3 Ways To Reduce Inventory Shrinkage 5

How to Reduce Inventory Shrinkage & Improve Control

Conducting regular risk assessments can help identify unknown causes of inventory shrinkage. Preventing inventory shrinkage requires active involvement from all your employees, from stockroom clerks to your accountants. While this type of shrinkage doesn’t always mean a direct cost loss, it translates to lost profit because projected revenue doesn’t align with your actual inventory levels. Inventory shrinkage refers to losses not caused by sales (i.e. inventory shrinkage is different from inventory loss, but inventory loss covers inventory shrinkage). An automated inventory system helps the company to escape from depending on manual labor. It will also speed up the process of inventory count, cash management, better insight holdings, and more.

Below, we outline how to select the right platform, set it up correctly, and optimize its value. While most inventory best practices apply across industries, some tactics matter more, depending on what you sell and how you operate. Here’s a quick look at which strategies tend to matter most for different types of small businesses. While you can’t predict demand perfectly, forecasting inventory is not total guesswork. To predict demand, look at your sales history, and then factor in upcoming events such as holidays, promotions, new products, and even weather.

The Benefits of 3PL for B2B Fulfillment

Warehouse crews move pallets from receiving to their warehousing space quickly to make room for the next shipment. Most shipments receive proper barcodes and are stored properly. However, some packages loose their barcode, are mislabeled, or are improperly stored.

• Keeping track of inventory can feel like a never-ending game of cat and mouse.
• Some are perfect for brick-and-mortar shops, while others are better for online sellers or manufacturers.
• Ultimately, it takes a concerted effort from everyone in the organization to reduce inventory shrinkage – from top management down.
• Reducing shrinkage in retail pharmacies is both a challenge and an opportunity.

Train employees about theft prevention

However, experts believe an ideal inventory shrinkage rate should be between 1 and 2 percent. Although, it is wise to make sure you record as little inventory shrinkage rate as possible. Recording losses that occurred by inventory shrinkage is mandatory.

Only authorized personnel should be able to enter these spaces. In addition, visible security measures can act as deterrents for potential thieves. In the event of an incident, alarms can alert staff to 3 Ways To Reduce Inventory Shrinkage the problem, enabling a swift response.

• Introducing a system of double checks is also a good way to pinpoint and rectify any stages in the inventory management process where mistakes are occurring.
• The key is to reduce the risk of inventory shrinkage in areas where it can be prevented.
• Getting started with a logistics provider can introduce expertise and technology to tackle shrinkage in warehouse head-on.
• This will help businesses to identify any discrepancies and take corrective action.

What Is Inventory Shrinkage?

When a supplier says they’ve sent five pallets of an item but only sent four, that’s fraud. Another example is if there should be a dozen items in a case, but there are only 10. If your receiving department doesn’t notice the difference, they’ll record the wrong number. Administrative errors in inventory management can also cause shrinkage. This situation occurs when your receiving department records the wrong number of items. The problem comes when you pay for the number of items recorded instead of the number received.

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Taking a few pens, copy paper, or a coffee mug from the office isn’t a big deal, right? It becomes a big deal when you have 300 employees doing the same thing. Inventory turnover, a key metric in supply chain management, becomes difficult to measure accurately when shrinkage occurs. This metric is crucial for understanding how quickly a company sells its inventory and replenishes stock. Inaccurate turnover rates can lead to poor decision-making in purchasing and production planning. Thus, it is important that you understand the causes of your inventory losses and implement preventative measures to mitigate these losses.

By structuring your warehouse layout based on product turnover rates, you can cut down retrieval times and improve order fulfillment speed. Sending the wrong item to a customer, for example, or an incorrect internal transfer, can have a cascading effect that leads to shrinkage. First and foremost, sending the wrong item increases the probability that that item is returned (by a lot). After six months, the chain reported a reduction in overall shrinkage of 18%, with significant improvements in data accuracy and process adherence.

Just like with scanner holsters, these devices help keep tablets and phones secure and accessible while freeing up the hands of workers. Tablets and phones are also more likely to be held in good condition. They’re attached securely to the holster instead of being handled carelessly or left lying around where they can get damaged or lost. In some cases, significant inventory shrinkage can lead to compliance issues, especially for public companies that must report accurate financial statements. Discrepancies in inventory can raise red flags for auditors and potentially lead to legal complications. Last but not least; software-based solutions for inventory tracking are crucial for scaling, omnichannel brands with inventory in multiple places.

Damaged items due to broken packaging, tears, cracks, water exposure, expiration, or other causes become unsellable which will shrink your inventory. Even though you still possess the items, their condition may force you to dispose of them or sell them at a reduced price. Internal theft, often called employee theft, is when your employees steal goods or commit fraud against you, their employer. Inventory Shrinkage – It is the difference between the cost price of inventory available and of inventory bought. This way, it becomes extremely easy to keep track of the liquidity of the products. It also helps in tracking which product is in more demand in comparison to others.

The truth is that shrink is currently at an all-time high and can be a significant problem for many brands. At the end of the workday, your employees can be required to submit a report that holds them accountable for the tasks and checklists they’ve completed. Implementing daily checklists means your employees know and understand what needs to be done when they arrive at work and exactly how you want them to complete each task. For the sake of this example, we’ll assign a unit value of $5.

It can be especially difficult to accurately count and record stock during busy periods when demand is higher, staff are under pressure, and returns and exchanges tend to increase. Unlike dead stock, which refers to stock that’s sitting on shelves and unlikely ever to be sold, inventory shrinkage is any loss of inventory that isn’t due to stock being sold. Some of the biggest culprits of inventory shrinkage are theft, damage to stock, and mismanagement of inventory. Shoplifting and organized crime make up a large portion of inventory shrinkage for retailers. Employee theft is also common, but it’s crucial not to make baseless accusations. Depending on the type of product, it may be a more frequent type of theft.

Leveraging a Clustering Report can segment inventory transactions, enabling managers to spot potential hot spots. Internal theft detection can lead to distrust, affecting morale and productivity. Shrinkage in retail and warehouse settings can lead to poor operational performance. When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.