As your company grows, more products enter and exit your store; it’s increasingly possible that some products may go missing or be damaged.
The whole scenario creates an inventory shrinkage if you have no system to manage your inventory. Experiencing inventory shrinkage or a loss of inventory for a variety of reasons not only creates a potential accounting headache but hurts your profits and prevents your business from being established as a brand.
Thus, it is important to evaluate your business regularly to track inventory usage, demand, and forecasting. It ensures that you’re on track to succeed. This way, you will be able to know-
- What factors affect your business’s inventory management?
- Do you have the right products available when the customer needs them?
- How did it affect your business when the items were out of stock?
- Did you lose money because of excess stock?
- Are you unable to handle the damaged and expired inventory in your business?
In this blog, we’ll go over some basic inventory management practices to assist you in reducing inventory shrinkage.
You will also be aware of the importance of an inventory management system that outlines some best practices for inventory management.
What is Inventory Shrinkage?
Shrinkage can result from inventory counting errors and a lack of tracking and management systems in the business. Another factor is a lack of visibility to detect things that have been lost, misplaced, damaged, or stolen.
When your business loses goods for any cause, inventory shrinkage occurs, and you suffer the consequences. This mismatch is a common and expected part of doing business, but it might be a symptom of major underlying difficulties in your business at a high level. Sales, consumers, and brand value may be lost due to this.
Thus, the right solution is required.
Causes of Inventory Shrinkage
There are mainly three causes of inventory shrinkage.
Goods may expire or break.
This is one of the most prominent causes of inventory shrinkage. Any retail/wholesale inventory consists of many types of stocks. There are chances of some getting damaged, and some get expired. If they are not used or recognized in time, they can cause business loss or inventory shrinkage.
A robust Inventory Management System software gives you real-time inventory visibility and automates manual inventory counting.
Paperwork Errors
If you still maintain your business stocks manually, then it is sure that there is a calculation error in it. Keeping records of large inventory items together, keeping their details, and keeping track of expiry is a difficult task. A single error can cause inventory shrinkage.
That’s why it’s best to integrate your business with a robust software system that automates inventory handling. For example, it gives you real-time access to your stocks using technology like barcodes, etc.
This way, you can largely prevent this expanding inventory shrinkage.
Retail theft, employee inventory theft, and vendor fraud
This is another critical reason for the shrinking inventory. Sometimes the vendor does not give you the stock as much as the number of stocks it charges for. And you are prone to inventory shrinkage because you don’t have a system that can quickly enter the right store.
Apart from this, theft of stocks can also happen by the employee or the customer, and they can be damaged or even stolen. Hence, proper maintenance of stocks is essential to know the availability of your stocks in real-time.
Ways to prevent inventory shrinkage
To prevent business from inventory shrinkage, it is required to take some steps. It enhances how you are doing business, attracts customers, increases overall business profits, and more.
You need to install an item tracking feature.
It is essential to have a tracking system in inventory to manage large stocks. The system tells you how much inventory you have, how much is about to expire, how much is overstocked, and how much is about to expire. You get all this information in real-time.
It helps you to forecast the right stock so that you can serve the customers consistently.
It would be best if you made a plan to count inventory from time to time.
Inventory count is directly proportional to inventory shrinkage. Thus, you have to have a system that accurately tracks your inventory and minimizes the counting time. In addition, you must integrate with technology to keep inventory counts up-to-date in real-time rather than in Excel sheets.
Being a business owner, you need to do surprise business audits.
If you suspect that your employees are stealing stock, you should conduct surprise audits. You can uncover irregularities in your inventory counts more rapidly with a surprise inventory audit.
It would be best if you highlight your business security measures.
If you’re running a physical store (brick-and-mortar), you need to install all security measures into your business. For example, you have to install cameras and security systems in your shop or your inventory storage system to be aware of any stock release.
You need to set responsibility for staff for quality assurance.
If an employee has all the business information, he can be tempted to any theft or information leakage. Thus, you should divide the responsibilities amongst your various employees so that you can keep a close watch on the activities of your business. This way, you ensure quality assurance.
It would be best if you educated employees about inventory shrinkage consequences.
Most employees are not aware of how inventory shrinkage affects them. Therefore, it is necessary that you give proper training to the employees about inventory shrinkage, and its direct and indirect effects should be explained. Also, it would be best if you told them how to prevent it.
Benefits you get from inventory management software that smartly handles inventory shrinkage.
- It reduces costs, improves cash flow, and strengthens your business’s bottom line.
- It keeps real-time track of your inventories.
- It aids in demand forecasting.
- It avoids product and manufacturing shortages.
- It keeps excess inventory and raw resources at range.
- It makes inventory analysis simple on any device.
- It improves warehouse organization and saves time for employees.
- It provides quick and easy bar code scanning to expedite the intake process.
- It supports multi-location management and inventory tracking across several locations or warehouses.
Wrapping Up
Inventory loss can never be avoided. Therefore, you should opt for the best inventory management software that builds a strong defense against inventory loss and protects your business from any loss, theft, and administrative errors.
