How to Reduce Inventory Shrinkage

Any business that carries physical goods, inventory shrinkage, also known as inventory loss is a big challenge. Without proper monitoring and controlling, you won’t be able to trace the roots of this problem. Once you get to know the causes, you can incorporate measures to deal with this problem.

What is inventory shrinkage?

What is inventory shrinkage

The loss of goods that occurs due to employee theft, vendor fraud, administrative errors, spoilage/damage etc. on its way to the end customer from a manufacturing site is referred to as inventory shrinkage. Basically, it’s the difference between the amount of stock as per your record and the physical count of your stock.

Sources of inventory shrinkage

Measures to prevent inventory shrinkage

Though inventory shrinkage can create major problems for business, it can be reduced greatly by adopting certain preventive measures. Here are some of the effective things that you can integrate to reduce inventory shrinkage:

Make use of good inventory management system

Make use of good inventory management system

When counting, recording etc. are done manually, errors are more likely to occur. Using good inventory software organises products as well as vendor information. When integrated with your POS system, it updates the inventory data after each transaction. It lets you generate accurate purchase orders.

Educate your employees

Educate your employees

Another great way to reduce inventory shrinkage is educating your employees. Educate your employees how inventory shrinkage has a direct effect on them. Limited pay increase, fewer opportunities for promotion, a risk to financial stability of the company etc. are some of the things that result due to inventory shrinkage.

Give product unique identities

Give product unique identities

When you give the products unique identities it helps in lowering product shrinkage. You can do this with proper product SKU (Stock Keeping Unit) and UPC (Universal Product Codes) as it ensures the recorded stock levels to be correct. Make sure that the product codes are simple and clear to be understood.

Tighten up inventory receiving process

Tighten up inventory receiving process

Tightening up inventory receiving process can help in reducing inventory shrinkage. Make sure to cross-check the products at the time of receiving and label the products immediately. If there is any inconsistency in the number of products, call the vendor immediately so that the issue gets resolved.

Separate duties

Separate duties

Make sure that you don’t employ the same person to do two different work. If one is responsible for processing the receipt, the recording of the receipt should be done by another person.

Reduce temptation

Temptations may lead to in-house theft. Make sure to store items that are valuable in a secured place that requires higher level authorisation to get access to those items.

Install surveillance cameras

Install surveillance cameras

Installing security cameras throughout your warehouse and other working areas is very necessary. Make sure that you inform all your employees in a gentle manner that cameras are working and checked, as well.

Plan for busy periods

Plan for busy periods

During peak season when the demand is more, returns and exchanges tend to increase, and staffs under pressure, it becomes difficult to count and keep a record of stocks properly. Make sure to plan ahead to time and have proper systems in place so that you can efficiently manage inventory levels when the demand gets higher.

Track inventory shrinkage over time

Track inventory shrinkage over time

Calculating the percentage of inventory shrinkage each time you do the physical count of the products is useful in lowering the inventory shrinkage percentage over time. And if the percentage gets higher, you can check for the measures that are not working and employ more effective techniques.

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