How does shrinkage affect inventory

In this case:. You can also track your inventory shrink using the inventory shrinkage rate. Your inventory shrinkage rate measures the percentage of goods lost between what you recorded and what actually sold.

Unlike for inventory shrinkage, your inventory shrinkage rate is expressed as a percentage. Going back to the same example. If you wanted to find the rate of inventory shrinkage for your ornaments, you would follow this formula:. In this case, the inventory shrinkage rate is 4. If nothing is done, then you can expect to continue to lose 4. The average shrink rate for retailers nationwide is 1. Here we will look at the typical causes for inventory shrink so that you can spot and stop them at your business.

Shoplifting and other forms of nonemployee theft account for a significant amount of retail inventory shrinkage. Source: BigStock. The National Retail Security Survey found that shoplifting incidents are at an all-time high and now account for 1.

This is staggering, but you get an even better idea of how shoplifting can impact your store when taken on a case-by-case basis. Shoplifters take advantage of vulnerable and unobserved areas in your store. The spaces between aisles and racks and dressing rooms are a few ideal places to do their dirty work. Businesses that sell high-value, high-demand products are also often targeted by shoplifters.

For example, when I managed retail spas, aestheticians had to put away products after finishing treatments and before leaving the room. Before we started that practice, it was common for customers to slip skincare products into their purses or pockets when redressing after a treatment. Tag swapping is another pervasive form of retail shrink that directly affects inventory numbers and profits.

This strategy hides the theft initially, but it throws inventory numbers off for both goods. Unfortunately, most retailers detect this during stock counts, long after the fact.

You can spot this type of loss by examining sales figures and discount reports—this is where using a robust POS system really comes in handy. Unfortunately, internal theft can be tough to spot and remedy. Marking sellable goods as damaged, stock receipt miscounts, sliding items to friends during checkout, and applying excessive discounts are some of the ways internal theft takes form.

Later, we will look at some of the ways you can deter employee theft, from making a pleasant work environment to installing access controls. Avoiding stock control errors will improve your grasp of your inventory and help you avoid false shrinkage.

Source: Multichannel Merchant. Stock control and clerical errors are other common causes for retail shrink. Some errors might be as simple as miscounts and do not reflect physical losses. Clerical errors can also create a false sense of inventory shrinkage because they result in an inaccurate picture of your actual inventory counts.

We will go into more detail below, but the best way to mitigate recording errors is to automate your inventory management with a POS system wherever possible. While you most likely will face some amount of shrinkage in your retail business, you can take steps to mitigate issues like theft and clerical errors to minimize your retail shrink.

Here we will look at strategies and technologies that you can use to prevent customer theft, employee theft, and reporting errors. Tip: You can also check out our full article on Retail Loss Prevention Tips for more on how you can protect your business.

Here we will take a look at some of the ways that you can prepare your business for shoplifters and deter them from taking your goods. Placing your cash wrap near the entry makes it harder for thieves to exit with your goods. Source: Pinterest. This will make it easy for associates to see every person that comes and goes, deterring both grab-and-run thieves and more savvy shoplifters. For example, my boutique was a long rectangular room with a small space jutting out to one side in the middle of the rectangle.

My cash wrap was in this jutted-out space, but I still had a line of sight to the exit, and there were mirrors to help me keep watch over the areas of the store that were harder to see. Security mirrors allow your staff to keep watch over areas of your store that are difficult to see. Source: Premiere Workplace Solutions. Security mirrors and video cameras can be placed strategically so that you can watch over areas that are hard to see from the checkout and other staffed areas.

Add a few signs letting people know that they are being watched. Again, the chance of goods getting damages arises while the shipping process, or from movement inside the storage area. Insects, rodents can be another cause of infesting perishable goods, thus proper sanitation is important. So skilled and specialists are essential for every job in the warehouse to reduce shrinkage due to handling goods improperly.

The first thing any organization does is to implement multiple layers of quality checks and verification. Assign more than one employee to important assignments such as signing invoices, recording stock, and accepting stock. The second person ensures that any crucial details are not missed out on or any inaccuracy is there. It also helps eliminate fraud. While hiring a new employee do a proper background verification to understand the past. It helps you understand if the employee had any past record of stealing etc.

You can understand the general conduct and behavior of the employee. If a potential employee has a long history of improper conduct, the company should drop them. The hired employees should be properly trained to handle inventory appropriately and carry out stock-taking. When you upgrade your inventory management from paperwork to cloud-based system, you get every data within a smart dashboard that has access to all your inventory movements. Purchase orders , inventory report will give access to all the stakeholders in the organization with a centralized database.

You can manage the supplier side, review, and monitor the stock list from the headquarters to eliminate any discrepancies. It also eliminates human errors with barcoding. It will track the location of the inventory from the point of origin to the point of sale and produce logs for all the users that logged into the system.

A regular audit is essential to track the inventory shrinkage percentage over regular time intervals to measure any increase or a decrease in shrinkage. The inventory report should be compared to the previous inventory reports to understand any shrinkage. The regular checks provide a pattern of inventory shrinkage. A steady decline in shrinkage percentage confirms the techniques used are working out and a steady increase or zero increase implies the current measures are not able to bring the shrinkage down and you need to revisit your strategy.

Track and keep all the areas of goods movement and warehouse under surveillance all the time. The warehouses and storage areas should have restricted access. Whoever has access to the warehouse should go through a swipe card technology to trail movements in case anything is found missing in the future. Make sure that each day the employees are leaving the premises ensuring they have done their part in keeping the shrinkage to the minimum. Empower them to take the decision to do the best for the interest of the organization.

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Shrinkage is the loss of inventory that can be attributed to factors such as employee theft, shoplifting, administrative error, vendor fraud, damage, and cashier error. Shrinkage is the difference between recorded inventory on a company's balance sheet and its actual inventory. This concept is a key problem for retailers, as it results in the loss of inventory, which ultimately means loss of profits.

Shrinkage is the difference between the recorded book inventory and the actual physical inventory. Book inventory uses the dollar value to track the exact amount of inventory that should be on hand for a retailer. When a retailer receives a product to sell, it records the dollar value of the inventory on its balance sheet as a current asset. Warehouse Management Multi-warehousing, real-time order allocation workflows. Product manufacturing including made- to-order, production, and MRP -.

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Appreciate 1. Inventory Shrinkage - Table of Content. What are the leading causes of Inventory Shrinkage? Why is calculating Inventory Shrinkage important? You can say, Inventory is money that is stashed in your warehouse. Pagliaro, President of Dana Associates. How to Calculate Inventory Shrinkage?

The critical aspects needed to consider Inventory Shrinkage Rate can are listed as follows: Calculate your On-hand Inventory Conduct a Physical Inventory Count Deduct the amount from the amount recorded in your accounting books To determine a percentage, divide the amount by your inventory value. How to prevent Inventory Shrinkage? Some of these include: 1. Safeguard the Expensive Inventory This is by the norm, one of the most effective ways to bring down shrinkage.

Eliminate Loopholes and Improvise Process You will stumble upon loopholes upon closer inspection that your employees can exploit and bring about significant shrinkage in inventory.