You know you have an inventory shrinkage problem when the stock counts in your books do not match the actual inventory physically present in the warehouse. The most common reasons for inventory shrinkage are :
- Shoplifting
- Petty theft by employees
- Damage to goods during transit
- Spoilage
- Mismanagement of cargo or shipment,
- Incorrect tracking and errors while recordkeeping
Inventory pilferage, also called shrinkage in industrial nomenclature, is one of the biggest nightmares of the retail industry. In a 2015 report by Reuters for the Fortune magazine, it is stated that the mega department store chain Walmart loses almost $3bn every year to theft. That is approximately 1% of its $300bn revenue. Therefore, you can imagine the impact of inventory shrinkage on your business.
Impact Of inventory shrinkage
Any business that holds an inventory has probably experienced some kind of inventory loss. Inventory shrinkage significantly affects the revenue, prices of products, employee and management policies and customer service of a company.
Revenue loss
Every item that is lost or stolen from your inventory is a missed opportunity to generate revenue. Inventory shrinkage eats into the overall profits of a company. Sometimes, high percentage of inventory shrinkage can turn your profitable business into a loss-making one.
Mistrust Between management and employees
When the company is facing inventory loss due to employee theft, the management becomes suspicious about their employees. Heightened security measures are put in place to monitor every move made by them. Security cameras on the floor, break rooms, physical body-checks of employees when they leave after work are some of the common ways to keep an eye on employees. Such steps which reflect an internal mistrust between employees and management can affect the performance, behaviour, work ethic of the former as they feel uncomfortable due to the constant surveillance.
Reduced cash low
A smooth selling inventory ensures steady profits and cash flow. It also supports easy debt settlement. However, if there is inventory shrinkage, which results in reduced profit, the company may find itself in a debt trap and relying on credit to fund their operations.
Customer service
If there are too many instances of shoplifting, retail store assistants and staff become dubious of customers. This doubt can affect their attitude and behaviour towards customers while talking to them. They can come off as guarded, unintentionally rude or they may not want to help shoppers with their queries.
Solutions to Prevent Inventory Shrinkage
If you have a high shrinkage percentage, then your primary concern should be to install preventive measures that make it difficult for your inventory to disappear.
1. Heightened security measures
This is probably the first and the most obvious solution that you will read about everywhere. But it’s also effective. Invest in a security system. CCTV cameras, auto door locking systems, intruder alarms are security equipments with software support that can be used to watch over your store, employees and customers alike.
Yet, you can also tweak security measures and opt for unconventional ones too. For example, fake cameras give out the impression that a surveillance system is in place to monitor activities of staff and customers. They have no real use apart from instilling a psychological fear in people that they are being watched. This might compel shoplifters to refrain from stealing. You can also install security systems in the warehouse in order to keep track of the movement of inventory, affording you greater inventory control.
2. Be transparent with staff
Discussing matters like shoplifting and employee theft with your staff will help. You must inform them about the company’s policies and no-tolerance stance when it comes to employee theft. Teach your employees about the security systems installed to prevent stealing. Also educate them about how inventory shrink affects them directly, with increased monitoring, checking, reduced pay or increments to compensate for the loss.
3. Don’t hire troublemakers
Doing a thorough background check of the staff you hire is one of the most essential steps to prevent inventory shrinkage from the ground level. This is because your staff is your first line of defence. Go for an employee integrity screening process and look deeply into their criminal record, education, medical history, previous employment, reference checking,to ensure you employ credible staff not troublemakers.
4. RFID tagging
RFID tags are radio frequency identification devices that are attached to clothing. They are fitted with sensors to keep track of their movement and location. RFID tags come in a rage of shapes, sizes and prices. You can select the system according to your requirement. RFID tags are a great device for efficient inventory management and also in preventing theft inside the retail store. If at any occasion a customer tries to shoplift an item with an RFID tag on it and leave the store, it will trigger an alarm near the door.
5. Automate inventory management process
Opting for an inventory management system will resolve so many of your inventory shrinkage woes. The simple reason being that with the huge amount of data generated everyday, it’s next to impossible to manually enter data and maintain records in Excel sheets and accounts books. While human error is only natural, an inventory management system reduces manual data entry and ensures that accurate information is entered into the computer system.
In addition to this, an inventory management system will arm you with real-time data so you know exactly how much or how little inventory you need. With the help of an inventory management software, every piece of your inventory will be accounted for. It will also track your goods right from the moment it is received, its journey through the supply chain till it leaves the warehouse for shipping or while transit to the store.
Final thoughts
First and foremost it is important to understand that inventory is money. Every item in your warehouse or store has an economic value. While damage to goods during transportation or shipping are sometimes not in your hands, but an excess amount of inventory shrinkage due to shoplifting or theft can be problematic. Needless to say, inventory shrinkage is a serious problem for business owners and requires careful attention. Keeping employees in check, installing security systems, and and investing in sophisticated inventory management software are some of the ways in which this issue can be tackled.
