The best way for manufacturers to keep track of inventory is to create a system that covers everything from item names to stock counts. You need to know what you have, where it is, what’s selling, and whether there is any visibility gap in your barcode scanning or RFID system. This guide takes you through 9 steps to improve your inventory accuracy and ways to improve your inventory tracking system.
TL;DR
- The best way to maintain accurate inventory is to use a single system for item names, SKUs, counts, reorder points, sales updates, purchase orders, and reports.
- Spreadsheets work for very small inventories, but they become inefficient when multiple people or product lines are involved.
- Each item of stock movement, whether it is a sale, return, damaged goods, transfer, adjustment, or even partial delivery on a purchase order, should be documented.
- Reorder Points tell manufacturers when to make an additional purchase of inventory so as to prevent stockout situations.
- QuickBooks-based manufacturers, distributors, and wholesalers often need connected workflows that tie inventory activity to sales, purchasing, invoicing, and accounting.
How do you keep track of inventory accurately?
To accurately track your inventory, you will need to record every single item and input it into your inventory management system. First, assign a SKU (stock-keeping unit) number to each product, count and review your products as frequently as possible, maintain up-to-date quantities for all transactions, set a reorder point, and continuously monitor and analyze your inventory reports in real time.
Smaller businesses can start with a spreadsheet, but as they grow, this becomes unviable. Once inventory touches multiple people, locations, or sales workflows, it should use inventory management software that automatically updates stock levels and connects inventory activity to QuickBooks or other accounting programs.
| Business stage | Best inventory tracking method | Why |
|---|---|---|
| Solo or very small business | Spreadsheet | Low cost and easy to start. |
| Growing product-based business | Inventory software | Reduces manual updates and counting errors. |
| Manufacturer or distributor | Inventory + CRM/accounting workflow | Connects sales, orders, fulfillment, and invoicing. |
| Multi-location business | Inventory system with location tracking | Shows what is available by warehouse, truck, site, or branch. |
Step 1: Create one master inventory list before you track anything else
The very first thing you need to do is create an accurate master inventory list. If your products are listed incorrectly anywhere, it’s going to be easier for all of your systems to compound on those mistakes.
Your master list should capture the basics: product name, SKU, description, category, supplier, unit cost, selling price, and quantity on hand. From there, you want the reorder point, preferred reorder quantity, and wherever the item actually lives, whether that’s a bin, shelf, truck, or site. QuickBooks users can also review how item setup works in our guide to adding inventory to QuickBooks.
Common mistake: Letting different teams name the same product differently. “Blue valve,” “dark blue valve,” and “valve-blue” are all the same item, but your system has no way of knowing that. Standardize your naming conventions before you start building your master list, and remember to keep them as simple as possible while differentiating.
Step 2: Assign every product a unique SKU so inventory is searchable
Make sure everything has an SKU, a unique in-house item number that helps your staff identify and report inventory usage. This helps to both streamline inventory accounting and optimize forecasting. The goal of developing a “good” SKU is to be detailed enough that your staff can distinguish between two very similar items, yet easy enough for your employees to use each day.
| Product | Weak SKU | Stronger SKU |
|---|---|---|
| 12 oz white ceramic mug | MUG | MUG-CER-WHT-12OZ |
| Large nitrile work gloves | GLOVE-L | GLV-NIT-BLK-LRG |
| Replacement air filter pack | FILTER1 | FLT-AIR-RPL-PK3 |
Do not make SKUs so complex that they resemble Einstein’s field equations. Make sure they can be referenced and understood by the team that needs to utilize them.
Step 3: Choose the right inventory tracking method for your workflow
The right way to keep track of inventory depends on how many products, orders, users, sales channels, and stock locations you manage. You need to make sure you are able to track all these different metrics and variables. This is why a single spreadsheet only works for a short period of time; once your operations become more complex, so does your system. This is well known in the industry; in a Reddit discussion about multi-warehouse inventory tracking, one user said that they had “officially hit the wall with spreadsheets” after they started juggling multiple locations.
| Tracking method | Works best when | Where it starts to break |
|---|---|---|
| Manual inventory sheet | You have a small catalog, low order volume, and one person responsible for updates. | Errors increase when more people edit the file or stock changes throughout the day. |
| Accounting system item tracking | You mainly need inventory tied to purchases, invoices, cost of goods sold, and financial reports. | It may not give your sales, warehouse, or operations team enough workflow visibility. |
| Dedicated inventory platform | You handle more SKUs, frequent orders, barcode workflows, or more than one stock location. | It can still become disconnected if customer, sales, and accounting data live elsewhere. |
| Connected CRM and inventory workflow | Your quotes, orders, fulfillment, invoices, and customer records need to stay in sync. | It needs an intentional setup so the workflow matches how your team actually sells and fulfills orders. |
QuickBooks tracks your inventory if you have enabled Inventory Tracking. It also includes the quantity in stock and the specifics of each product and service. QuickBooks explains how to enable inventory tracking in QuickBooks Online here, allowing users to add and track their inventory. This gives QuickBooks an advantage as an accounting-based solution, and many growing teams will continue to require separate, integrated workflows for Sales, Approvals, Purchasing, and Fulfillment.
Step 4: Record inventory changes every time stock moves
Inventory stays accurate only if every movement is recorded.
Update inventory when:
- New stock arrives.
- A product is sold.
- An item is returned.
- Inventory moves between locations.
- Inventory is damaged.
- Stock is written off.
- A count adjustment is made.
- A kit, assembly, or bundle is created.
- A purchase order is partially received.
For many organizations, inventory data isn’t updated until an invoice is created. This disconnect results in three separate ideas of how much product is available: the warehouse, the sales team, and accounting. As a result, many organizations spend hours reconciling their orders after they’ve been completed, and these increased hours hurt profitability.
As organizations grow, it’s unrealistic for all customer-facing activities and accounting functions to operate outside integrated systems. When the sales department commits to fulfilling customer requests based on inventory levels that don’t actually exist, or when the accounting department invoices for partial shipments of a customer order, this creates significant problems for inventory management. Method’s two-way QuickBooks sync helps manufacturers keep customer, order, and accounting data in step without all the retyping. It supports quoting, fulfillment, and inventory related workflows through QuickBooks data and custom integrations.
Step 5: Set reorder points so you know when to buy more inventory
A reorder point tells you when to buy more inventory before stock runs too low. The basic formula is:
Reorder point = average daily sales × supplier lead time + safety stock
For example, if you sell 10 units per day, your supplier takes 7 days to deliver, and you want 25 units of safety stock, your reorder point is 95 units: 10 × 7 + 25 = 95. That means you should reorder when stock drops to 95 units.
Do not set reorder points once and forget them. Review them when supplier lead times, seasonality, sales velocity, or minimum order quantities change. For a deeper calculation walkthrough, use the Method’s Reorder Point Formula Guide and Safety Stock Calculator Guide.
| Scenario | Average daily sales | Supplier lead time | Safety stock | Reorder point |
|---|---|---|---|---|
| Fast supplier | 10 units | 3 days | 25 units | 55 units |
| Standard supplier | 10 units | 7 days | 25 units | 95 units |
| Slow supplier | 10 units | 14 days | 25 units | 165 units |
| Delayed supplier | 10 units | 21 days | 25 units | 235 units |
Step 6: Count inventory regularly instead of waiting for year-end
Inventory counts confirm your records are in sync with what is actually on your inventory shelves and trucks. This means that if you only conduct an inventory count once a year, issues may go unnoticed for many months before you even know they exist.
The entire stock has to be counted at once during a complete physical count. While this works great for a reset-type scenario, it interrupts the normal workflow of a business. Cycle counting involves checking selected items regularly rather than everything at once, helping you identify errors as close to when they occurred as possible.
| Count type | How it works | Best use case |
|---|---|---|
| Full physical count | The team counts every item across the business during one planned count period. | Useful for annual closes, quarterly checks, or major inventory resets. |
| Cycle count | The team counts selected items on a rotating schedule, such as weekly or monthly. | Best for businesses with fast-moving, high-value, or frequently adjusted inventory. |
| Spot check | The team checks one item or category after a specific issue appears. | Helpful when investigating stockouts, damaged goods, picking errors, or unusual adjustments. |
Step 7: Use inventory reports to find stockouts, overstock, and slow-moving items
Inventory reports will help a business determine when to order again, which products should be discontinued, and which products are tied up in cash and are currently stocked but do not meet current demand. Reports such as inventory value reports, stock status reports, sales reports by product, reorder reports, aging inventory reports, low-stock reports, inventory adjustment reports, and gross margin by product reports can all help a business with its decision-making process.
As stated in our guide to managing inventory in QuickBooks Online, reports allow companies to track inventory levels and evaluate the cost of goods. These manufacturing tools in QuickBooks help companies identify slow-moving products and understand which products are committed to existing orders.
This is not merely an internal reporting matter. According to IHL Services’ Global Retail Inventory Distortion study, the annual loss to the global retail industry from out-of-stock and overstocking is approximately $1.73 trillion.
Step 8: Connect inventory tracking to sales, purchasing, and accounting workflows
Inventory tracking, whether done properly or not, has a direct effect on quoting, sales orders, customer expectations for delivery dates, fulfillment, purchasing, invoicing, payments, reporting, and cash flow. If these workflows are not connected, the business will spend way too much time reconciling these differences after the fact.
Method CRM data point: 86% of Method manufacturing, wholesale, and distribution prospects use only QuickBooks or spreadsheets plus QuickBooks. Meanwhile, 82% report problems with order management. This suggests that inventory challenges often first appear as delays or errors in quoting, order processing, fulfillment, and invoicing.
The issue with manufacturers and distributors who use QuickBooks is often that information is disconnected. A quote becomes an order, which may trigger a purchase and inventory changes, and the invoice still needs to match what was delivered. It’s pretty easy to find this sentiment all over the internet. In one Reddit post, several users mention that QuickBooks does well for basic accounting, but as things grow, an alternative is needed.
Step 9: Audit your inventory process every month so errors do not compound
Most repeated mistakes stem from a flaw in your business workflow. A regular inventory audit will help you identify these problems before they affect cash flow, customer order fulfillment, or financial reporting.
Monthly inventory audit checklist
- Review negative inventory balances.
- Compare physical counts against system quantities.
- Identify which items are moving slowly or are unlikely to be sold.
- Review low-stock and reorder reports.
- Investigate large inventory adjustments.
- Review supplier lead times.
- Verify that the product name and/or SKU number is still correct
- Check whether sales, warehouse, and accounting teams are using the same process.
Even though looking into them can be time-consuming, don’t treat discrepancies as one-off errors, because they are probably not. If you keep getting the same item wrong each time an audit occurs, it might mean there’s something wrong with your whole setup. According to research cited by the Institute for Supply Management (ISM), some studies have found average inventory accuracy rates as low as 65%, meaning many businesses have major gaps between what the system says they have and what is actually on the shelf.
Bottom line: Track your inventory, track your bottom line
Accurate inventory tracking helps prevent stockouts, reduce excess inventory, improve cash flow, and support better business decisions. When discrepancies are identified and resolved quickly, your team spends less time correcting errors and more time fulfilling orders, serving customers, and growing the business.
The stakes are high. Every year, businesses lose more than $1.7 trillion to inventory inaccuracies, whether through stockouts, overstocking, misplaced items, or manual data entry errors. That’s why effective inventory management is a critical driver of profitability.
As your business grows, inventory tracking becomes increasingly connected to sales, purchasing, fulfillment, invoicing, and accounting. A CRM like Method that brings these processes together can provide greater visibility, reduce manual work, and help ensure everyone is working from the same information.
Frequently asked questions
What is the easiest way to keep track of inventory?
The easiest way a business owner can keep track of inventory is to create a master item list, assign SKUs, record every stock movement, set reorder points, and review inventory reports regularly. Very small businesses can start with a spreadsheet, but growing businesses need inventory software or a connected workflow system that updates stock automatically.
Can I keep track of inventory in Excel or Google Sheets?
Yes, you can track your inventory using a spreadsheet like Excel or Google Sheets; however, this typically works well only for companies with a limited number of products, low order volume, and a single employee who handles updates. When multiple employees perform updates manually across various locations and purchasing workflows, spreadsheets become increasingly difficult to manage due to the higher risk of manual warehouse management errors during data version updates.
How often should inventory be counted?
Your inventory should be counted at least once per year; however, businesses that handle large volumes of fast-moving goods or high-value items should conduct “cycle” counts several times each year. The frequency with which you count items should be based on their importance and how quickly they move through your warehouse.
What causes inventory records to be inaccurate?
Some examples of what cause inventory to be inaccurate include failing to enter all stock movements into your records immediately after the fact, inconsistent item names with no template, human error, and a lack of cloud-based synchronization between your sales and purchasing systems.
Does QuickBooks track inventory?
Yes, if you enable inventory tracking in QuickBooks, you can use it. QuickBooks Online users can activate product/service columns to track quantity, price/rate, raw materials, and even on-hand physical inventory quantity. That said, some e-commerce and manufacturing businesses may find that additional support beyond QuickBooks’ built-in capabilities is needed as their workflows become more complex than just stock alerts.
What is the best inventory tracking method for manufacturers and distributors?
For manufacturers and distributors, the most effective way to track inventory is to implement a connected workflow that ties inventory directly to sales orders, purchasing, finished-goods fulfillment, invoicing, and accounting based on their business needs. While a spreadsheet can be useful for managing counts, it will not effectively support quoting and other functions as your business expands.
