What is Real-time Inventory Tracking?

What are the three methods of tracking inventory?

There are three main methods companies use to track inventory levels. All three methods relate to inventory valuation and costs rather than the physical inventory tracking process itself. Companies must still use systems like barcoding or RFID to capture up-to-date inventory data regardless of the costing method employed.

FIFO (First-In, First-Out)

This inventory costing method assumes the oldest inventory items are sold or used first. The costs associated with the first items purchased are the first to be removed from inventory when sales occur. FIFO is the most widely used method as it corresponds with the normal physical flow of inventory as it provides an approximate cost of goods sold closer to the current market value.

LIFO (Last-In, First-Out)

Under LIFO, the newest inventory costs are recorded against the cost of goods sold first. This assumes the most recently produced/purchased items are the first to be sold. LIFO can result in lower taxable income when prices are rising, as older lower costs are applied to the cost of goods sold. However, it does not track the actual physical flow and can understate current asset values.

JIT (Just-In-Time)

JIT is an inventory strategy focused on receiving goods only as they are needed for production or sale. Minimal inventory is kept on hand by coordinating deliveries to arrive just before products run out. JIT reduces carrying costs and promotes highly efficient inventory turnover. However, it requires intense production scheduling and coordination with suppliers to avoid stockouts.

What are the benefits of real-time inventory management?

Real-time inventory tracking provides several key advantages:

• Eliminate stockouts and overstocking by knowing precisely what you have on hand
• Optimize inventory turnover ratios and reduce carrying costs
• Provide accurate inventory data to improve planning and forecasting
• Enable omnichannel selling by automatically sharing inventory across channels
• Speed up order fulfillment times and reduce costs associated with delays or errors.
• Gain visibility into inventory at multiple warehouses and sales outlets

Real-time inventory management challenges

Implementing a real-time inventory tracking system requires upfront capital investment in barcode equipment, RFID technology, mobile devices for scanning, and inventory management software

You also need to integrate systems across your supply chain including e-commerce platforms, ERP, warehouse management software, and more to enable real-time inventory visibility, This integration can be complex.

Shifting from periodic manual inventory counting to a real-time system also requires retraining staff and overcoming resistance to changing long-standing processes and behaviors.