Barcoding and Inventory Management [Ultimate Guide]

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Barcoding and inventory management are a perfect pairing – after all, improving stock traceability and inventory accuracy is the core purpose of both practices.

This guide explores the relationship between barcoding and inventory management; as well as the how, what, and why of barcodes themselves.

In this guide to barcodes in inventory management:

What is barcoding & how does it relate to inventory management?

Barcoding is the process of applying unique, black-and-white images (barcodes) to individual product SKUs. Each barcode represents a set of numbers and letters that can be used to track and manage a product across its lifetime journey.

In order to apply barcodes to inventory management, it is important to understand the basics of the barcode system. There are three main components involved:

  1. Barcoding hardware
  2. Barcoding software
  3. The barcode itself

Here we’ll look in detail at all three of these components, as well as how barcoding is used with inventory management software to help manage warehousing and supply chain management – and cover some of its key benefits.

Barcoding hardware

Barcoding hardware is comprised of tangible units that include barcode scanners, printers, charging stations, and a series of cables, depending on the type of system you are using to scan.

Some companies will find corded barcode scanners to be all they need, where other companies require wireless scanners to support their online inventory management. Below are some examples of barcoding hardware equipment.

Barcode generators

As you can imagine, the first bit of equipment you might need to generate a barcode is a barcode generator. It is not necessary to buy them from a universal database (such as UPC) particularly if you are just starting out and testing the waters.

There are online web services with either barcode fonts or barcode generators where you can create barcodes. A popular type of barcode created in this way for small to medium sized business is Code 3 of 9 and is printable with a standard laser printer on standard labels.

Barcode printers

You can choose between multiple types with various costs however all you really need, particularly if your needs are only small at this stage, is a simple laser printer to use with Avery standard labels.

The laser printer produces very clear and legible barcodes and at a fraction of the cost of others so are a great choice.

barcode scanner

Handheld barcode scanners are affordable pieces of kit.

Barcode scanners

The second piece of hardware you will need is a barcode scanner. These do not need to be costly at all with a perfectly adequate one being available for under $100.

It is important however to pick one that is going to suit your needs such as being USB accessible with the scanner being portable for difficult to reach inventory items.

Barcoding software

Now that you have the data, the printer and a way of reading it, you need a software system to analyse and store it. This is where your inventory management software comes into the picture and will invariably make life so much easier and more organised.

Inventory management systems are generally set up to incorporate barcoding if that is what you require.

This will enable the fast and efficient acquisition of incoming product data by one simple scan per different item, and for similar items, they can all be added into stock simultaneously by scanning the barcode once and accounting for the incoming stock number.

What are barcodes?

A barcode is a picture that translates to an alphanumeric string. The idea is reasonably simple – each item should have a unique identifying string, which is then printed as a barcode and can be scanned. Each stock-keeping unit (SKU) will have its own barcode, so, for example, a 6-pack of beer will use a different barcode than a larger case.

Although it would be possible to print product numbers on inventory instead of barcodes, the downside with numbers is that they can be slower to read and easier to confuse. For example, the numbers ‘6’ and ‘9’.

Barcodes, on the other hand, can be read very rapidly while maintaining near perfect accuracy.

barcode formats

Barcode formats vary depending on their intended use.

How do barcodes represent numbers?

In a standard ‘one dimensional’ barcode, each digit (or character) in the string is given the same amount of horizontal space in the barcode (7 ‘units’ relative to the size of the barcode).

To represent each digit from zero to nine, each unit of the barcode is coloured in with a representative pattern of black and white stripes. The number ‘8’, for example, translates to one white space, two black spaces, one white space and, finally, four black spaces.

How do 2D barcodes work?

Two dimensional (2D) barcodes look like squares or rectangles that contain many small, individual dots. The most widely recognised 2D barcode, the QR code, consists of black squares arranged in a square grid on a white background.

An image is taken of the QR code (commonly by a smartphone camera) and is then processed using an error correction algorithm. Data contained in the QR code is then extracted from patterns that are displayed horizontally and vertically within the image.

Because they encode data vertically as well as horizontally, 2D barcodes can hold a wider variety of inventory information.

In addition to SKU numbers, a 2D barcode could be used to encode expiry dates, batch numbers or traceability information.

How do barcodes integrate with inventory management software?

A barcode is not useful by itself, but instead only once the products are labelled with the barcodes and they can be scanned.

The scanner shines LED or laser light onto the barcode, which is then reflected back into a sensor in the scanner. The sensor is able to discern between black and white spaces in the barcode as each reflects a different amount of light.

Whether the scanner used is handheld, pen-style or an embedded scanner (such as the kind found in self-checkout terminals), scanning the barcode will produce the identifying string, which is then matched to a record in the inventory management or point of sale system.

6 common barcode types explained

Barcode symbols are used to encode information such as product numbers, serial numbers and batch numbers. Barcodes can be scanned electronically using laser or camera-based technology that allows goods to be tracked throughout the supply chain.

There are over 100 various barcode symbols which are typically either one or two-dimensional.

The linear, or one-dimensional barcode, is the more readily recognized type and is characterized by parallel lines of varying widths and spacings. In contrast, a two-dimensional barcode, including the newer QR codes, use squares or rectangles and contain numerous small, individual dots and geometric patterns. Common barcodes consist of the following types:

1D barcodes

Inspired by the dots and dashes of Morse code, the original 1D barcode creates specific patterns from line widths and spacing to represent stock keeping unit information.

Universal Product Codes (UPS)

  • Largely used in the United States, United Kingdom, Australia and New Zealand
  • Consisting of black bars and a unique set of numbers the UPC-A variation encodes 12 numbers while the UPC-E variation encodes six
  • Codes are used in the retail and wholesale distribution industries
  • Beneficial for order entry processes, point of sale transactions and inventory

European Article Numbers (EAN)

  • As the name suggests, EAN codes are primarily used throughout Europe
  • Like UPC barcodes, the default EAN-13 comprises of 13 digits, or for application on smaller products where space is limited, the EAN-8, or eight-digit version, is used
  • Codes are utilized in the retail and wholesale distribution industries
  • Beneficial for order entry processes, point of sale transactions and inventory management

Code 39

  • The first alpha-numeric barcode to be developed, Code 39 is suitable for encoding general purpose alphanumeric data and is widely used in non-retail environments
  • Allowing the use of both digits and characters, the Code 39 barcode is so named because it initially encoded only 39 letterings although in more recent versions this character set has been increased to allow for 43
  • While utilized across many industries Code 39 barcodes are prominently used in government, manufacturing and logistics operations

Code 128

  • Robust and compact, with the ability to store diverse information, these codes are geared toward supply chain applications such as, labelling components with shipping container serial numbers and data
  • Generally used for ordering and distribution in the transportation and logistics industries
  • Codes are used for product identification, freight shipments, receiving and tracking assets and inventory management
QR codes

QR codes have become increasingly common, and can be read by most phones.

2D barcodes

Used in a wide range of industries, 2D barcodes can hold significant amounts of information. One benefit of using a 2D code is that they remain reasonably legible, even when imprinted on to products or applied at a reduced size.

Aztec codes

  • Unlike alternative 2D barcode types, Aztec codes take up less space than other matrix barcodes as they do not require the blank margin around the barcode to indicate where it starts and ends
  • These codes are generally applicable to transportation and are relevant to ticketing procedures such as generating boarding passes in the airline industry
  • Even with poor resolution, the barcodes can still be decoded making them useful in deciphering poor quality printed tickets or those that are presented via a mobile phone app

Quick response code (QR)

  • QR codes consist of black bars, geometric shapes and a unique set of numbers representative of UPC-A and UPC-E coding
  • With rapid readability, they are flexible in size and have a high fault tolerance and are largely consumer focused
  • These 2D matrix barcodes apply four different modes of data: alphanumeric, numeric, binary and the Kanji system of Japanese writing using Chinese characters
  • Commonly used for product identification, tracking and marketing applications and in inventory management
  • QR codes are not compatible with laser scanners and can only be used with camera-based scanning technology

Getting started with inventory barcoding

Barcodes are easy to implement, and they have the potential to take a lot of pain out of the inventory management process. Not only do barcodes speed up data entry, they also increase the accuracy of your inventory records and make real-time inventory control possible.

Here’s how to set up barcoding for inventory management.

Generating barcodes for barcoding

Barcoding does not usually require a significant investment in new technology, although there are a few things you will need to acquire in order to get started.

Firstly, you will need barcodes.

A barcode is, at its simplest, just a picture that represents a number or text.

Barcode fonts or generators are a free solution for internal use, although you will need to purchase accredited barcodes (either from the standards organisation GS1 or from a reseller) if you intend to apply barcodes to products for sale to larger retailers.

Of course, products manufactured elsewhere may already come with barcodes, and you may choose to use these.


Barcode scanners vary in their complexity – and cost

Selecting a barcode scanner

Once you’ve generated your barcodes, you will need a barcode scanner.

The classic handheld barcode scanner is usually best for small businesses as it is relatively fast while still being flexible enough to scan items that are too big or irregularly shaped to put on a counter.

While handheld scanner technology can vary widely, an adequate laser scanner can usually be purchased for less than $100. For portable use, a wireless barcode scanner may be paired with a smartphone or tablet.

Pen-style scanners are also useful for their portability; that said, they can be much slower for tasks involving repeated scanning (for example, a stocktake) as the end of the scanner must be run over the entire barcode (like a highlighter).

Embedded barcode scanners, such as those typically seen at supermarket checkouts, are expensive and immobile so they are not ideal for small or medium sized businesses.

Choosing inventory management software

Not all inventory management software will support barcoding; it is important to use software that can store barcode data and produce labels on demand. While there is a wide range of inventory software packages, cloud-based Software-as-a-Service is often a good fit for growing businesses.

Retrofitting barcodes

If your business has a large number of SKUs that do not have barcodes, knowing where to start may be a daunting task.

If most products have assigned serial numbers, it should be possible to use convert these into barcodes, at least for internal use.

On the other hand, you may simply choose to assign each product a new barcode – this is likely to be the case if you have not used unique identifiers previously, or if you intend to use standardised GS1 barcodes.

Obviously, your ability to assign barcodes will depend on knowing exactly which products you stock. If you do not keep a master inventory list, you may wish to carry out a stocktake in addition to referring to supplier product lists.

barcode best practice

Decide on your company’s barcode best practices to avoid data mishaps.

Deciding how to use barcodes: Barcoding best practice

It is important to consider what effective barcoding practices would look like in your organization.

This will largely depend on the nature of your business, how your inventory is stored and on the software and processes used to manage inventory.

Some businesses may prefer staff to scan as they go, while for others it may make sense to scan everything in one go at the end of the process. Scanning throughout is essential in some industries, particularly where there are onerous traceability or sanitary requirements or where it may be difficult to spot an absent part or missed process.

In other situations, it may be preferable to quickly scan each barcode at the end.

Ultimately, it’s important to define barcoding best practices for your company and educate staff on what those are. Here are three other aspects of barcoding best practice within inventory management to consider:

1. Avoid double dipping

If one staff member scans items when they take them out of storage for use in production, and the other scans them once they have been used in production, there are opportunities for ‘double-dipping’ or missed counts.

2. Use supplier barcodes wisely

Many products will have already been barcoded by suppliers. This can be useful, particularly if the supplier has barcoded using an appropriate symbology and at the level which you are fulfilling orders.

That said, it is important to bear in mind that the same products from different suppliers are likely to have different barcodes and that, in some situations, different suppliers may use the same unique identifier for different products.

If this is the case, it may be prudent to take the time to apply a new, best practice barcode.

3. Use standardised barcodes

A barcode is really just a picture which represents alphanumeric data.

It is simple to generate a barcode from a unique identifier – barcode fonts and generators are readily available. That said, many businesses may use the same unique identifier and symbology, and so often end up using identical barcodes for different products.

Self-generated barcodes are appropriate for strictly internal use, such as to track resources or partly finished goods. However, products that are being sold to customers should generally use a standardised, accredited barcode.

These can be obtained from a standards organisation such as GS1 for a minimal cost.


Barcoding keeps complex supply chains and distribution networks on track.

Benefits of using barcodes on product labels

Not all labels are created the same, but they can be built for any situation with some better suited for freezing cold environments and others for hot or humid environments.

They can be attached to all shapes and sizes of products, printed on paper or synthetic materials, with different label laminates such as matte, high gloss, coated or uncoated.

Customisable and cheap

Custom barcode labels have many benefits and can be formulated specifically to meet your unique business needs. They are relatively cheap to produce, you can just create, print and use the barcode labels that suit you best, from large and durable, custom coloured, oddly shaped or even chemical-resistant.

Barcodes and product labels can also be created with your company logo embedded within and they may contain brand colours and graphics to improve awareness and recognition.

Improved efficiency across the warehouse

Professional labelling solutions make label changes and updates easy and help ensure compliance on items where labels are required to meet certain standards.

Product labelling can create efficiencies at the supplier level by sharing and updating labels with supply partners to avoid costly hold-ups when receiving items that often need to be re-labelled before moving into production.

With the right labelling solution, you can share label templates with suppliers and other trading partners so that incoming goods are labelled and formatted the way you want them. Suppliers can simply run off labels pre-populated with the information you need, preventing delays when supplier materials arrive.

inventory management

Modern inventory management replies on accurate stock identification.

Why make the switch to a barcode tracking system? 9 good reasons

1. Minimise errors

The first and most prominent benefit to barcoding is the intrinsic accuracy associated with it. 

When inventory data is manually entered into Excel spreadsheets or worse yet, handwritten on paper, it is subject to significant human error which is unavoidable. The proposed error rates are 10 in 1000 for human-operated keystrokes and a mere 1 in 10,000 scans for a barcode scanner. 

Errors in inventory can have massive repercussions including delays in shipments, missed orders and over or understocked items.

2. Time savings

Barcoding is a major efficiency boon. Not only does manual entry require more time for data auditing and stock taking, it is also a slow process. Adding value after value into field after field is a painstakingly slow task, sapping both time and staff morale.

3. Allow real-time inventory visibility

Many businesses, particularly those with complex and varied inventory requirements, lack visibility over their stock. 

Barcode scanning allows a business to track its inventory in real-time. Staff have total visibility over each item from the time it is receipted or produced, to the time it is shipped to the customer. 

As online inventory management takes off, many businesses are now managing inventory from the cloud – allowing them to keep track of every moving part in their business, in realtime and from virtually any place in the world.

4. Safety and quality assurance

Similarly, barcodes afford tighter quality control and more accurate inventory tracking. 

Not only is this feature desirable, it is also imperative especially for the pharmaceutical or medical industries where manufacture needs to be acutely controlled and frequently audited. 

Tight control is also a security feature where theft or loss can be easily recognised and acted upon thereby minimizing the effects of it further down the chain.

5. Barcoding benefits in the warehouse & supply chain: tracking and storage

Copious time, representing a significant monetary value, is associated with disorganized storage and recording, where staff cannot easily locate and pick items for production or shipping. 

This will also inevitably result in the excess ordering of items as the perception will be that they have run out when they may simply be not found. 

Barcoding is an efficient way of tracking inventory throughout the production process all the way to a sale, making it so much easier for staff to store items in a sensible way, locate them and make ordering decisions based on more accurate inventory levels.

6. Equipment control

Barcodes can also be useful when affixed to equipment so that the locations of specific items can be ascertained quickly and accurately reducing the amount of time staff spend looking for them.

7. Fast and easy to set up

Barcoding hardware and software can be set up quickly and easily for a minimal cost. It does not represent a large-scale, complicated system which takes months to commission therefore it really is accessible to most businesses, no matter how small.

8. Rapid acquisition of data

Using barcoding and associated software rather than traditional Excel or handwritten methods saves a significant amount of time when it comes to data acquisition. 

Often quick and accurate decisions need to be made regarding ordering and inventory and it is so helpful when the information with which to do so is available rapidly, accurately and in real-time. 

Other methods of inventory recording simply do not compare to these features of barcoding systems.

9. Professionalism and customer involvement

When comparing a hand-written sticker attached to a product stating a unique identifier with a barcode that is neat and in black and white, the more professional appearance will be the barcode. Perception is often very valuable when it comes to business, the more professional looking item will be the preferred choice.

Barcodes (and QR codes), due to their ability to code several pieces of information simultaneously, are also being used to code for factual information that may be interesting for customers. Using a barcode to represent extra, fun facts about the company or the product can create customer interest and involvement, which are fundamental to satisfaction and loyalty.

inventory management

Technology such as RFID tagging is increasingly complementing barcode use in the warehouse.

Beyond barcoding: 4 exciting alternatives

The buzz is all about barcoding and how it can benefit companies the world over in optimising their internal processes to save time and money. However, barcodes are not the end of the story when it comes to inventory management and product tracking. Let’s explore some of the alternatives to traditional barcodes.


RFID or Radio Frequency Identification uses radio frequencies from an induced magnetic field to automatically identify and track items. RFID allows companies to quickly gain information about an item’s characteristics and location so that decisions can be made efficiently. RFID also facilitates efficient tracking of items in the warehouse and throughout production, paving the way for more efficient stock turnover and the use of a Just-in-Time inventory system (JIT).

An RFID system is much faster than a barcoding system as the data is automatically read (where as barcoding still requires a staff member for physically reading barcodes). A fantastic setting for RFID is the hospital where tags could potentially encode for a patient’s medication, allergies or medical condition. It is likely the adoption of RFID also decreases the risk of error.

2. Visual recognition

Visual recognition is an exciting new field of tracking items which essentially uses modern image processing and identification technology. Basically, it does away with the ‘middleman picture’ (i.e. the barcode), and can use an image of the product label or logo itself to generate the retrieval of or addition to, stored data.

3. Digimarc packaging

Digimarc is a barcode which essentially comprises the entire packaging of a product rather than being like a tradition 1D barcode which exists as a small black and white striped box in the corner of underside of a product.

The major advantage of these types of codes is the time saved when using them. No longer must a retail assistant search each side of a product for the traditional barcode while ensuring it is perfectly in the laser light at an optimum distance for a correct reading. With a Digimarc code, the operator simply places the entire item in the laser beam, regardless of the position or orientation, and the system will read it.

4. Near Field Communication

Near Field Communication (NFC) is an amazing technological development where an NFC ‘tag’ is used to communicate with a reader (most often a mobile phone) and instruct it to do something. All of this happens without input from the user and so can be used in a variety of settings where automatic preparation or functions are required.

NFC tags can be used in immediate mobile payments where the operator’s mobile phone is instructed to process a payment on request. Likewise, they can be used for turning on automatic domestic lighting or alarm systems or starting a car without keys. The benefit of this technology is being able to treat your mobile phone as a command centre for all domestic and business activities so that it is no longer necessary to carry around multiple cards and keys.

Barcoding is not the be all and end all of business inventory tracking. There are many other options available that may be better suited to your company or provide an added advantage. Just remember, whatever system you use must be considered carefully prior to adoption.

Using barcoding in the distribution process

When inventory is received, the team unloading the truck or container must reconcile the product received with the relevant purchase order.

This process was historically completed using a pen and clipboard and, more recently, using Excel spreadsheets. Barcodes on products can be scanned to reduce the administrative burden, allowing trucks to be turned around much more quickly.

The right item in the right place

Storing goods in the correct location, expedites the picking process and will make stocktaking quicker and easier. Staff can scan an individual item and then the corresponding bin number. The system will then verify that goods have been placed in the correct location.

High turnover stock should be placed in easy access locations closest to dispatch, improving fill rates and overall inventory control.

The system that is right for you

If you are considering a barcode system to streamline your distribution business, you are making a smart choice. Distribution companies experience greater productivity and fewer errors when implementing a barcode system in their daily processes.

Barcodes come in one and two-dimensional applications. Of the variety of barcodes available, all have pros and cons and certain systems are better suited to specific industries.

Code 128

A compact, high-density 1D code used in the logistics and transportation industries for ordering and distribution. Geared toward non-point-of-sale products, they are used when supply chain applications label units with serial shipping container codes. Code 128 barcodes are dynamic and can store diverse information because they will support any character within the ASCII 128-character set.


The 2D MaxiCode is used in logistics and distribution to track and manage parcel shipments, helping to address and sort packages in a quick, efficient way. In contrast to the linear barcodes, the MaxiCode uses dots arranged in a honeycomb pattern and is made up of 888 information-bearing cells.

A Note: Product tracking in Unleashed Software

Unleashed Software supports barcode scanning. Users have the option to use barcode scanning when receiving products or when fulfilling a sales order.

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Greg Roughan - Unleashed Software
Greg Roughan

Article by Greg Roughan in collaboration with our team of inventory management and business specialists. Greg has been writing, publishing and working with content for more than 20 years. His writing motto is 'don't be boring'. His outdoors motto is ''I wish I hadn't brought my headtorch', said nobody, ever'. He lives in Auckland, New Zealand, with his family.

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