3 Ways To Reduce Inventory Shrinkage 1

What is Inventory Shrinkage? Causes, Impacts & Prevention

You can also install anti-theft alarms at security checkpoints. Additionally, make sure that fire detection and prevention systems are in place to safeguard your products from damage in case of fire emergencies. Administrative errors are often caused by human mistakes during data entry or inventory management (i.e. accounting and recordkeeping errors). This not only reduces your available stocks but also impacts your company financially through lost sales and the costs of replenishing stolen items. Given their direct access to inventory, employees can exploit their positions to steal merchandise unlawfully. They might steal physical items directly from stockrooms and might engage in fraud by undercharging a friend or keeping cash payments for themselves.

Install item tracking

But by implementing demand forecasting, FIFO, automation, cycle counting, and stock level controls, businesses can prevent common inventory problems before they happen. So what can ecommerce business owners do to prevent shrinkage? Inventory shrinkage is a hit to warehouse margins and annual revenue caused by loss of goods between time of manufacture and point of sale.

Retailers must prioritize knowing their customers to stay competitive: EY Canada

• These providers offer expertise in areas critical to preventing loss, from just in time inventory management to comprehensive audits.
• Sortly can help you get organized and keep an eye on your inventory each and every day.
• First-In, First-Out (FIFO) is one of the simplest yet most effective inventory management techniques.
• The best inventory software for small businesses is the one you’ll actually use.

And yet, many ecommerce business owners don’t realize how much inventory shrinkage affects their bottom line. Some businesses might forgo replacing missing products, but they’re still losing money at the end of the day. With that said, inventory forecasts are becoming more and more precise, which means even a few missing units may result in missed sales opportunities.

• Administrative errors are often caused by human mistakes during data entry or inventory management (i.e. accounting and recordkeeping errors).
• A well-defined inventory process is the backbone of successful warehouses and retail stores and is crucial in preventing inventory shrinkage.
• A badge can, for example, be scanned whenever an employee moves inventory.
• This clarity ensures that there are no ambiguities that could lead to shrinkage.
• Posting signs about your security measures and the consequences of theft can also act as a deterrent to potential thieves.

Implement a Double-Check System: The Foundation of Accurate Inventory Management

That’s why you need to build a workplace culture where honesty matters and shrinkage is taken seriously. Use purchase orders and match them with delivery receipts and invoices. This is called a “three-way match.” It helps catch mistakes early. Relying on annual stock counts means errors can go unnoticed for months. Regular cycle counts, where small sections of inventory are audited frequently, help catch discrepancies early. Inventory shrinkage is an unfortunate reality, but it can be managed.

#7. Return Fraud

According to the National Retail Federation, shrinkage reportedly cost U.S. retailers $112.1 billion in 2022. It accounted for nearly 1.6% of total retail sales, and that’s just one sector. A low-maintenance way to prevent employee theft is by implementing a 24-hour CCTV system throughout your facility.

Once a product is not sold till the date of expiration, it becomes a waste matter. This cannot be sold by the company and the cost is included in inventory shrinkage. The direct financial losses of inventory shrinkage are fairly obvious. Somewhere between your purchase and the sale, the inventory went missing. As a result, you will not be able to recoup the cost of the item through normal sales.

Effective Strategies to Prevent Inventory Shrinkage

Loss of inventory also makes it difficult to measure the number of times inventory is sold or used in a defined period, also known as inventory turnover. Computers can complete simple tasks much quicker than humans and with fewer errors. For example, an inventory management system tracks product flow in real-time– and will help you identify where inventory went missing.

At Falcon Fulfillment, we understand that every 3 Ways To Reduce Inventory Shrinkage dollar counts when growing and building a business. While it might seem like a small problem, shrinkage costs can quickly add up. The National Retail Federation reported that shrinkage cost retail businesses over $100 billion.

What Causes Inventory Shrinkage?

Whether it’s due to theft, damage, or administrative errors, shrinkage is a problem businesses can no longer ignore. Certainly, you will instruct your employees in performing their duties, but it’s essential to provide targeted training on employee theft. Clearly define the repercussions for theft and its detrimental impact on the company. Introduce a mechanism for employees to anonymously report suspected theft. Clearly communicate what constitutes theft and the threshold at which termination or legal action will be pursued.

Implementing stringent quality controls can reduce the financial impact of damaged goods on inventory shrink. Combatting employee theft requires vigilance and innovative shrinkage solutions that promote transparency and accountability within the workforce. You can use ABC analysis to separate the high-impact products from the bulk fillers. Doing so will help you identify the products that you need to track more frequently and diligently due to high demand. Research shows that 62% of businesses that use RFID improve inventory accuracy to over 95%.