What is Inventory Shrinkage? 6 tips to Against Inventory Shrinkage

July 15, 2022 12:25 pm Published by

Once you’ve settled on a new platform, run a pilot program to see how your inventory shrinkage rate changes over time. Sometimes all of your investigative work comes up with nothing, and you just chalk it up to “unknown” — which is the case 3.9% of the time. Inventory is complicated to manage, so it’s not surprising that units get lost in the shuffle. Some adjustment for inventory shrinkage is unavoidable, particularly in larger operations. However, improving your administrative processes should help prevent some products from disappearing. However, due to shrinkage, your actual inventory value is $63,000.

According to a Sensormatic study, shrinkage rates fluctuate widely from industry to industry. Stores in the consumer staple sector encounter a higher degree of wastage or spoilage, as perishable goods expire. Stores in the consumer discretionary sector experience increased instances of internal and external theft. Running a business is hard enough, but it’s even harder when your inventory is disappearing into the ether. When the Widget Fairies carry off your widgets in the middle of the night, that’s called inventory shrinkage, and it can cost your company a lot of money. If your inventory reports and sales records don’t match, you will have to spend a significant amount of time reconciling your receipts and accounting records.

Reduce Shrinkage by Automating Inventory and Reporting With NetSuite

The process of bottling, labeling, packing, storing, and shipping the wine cause 2 cases—24 bottles—to disappear. Organized retail criminals move from store to store and even city to city, committing theft in an organized manner. Typically, ORC involves a group of individuals stealing merchandise that they then convert to cash via online auction sites, at flea markets, or even to other retailers. You should also be aware of organized retail crime, or ORC, a phenomenon that has been on the rise for several years. Essentially, organized retail crime is professional shoplifting, or any theft that occurs with preplanning and as part of a larger group.

This will prevent the loss of product that happens when a stocker puts an item in the wrong spot. Another type of loss happens when products are placed on the wrong shelf. When a picker goes to fill an order, they don’t find the product at the spot for that SKU. In a large fulfillment warehouse, finding products that are misplaced can be like looking for a needle in a haystack. Most third-party logistics warehouses have a shrinkage allowance in their contracts.

However, when you have a stock audit tool like GoSure, stock counting during business hours becomes perfectly possible! Perpetual audits can be done with peace by planning for audits during daily employee lean hours seamlessly. You can identify and correct the discrepancies all in a single click.

Because eCommerce goods pass through many hands on the way to the end customer, damage is likely to be part of your shrinkage factor. They should never put themselves in harm’s way, but greeting every customer and making it clear employees are alert can discourage potential shoplifters. Cycle counting refers to the practice of counting a small amount of your inventory on an ongoing basis. You might do a weekly count of 10 different SKUs, for example, or you might pick 20 particular SKUs to count weekly for a month to monitor stock level changes for those products. Some dishonest vendors can steal from you by not delivering a full order, though this is, by far, not the way the majority act.

Set up 24/7 security systems

Inventory shrinkage — whether it’s due to miscounts, damage, fraud, or theft — can cost a business both time and money. Brands should familiarize themselves with what inventory shrinkage is, how to track it, and how to prevent it. Your inventory’s book value should be $38,000 ($50,000 – $12,000). However, due to shrinkage, your actual inventory value is $35,000. Use the inventory shrinkage rate to find out how much value you lost.

Create employee incentives

Unhappy and under-trained employees are risk factors for theft. Organized retail crime, where two or more people conspired to steal merchandise to resell, also falls under the shoplifting label. Price tag swapping also falls into this category, where a shoplifter pays less than what an item is worth because a different item’s SKU is recorded in the sale. Get Accounting, CRM & Payroll in one integrated package with Deskera All-in-One.

Employee theft

Run credit, background, and criminal checks before hiring, and reach out to applicants’ references to identify any red flags. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. He is the sole author of all the materials on AccountingCoach.com.

Before hiring employees, a company should vet potential employees and do a background check to weed out those with a history of stealing inventory. The company should contact the references and past employers to know the behavior and general conduct of a prospective employee. In the United States the National Retail Security Survey is published annually as part of the Security Research Project at the University of Florida. The Security Research Project endeavors to study various elements of workplace related crime and deviance with a special emphasis on the retail industry. Employee screening and education
From the very beginning, close screening of potential candidates reduces potential inventory theft.

We grow your business by getting you closer to your customers with guaranteed 2-day delivery. Acquiring or upgrading video security systems will also be a great help—especially in cases when fixing ink or magnetic tags how law firm accountants succeed to items isn’t reasonable. Maybe someone is taking cash from a drawer or a bottle of liquor from behind the bar. Expand the sections below to get answers to some of your most frequently asked retail shrink questions.

The best way to calculate shrinkage rate value is to subtract the total value of your current inventory from the total value of inventory you’re supposed to have. Inventory shrinkage can be caused by theft, shipping damage, miscounting, and vendor fraud, as well as other factors. As your ecommerce business grows and inventory becomes too expensive or challenging to manage in-house, consider using an expert ecommerce fulfillment company to help you.

Here are the 5 most common themes we got when it comes to controlling shrinkage. Remember, shrinkage is not a good form of inventory reduction. But it’s harder for the wholesaler to count the 598 cases of wine they got from the vineyard. If it’s unrealistic to count, it’s unrealistic to verify that you got the right amount. When the vineyard sells the cases of wine, the vendor or wholesaler receives and sells the wine on an online marketplace.

Inventory shrinkage occurs when the number of products in stock are fewer than those recorded on the inventory list. The discrepancy may occur due to clerical errors, goods being damaged or lost, or theft from the point of purchase from a supplier to the point of sale. Double-check systems
Improve your inventory accuracy by implementing daily or weekly stock checks and receiving counts. Ensure that your team alternates counting duties to deter mistakes or even dishonest employees from reporting false inventory records.

Sometimes goods are broken without any theft or administrative error being at fault. There is another way of ensuring the inventory is safe by giving employees cross-checking responsibility. Assign two different employees to keep a check on the inventory, prepare reports, analyze, and match them often. Now subtract total inventory in the stock from inventory mentioned in the books. Get in touch with Flowspace today to learn more about inventory management solutions.

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This post was written by costa

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