Inventory shrinkage can feel like a never-ending battle for retailers, resulting in financial losses and stock outages when inventory levels turn out to be lower than expected.
Staying on top of stock management is key within businesses, allowing them to maintain accurate inventory levels and be able to identify the reason for any suspicious losses from the inventory.
In this article, we explain exactly what inventory shrinkage is and how retailers can prevent it going forward.
What Is Inventory Shrinkage?
Inventory shrinkage occurs when the actual amount of stock is lower than the recorded amount, meaning some stock is left unaccounted for. This can have a significant impact on a business, risking stock outages and causing profit losses.
There are various reasons for inventory shrinkage. One of the main contributing factors is theft, with internal theft being responsible for 29% of shrinkage and external theft being responsible for 37%. External theft is often easier to account for, while internal theft can often be trickier to detect, causing question marks when stock counts are providing lower numbers than expected.
Human error is another common cause of inventory shrinkage. Whether a manual stock count was carried out incorrectly, a typo was made during data entry, or a mistake was made by a supplier, this will result in a discrepancy between the records and the actual stock count.
How To Avoid Inventory Shrinkage
Businesses need to implement effective strategies to prevent the loss of inventory and maintain accurate stock levels at all times. By knowing exactly what is in the inventory, everyday operations become more efficient and profit loss can be minimized.
Use a barcode scanning system
A barcode scanning system is one of the most popular ways of managing inventory. Each item stored in an inventory gets assigned a unique barcode and then handheld scanning devices can be used to track the products. Every time an item enters or leaves the storage area, it can be scanned, updating the system in real time.
One of the key benefits of using a barcode scanner is the speed of stock checks. Instead of an employee having to manually count every item, the handheld device can quickly scan the shelves and speed up the process. This also reduces human error, maintaining a more accurate stock count.
As well as speeding up everyday checks and avoiding inventory shrinkage from human error, barcode scanning systems are a great way to forecast demand. Since data is collected and stored internally, a business can set up alerts when stocks become low, allowing a new order to be placed. By keeping inventory well-stocked using real-time data, the risk of under or over-ordering is kept to a minimum.
Increase inventory security
With theft being the biggest cause of inventory shrinkage, there should be sufficient security measures in place to keep the threat at bay.
To prevent external theft, access control systems will ensure that only authorized personnel can access storage areas. Whether a business chooses to use keycard systems, face scanners, or security codes which are regularly updated, these strategies will put a stop to external access.
Security cameras and alarms should also be installed in warehouse environments, creating a deterrent for both internal and external theft. By setting them up in high-risk areas, such as the entrances and exits, any incidents can be looked back on to help try and identify the culprit. Similarly, alarm systems will alert security to any activity within the premises outside of working hours, minimizing the risk of theft when the site is empty.
Manage employee access
Many businesses allow all employees access to the entire site as standard, but this can be a crucial error. In many cases, only a handful of employees actually need to access the inventory, meaning limited access could prevent issues with internal theft. By only permitting access to warehouse staff and stock controllers, not only will the risks be reduced, but the site organization will increase as people stick to their own working spaces.
To stay on top of who has access to inventory at any given time, a business can use a tracking system through its inventory management system. This would mean any stock checks or management of deliveries would have an employee’s name against them, allowing any incidents to be tracked back.
Maintaining Effective Inventory Management
Inventory shrinkage can be a significant challenge for businesses on an ongoing basis, causing financial losses and causing havoc when it comes to stock outages.
By staying on top of inventory through barcode scanning systems, added security measures, and controlled employee access, a business can ensure its stock levels remain accurate. Although initial investment may be required to introduce modern new systems, reducing inventory shrinkage can provide a return on investment that continues to enhance operational efficiency moving forward.
Content submitted by Rebecca Barnatt-Smith, Content Marketing Manager at Solvid Digital)
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