If someone asked you how many products you have on hand right now, would you be able to answer? Retailers have accurate visibility of their inventory across their business only 70% of the time on average, according to a global omnichannel survey by Manhattan Associates. That means 3 out of every 10 times you think you have a product in stock, you might be wrong.
For independent retailers juggling multiple sales channels, physical locations, and supplier relationships, that visibility gap translates directly into lost sales, excess inventory costs—and frustrated customers. Inventory tracking provides the foundation for knowing exactly what you have, where it sits, and when to reorder, turning stock control from a constant guessing game into a strategic advantage.
This guide delivers a proven five-step inventory tracking plan, plus the insights you need to choose the right method to help your retail business succeed.
What is inventory tracking?
Inventory tracking is the systematic monitoring of stock quantity, location, and status across all your sales channels and storage areas. Instead of relying on periodic counts or hunches about your stock, tracking establishes a consistent, reliable record of every unit moving in, out, or between locations.
Accurate, real-time visibility is what separates retailers who run lean, efficient operations from those constantly battling stockouts, overstocks, and shrink (preventable inventory loss).
Inventory tracking vs. inventory management
These terms often get mixed up, but they serve different functions:
- Inventory tracking: Monitoring and recording movement and status
- Inventory management: The broader discipline covering supply chain management, purchasing, forecasting, warehouse organization, asset management, and strategic stock control
Think of tracking as the “eyes” of the business—collecting real-time data—and management as the “brain” that uses that data to make informed decisions.
What inventory-tracking systems monitor
Effective inventory-tracking systems capture more than just quantities. They track:
- Location: Which warehouse, store, shelf, or bin?
- Movement history: When it was received, sold, returned, or transferred.
- Status: Is it sellable, reserved, damaged, or in transit?
- Availability: Across channels like in-store, ecommerce, and marketplace sync.
The foundation of this system is the stock keeping unit (SKU)—a unique alphanumeric code assigned to every product variation.
Example:
- A blue medium t-shirt might be TSHIRT-BLU-M.
- A large version is TSHIRT-BLU-L.
- A different color gets a different SKU. So does a different product category.
A strong SKU system creates precision and reduces confusion for everyone—from store associates to warehouse teams and ecommerce platforms. Here’s another example, showing how real-time tracking works in practice:
Consider a small apparel retailer with both a physical store and an online shop:
- You have 12 units of a blue, medium t-shirt:
- Eight on the store floor
- Three in the back room
- One reserved for an online pickup
A customer buys two shirts in-store. Your system updates immediately and triggers a reorder alert when stock hits your preset threshold of 10 units or fewer. Because of this real-time visibility, the online store is prevented from selling inventory that just walked out the physical door—a scenario that would erode customer trust and create operational headaches.
Inventory-management apps offer inventory quantity and location tracking, stock level alerts, and order monitoring. If you’re a Shopify merchant, try these popular inventory-management apps for your store:
- Stocky: Powerful and detailed real-time inventory tracking
- Thrive by Shopventory: Connects multiple Shopify accounts and automates purchase orders
- ShipHero: Demand forecasting, purchasing automation, and more
- Zoho: Integrates with Zoho CRM and Zoho Books
Two tracking approaches: periodic or perpetual
Tracking methods typically fall into one of these fundamental frameworks:
- Periodic inventory systems: These systems rely on physical counts conducted at regular intervals—weekly, monthly, or quarterly—to establish what you actually have on hand. Between counts, you’re operating with estimates that drift from reality with every sale, return, or loss.
- Perpetual inventory systems: These systems update your records with every transaction, creating a continuously accurate picture through real-time inventory visibility.
There’s a clear cost-complexity tradeoff between the two. Periodic systems require minimal investment—often just spreadsheets and labor to help you count at regular intervals—but deliver lower accuracy and can’t support real-time decisions.
Research examining approximately 24,000 SKUs across 11 grocery stores found that inaccurate inventory records were widespread, with audits lifting sales by roughly 11% when discrepancies were corrected.
Perpetual systems demand up-front investment in inventory software, barcode scanners, and process training, but yield substantially higher accuracy and enable the omnichannel capabilities modern customers expect.
For small businesses and other retailers choosing between the two:
- Periodic typically works only for single-location shops with limited SKUs and low complexity.
- Perpetual becomes essential once you introduce:
- Multi-location operations
- Moderate to high SKU counts
- Omnichannel sales
- Higher transaction volume
- Plans to scale
Understanding these fundamentals—the difference between tracking and management, the role SKUs play, and periodic versus perpetual frameworks—provides the foundation for building an inventory-tracking system that will support your business now and in the future. If growth is on the horizon, setting up a perpetual system early prevents you from having to make a costly migration later.
Why accurate inventory tracking is crucial for your business
Accurate tracking directly influences three outcomes retailers care about: it improves operational efficiency, customer satisfaction, and profitability. These aren’t abstract benefits—they show up directly in your daily operations and financial statements.
Avoid stockouts and excess stock
Stockouts and overstocks are two sides of the same profitability problem:
- Showing 12 units when you actually have two leads to overselling, back orders, and unhappy customers.
- Thinking you’re low on stock when you’re actually overstocked leads to unnecessary reorders and tied-up capital.
In fashion alone, retailers produced an estimated 2.5–5 billion items of excess stock in 2023, representing $70–$140 billion in lost sales.
Accurate tracking—especially through perpetual systems—curbs both risks, leading to both increased revenue and cost savings.
Monitor damage, theft, and loss
Shrink (or shrinkage)—the industry term for inventory loss from theft, damage, spoilage, or administrative error—often hides behind bad data. Without granular tracking, you can’t distinguish between:
- Actual sales
- Unreported sales
- Receiving errors
- Damaged merchandise
- Theft
Cycle counts paired with perpetual tracking create transparency that makes discrepancies in your inventory levels obvious quickly instead of months later.
Understand sales patterns
Your purchasing decisions are only as good as the data behind them.
Perpetual tracking produces reliable datasets that reveal:
- Sell-through rates
- Seasonal patterns
- Velocity by SKU
- What deserves replenishment—and what doesn’t
This enables better buying decisions, not guesswork or overreliance on safety stock.
Enable omnichannel retail
Omnichannel retail—selling across physical stores, ecommerce, marketplaces, and social platforms—requires unified inventory visibility. Today's shoppers expect:
- Buy online, pick up in-store (BOPIS)
- Buy in-store, ship to home
- Real-time availability online
- Consistent product information across channels
This is only possible with unified, accurate inventory tracking.
Keep inventory lean
Lean inventory strategies like just-in-time (JIT) purchasing are easier when you have accurate tracking data. Rather than maintaining large buffer stocks to cover uncertainty, accurate visibility lets you order closer to how much inventory you actually need, reducing carrying costs and improving cash flow.
Choosing the right inventory-tracking method
Your tracking method should reflect your business complexity, transaction volume, and growth plans. Here’s what to consider.
Manual tracking (spreadsheets)
Manual or spreadsheet-based tracking means manually updating inventory counts in Excel or Google Sheets as you receive, sell, or transfer products. You record starting inventory, add purchases, subtract sales and losses, and periodically conduct physical counts to reconcile the discrepancies that inevitably accumulate.
The setup is straightforward:
- Create columns for SKU, product description, quantity on hand, location, reorder point, and cost.
- Add rows for each product variation.
- Update the quantity column whenever you receive shipments or process sales.
Manual tracking is best for:
- Retailers with less than 50 SKUs
- Single-location operations
- Very low transaction volume (under 20 daily transitions)
- Businesses with limited growth aspirations
Manual tracking benefits:
- Low cost
- Simple to set up
- Easy for small catalogs
Manual tracking considerations:
- High rate of manual entry errors
- No automation
- No multi-location support
- No integration with POS or ecommerce
- No real-time visibility
Watch for clear transition signals: if you’re forgetting to update the spreadsheet during busy periods, regularly discovering significant count discrepancies, or you’ve opened a second location or launched online sales, the inaccuracies will start to add up. In the end, these will likely end up costing you more than a more sophisticated inventory tracking system would.
Barcode systems
Barcode tracking uses printed labels containing machine-readable codes attached to products or storage locations. Handheld or fixed scanners read the codes, automatically updating your inventory management software when items are received, moved, picked, or sold.
The technology stack includes three components:
- Barcode labels (either pre-printed by suppliers or generated in-house)
- Scanning hardware (handheld scanners, fixed readers, or smartphone cameras)
- Inventory-management software for interpreting scans and keeping accurate records
Setup requires:
- Assigning barcodes to all products
- Configuring your software to recognize the codes
- Training staff on scanning workflows
Barcode scanning is best for:
- Retailers with 50–5,000 SKUs
- Moderate-to-high transaction volumes
- Multiple locations or channels
- Merchants who need accurate real-time inventory visibility
- Businesses looking to scale, from small shops to regional chains
Barcode tracking benefits:
- 95%+ accuracy
- Real-time updates
- Scales well across multiple locations
- Supports serialized inventory tracking (e.g., electronics, high-value goods)
- Fast staff training, translation processing, and workflow adoption
Barcode tracking considerations:
The cost-benefit returns for barcode systems are compelling, but the expense may be a barrier for some retailers. While affordable, the system still requires up-front investment:
- Scanner hardware: $100-$500 per unit
- Inventory-management software with barcode capability: $50-$300 monthly depending on features and scale
- Label printers: $200-$1,000
Radio frequency identification (RFID) systems
RFID inventory tracking uses wireless technology to automatically identify and locate tagged items without line-of-sight scanning (like barcode readers).
Setup is relatively straightforward:
- Small RFID tags containing microchips and antennas are attached to products.
- RFID readers emit radio waves that power the tags and receive their transmitted data, updating inventory records without requiring individual item scanning.
RFID inventory is best for:
- Very high SKU counts (5,000+)
- High-value inventory where per-item economics justify tag costs
- Significant shrink problems
- Operations requiring frequent, comprehensive counts
RFID tracking benefits:
RFID inventory has significant advantages over barcodes.
- Simultaneous reading of hundreds of items (versus one barcode scan at a time)
- No line-of-sight requirement (tags read through boxes and packaging)
- Longer read ranges (feet rather than inches)
- Real-time location tracking as items move past fixed readers
This enables capabilities like instant stock counts (where you just walk through a stockroom with a handheld reader to count everything in seconds), automated receiving (pallets update inventory as they pass through dock doors), and theft prevention (alerts when tagged items exit without proper checkout).
RFID tracking considerations:
RFID takes significantly higher investment:
- Tags cost 10 cents to $1 each.
- Readers run $500 to $3,000 per unit.
- Specialized software adds even more complexity and cost.
- Implementation requires careful planning around read zones, tag placement, and interference management.
Currently less than one-third of retailers—only 31%—use RFID tags in their stores, despite widespread agreement that real-time inventory visibility is essential.
However, the global RFID market is estimated at $15.49 billion in 2024 and is forecast to reach $37.71 billion by 2032. This rapid growth means RFID-ready capabilities are increasingly baked into mainstream point-of-sale and warehouse management systems, reducing implementation barriers for SMB retailers who previously saw the technology as enterprise-only.
Comparison table: Which method is best for you?
Here's how the three primary tracking methods compare across key decision factors:
| Cost | Inventory accuracy | Labor required | Scalability | Best for | |
|---|---|---|---|---|---|
| Manual (spreadsheets) | Minimal ($0–$50/month) | 70%–80% | High (constant manual updates) | Poor | Single-location shops, retailers with under 50 SKUs, very low transaction volume, businesses not planning to scale |
| Barcode systems | Low-to-moderate ($200–$2,000 setup, $50–$300/month software) | 95%–99% | Moderate (scan-based, some manual processes) | Excellent | Growing retailers, multi-location operations, omnichannel sales, retailers with 50–5,000 SKUs, moderate-to-high volume |
| RFID | High ($5,000+ setup, $200–$1,000/month software) | 98%–99.9% | Low (automated reads, minimal handling) | Excellent | High-volume operations, retailers with large SKU counts, high-value inventory, significant shrink problems, operations requiring rapid, frequent counts |
Choose an inventory-tracking system based on where your business will be in 12–18 months, not just where it is today. If you’re planning to open a second location within a year, it’s worth investing in a barcode system now rather than spending time building spreadsheets that you’ll need to replace.
On the other hand, if you run a stable, single-location operation with low complexity, you don’t need to over-invest in capabilities you won’t use.
How to set up your inventory tracking system in five steps
This roadmap works whether you’re upgrading from spreadsheets or implementing a structured system for the first time.
1. Assign SKUs to all your products
Every unique variation needs its own SKU. This means different colors, sizes, materials, or configurations of the same base product all require separate SKUs.
A strong SKU naming schema includes:
- Clear category indicators
- Key product attributes
- Size or configuration codes
- Human-readable structure
For example, in apparel inventory management, a green, small-sized sweater might use “APRL-SWT-GRN-S,” where:
- APRL indicates apparel category.
- SWT specifies a sweater.
- GRN denotes the color.
- S indicates size.
Common mistakes with SKUs compound into long-term problems. Avoid creating SKUs that are:
- Too similar (TSHIRT-1 versus TSHIR-1 invites transposition errors.)
- Too long (16-character strings slow data entry.)
- Entirely numeric (letters provide clearer category delineation.)
Don’t reuse SKUs from discontinued products; once assigned, a SKU should remain unique forever. And resist the temptation to encode too much information—SKUs identify products, while your inventory system stores detailed attributes.
Document your rules so your catalog stays consistent as you grow.
2. Choose your tracking method and software
Your business size and complexity determine your optimal tracking method. Honestly assess:
- SKU count
- Locations
- Transaction volume
- Growth plans
- Budget
Later in this article, we’ll cover key features and questions to ask vendors when assessing software.
The best inventory-management software for your situation balances affordability now with capability in the future. Migrating systems is expensive and disruptive, so choosing a platform you won’t outgrow in a year saves significant future pain.
3. Conduct a full physical inventory count
Before activating any tracking system, you need an accurate baseline. A comprehensive physical count establishes the actual truth on your shelves, which your new system will maintain going forward.
Before you begin counting, you should:
- Schedule the count during slow hours or while your business is closed.
- Organize inventory logically—group similar items, face labels outward, and consolidate scattered stock to central locations.
- Assign count zones with clear instructions: count every unit, record exactly what you see (not what the system says you should have), flag damaged or unsaleable items, and note any discrepancies or concerns.
Execute the count:
- Count every unit.
- Spot-check high-value or high-discrepancy areas.
- Record findings directly into your new system.
- Investigate major discrepancies immediately and determine their root causes. For example, if the system shows 50 units but you only count 12, determine whether the 38-unit gap reflects theft, unreported sales, receiving errors, or mislabeled locations.
Then shift to cycle counting, where you count small sections weekly instead of doing large annual counts. Use ABC analysis to focus your efforts where accuracy matters most:
- A items: Roughly 20% of SKUs generating 80% of revenue, or representing highest value or velocity; count these items weekly.
- B items: Middle 30% of SKUs with moderate importance; count these items monthly.
- C items: Remaining 50% with lowest impact; count these items quarterly.
For example, if sneakers are one of your top revenue drivers, they’d fall into the A group and get counted weekly, while lower-velocity t-shirts or accessories might get counted monthly or quarterly. This makes regular inventory audits manageable, catches errors faster, and prevents the accuracy decay that occurs between annual counts.
4. Integrate tracking into your daily operations
Accurate tracking requires consistent process execution across every inventory transaction:
- Receiving:
- Scan or log items as soon as they’re unpacked.
- Verify quantities against purchase orders.
- Label items immediately if not pre-labeled by suppliers.
- Assign stock to specific locations.
- Selling:
- Use point-of-sale (POS) integration capabilities to update counts automatically.
- If you sell at craft fairs or popups, create a process to capture those transactions and update your system immediately upon return.
- Location moves and transfers:
- Record all stock location moves—from the back room to the sales floor, transferring stock between stores, or sending items to a fulfillment center.
- Track returns, damaged goods, and adjustments.
- Mobile workflows:
- Mobile inventory-management tools enable accuracy on the sales floor and in the stockroom.
- Use handhelds or smartphones to receive shipments, conduct counts, and process transfers without delays.
- Update counts at the point of action.
5. Schedule regular cycle counts and audits
Cycle counting and periodic audits create the feedback loop that maintains accuracy as you manage inventory over time.
First, build a routine. For example, after conducting an ABC analysis, schedule as follows:
- Weekly A-item counts
- Monthly B-item counts
- Quarterly C-item counts
Rather than treating counts as compliance exercises, establish an audit-to-action loop. When cycle counts reveal discrepancies, investigate root causes:
- Was theft involved?
- Did sales go unrecorded?
- Did receiving staff miscount items?
- Are certain products repeatedly showing variances?
Finally, track accuracy key performance indicators (KPIs) over time. Calculate your inventory accuracy percentage (units counted correctly / total units counted), and monitor trends by category, location, and product line.
Improving accuracy from 85% to 95% might prevent tens of thousands of dollars in annual shrink and stockout losses. You can also use these findings to refine reorder points, improve process training, relocate high-shrink items, or tighten security measures.
Key features to look for in inventory-tracking software
Your software determines how efficiently you operate—and how confidently you can trust your data. Look for:
- Real-time visibility: Your software should update inventory counts instantly across all channels when any transaction occurs. This prevents overselling that can damage customer relationships and excess safety stock that inflates costs.
- Multi-location support: Track inventory separately by warehouse, retail stores, online fulfillment center, or consignment location, while maintaining unified views of total stock availability. Transfer inventory between locations with proper audit trails and allocate it to specific channels based on demand patterns
- AI-powered demand forecasting: AI inventory-management systems analyze historical sales data, seasonal patterns, promotional impacts, and market trends to forecast demand in the future. This enables proactive purchasing rather than reactive scrambling.
- Mobile scanning capabilities: Receive shipments in the loading dock, conduct counts in the stockroom, process returns on the sales floor—all without returning to a fixed terminal. Real-time data capture at the point of transaction dramatically improves accuracy.
- Serialization: Supports tracking individual units of the same SKU separately when required. High-value items, electronics requiring warranty tracking, or regulated products needing recall capability all benefit from serial number management. Each unit maintains its own history from receipt through sale.
- Purchase order and receiving workflows: Generate POs based on reorder points, track expected receipt dates, match delivered quantities against orders, and flag supply chain variances automatically. This integration prevents the gaps between “ordered,” “received,” and “available for sale” that create confusion.
- ABC analysis reporting: Identifies which products drive your business. Automated classification based on sales volume, revenue contribution, or profit margin helps you focus attention on inventory that matters most.
- Point-of-sale and ecommerce integration: Creates unified operations across all sales channels. Shopify inventory management and similar platforms synchronize online and in-store inventory in real time, enabling omnichannel capabilities like buy online, pick up in-store, unified customer views, and accurate cross-channel availability.
- Integration with SAP and other enterprise resource planning (ERP) platforms: If you already use an ERP like SAP, NetSuite, or Microsoft Dynamics, your inventory system should connect directly to it. ERPs serve as the financial and operational backbone of a business, and integrating inventory data ensures every department works from the same source of truth.
- User permissions and audit trails: Grant different access levels to multiple users based on role—managers can keep track of inventory and generate reports, while floor staff can only view stock levels. Complete audit trails show who made every inventory adjustment and when, supporting shrink investigations and process improvements.
In today’s omnichannel retail landscape, accurate inventory tracking is crucial to the success of your business. According to Deloitte’s 2025 US Retail Industry Outlook, a third of retail executives plan to invest significantly to create efficiencies including accurate real-time inventory visibility and multiple fulfillment options, underscoring how foundational accurate inventory systems have become.
Inventory tracking FAQ
What is the difference between inventory management and warehouse inventory management?
Warehouse inventory management (or just warehouse management) is a subset of inventory management, in which the inventory being tracked is stored in a warehouse rather than in a back room or on a sales floor. Warehouse management comes with additional considerations, including managing employees, organizing products, managing shipments between warehouses, and fulfilling customer orders.
How often should you track inventory?
The right inventory management system for most businesses is perpetual rather than periodic—meaning that you always know how much stock you have at any given moment. Most inventory-tracking systems allow you to track your stock continuously. With these systems, you should still audit your count regularly—monthly if your inventory turnover is high, or quarterly if your sales cycle is slower.
How can businesses ensure the accuracy of their inventory tracking?
The best way to ensure inventory accuracy is to perform regular audits, either by manually counting your stock or matching sales figures to outgoing inventory. If you find that your system’s count is very close to your actual count, then you can feel confident your inventory tracking is efficient and detailed. But if you continue to find wide discrepancies in the figures, evaluate your processes for potential points of counting inaccuracy, damage, loss, or theft.
What are the consequences of poor inventory tracking?
If you track inventory poorly, you run the risk of a stockout, or running out of high-demand products. Stockouts can result in lost revenue, additional operational expenses, and damage to your brand’s reputation. Other potential consequences of poor inventory tracking include paying high costs to store extra stock or being unaware of regular damage, loss, or theft.
