get stock moving as soon as an order is placed, so it’s no surprise that inventory tracking also involves many moving parts. You need to track inventory in real time across multiple locations and all stages of the supply chain, including the manufacturer, distribution partners, warehouses, shipping and returns. 

You’ll struggle to monitor and maintain precise stock levels if you don’t have a sophisticated inventory management system. Complexity is a concern with inventory management systems, but that problem pales in comparison to the risks of manually trying to track stock, fulfill orders and accurately forecast demand.    

It’s time-consuming

The more your business grows, the more time and resources you’ll need to dedicate to tracking your inventory. This is where manual tracking systems break down. The more time you spend on manual inventory tracking, the less time you have for other critical aspects of your business like product development, marketing, hiring or customer experience. 

An automated inventory management system takes time, especially at implementation, but you’ll save more time in the long run when you’re no longer manually tracking inventory at scale.

Inventory tracking equipment and tools

Software and tracking equipment can help you track inventory more easily and efficiently. Here are some of the most popular tools and systems for eCommerce inventory tracking:

1. Inventory management software

Inventory management software like SkuVault, Linnworks, and TradeGecko helps track stock levels, order fulfillment, and other aspects of inventory tracking in real-time.

2. RFID (Radio Frequency Identification) trackers

RFID trackers use radio frequency technology to track inventory, enabling you to track stock across multiple warehouses and locations in real time.

3. Barcode scanners

Barcode scanners are used to scan barcodes on items, making it easier to track individual items in your inventory.

4. Shipping software

Shipping software like Shipstation and Shippo helps track shipments across multiple carriers and locations, making it easier to track orders and inventory levels in real time.

5. ERP systems
Enterprise resource planning (ERP) systems track orders and inventory levels across multiple warehouses, locations, suppliers, and customers. They can also be used to track shipments and provide insights into customer demand.

Manual vs. automated inventory tracking

Manual tracking is when you track your inventory by hand, tallying up figures and keeping track of stock levels. This can be a time-consuming process, as it requires a lot of attention to detail.

It’s also very prone to human error since you’re dealing with precise values across many SKUs.

Automated tracking systems use software to track inventory in real time, allowing you to easily track stock levels across multiple warehouses and locations.

Likewise, this is often more efficient and accurate than manual tracking, as it eliminates human error.

Key areas to track inventory in the supply chain

Inventory tracking is essential in the supply chain. Here are some key areas you should always have your eye on:

1. In-stock inventory

Keeping track of what items you have in stock is important for ensuring that customers can always find the products they’re looking for.

2. Back-ordered inventory

Backorders can cause delays and reduce customer satisfaction, so it’s important to track back-ordered items and keep track of their progress.

3. Returned inventory

Returns can be hard to track and manage, so using an automated system can help you track returned items easily (especially when it’s as easy as scanning items back in with a barcode scanner).

4. Inventory levels at each warehouse or sales channel

Keeping track of your inventory levels at each warehouse or sales channel can help you keep track of stock levels in real time and ensure that no items are ever out of stock.

Using software like SkuVault, you can see exactly how much product you have allocated for each channel (your website, Amazon, eBay, etc.), and where most of your sales are coming from.

By tracking these key areas of the supply chain, you will be able to track your inventory more effectively and efficiently — providing customers with a better experience.

How to find the inventory tracking system for you

Your inventory tracking needs are unique to your business. You might start with a basic system and adopt a more advanced approach as you grow. Here are two common inventory tracking methods for ecommerce businesses.


If you’re working with low volumes of products and limited sales, a spreadsheet may be all you need to track your inventory. Create a spreadsheet with the SKU of each item listed, the quantity of each item and the location. Check your stock at least twice a month to establish base inventory levels, calculate monthly sales and inform your forecasting. 


Bigger ecommerce businesses sell across multiple platforms and locations, and you need a solution that can track all sales and inventory across each channel. Investing in an inventory management system like Linnworks helps you automate your operations and maximize efficiency.

Software is especially helpful for fast-growing ecommerce businesses that are selling across multiple sales channels. You save time, reduce the risk of human error and prevent stockouts because there’s no need to reconcile inventory levels manually. The biggest long-term advantage is the ability to make data-driven decisions that optimize your business and drive returns.

Transform inventory tracking

Inventory tracking can make or break your business. Fortunately, with the proper planning and resources, you can manage inventory, grow your business and provide an excellent customer experience all at once. Accurate inventory tracking empowers you to make smarter, data-informed decisions about balancing supply and demand, estimating product lead time, and optimizing your supply chain. 

Choosing the right inventory tracking system to help you manage your ecommerce business is an important decision. With the number of places for customers to shop online steadily increasing, inventory tracking can help your business effortlessly capture customers’ attention.