How to Combat Inventory Shrinkage (Inventory Loss) In Your Business

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Inventory shrinkage is a problem today for any business that stores products in a warehouse. Ignore the problem and it could cost your business thousands of dollars a year. Or you could lose customers to a competitor because you’re out of stock due to inventory shrinkage.

 

In fact, “42.7% of inventory shrinkage is due to employee theft,” according to a 2015 Static Brain survey. The report also concluded that “$50 billion is stolen annually from U.S. businesses by employees.” It is both these reasons that wholesale distributors need to take inventory shrinkage seriously.

 

In this post, we’ll outline how to prevent and minimize inventory shrinkage so that you keep it and the resulting costs to a minimum.

 

What is Inventory Shrinkage?

 

Inventory shrinkage is defined as a loss of goods due to damages, theft or human error. Your inventory and order management software may state that you have it in stock, but you discover inventory is missing after a physical count. Such an incident is what’s known as inventory shrinkage.

 

6 Ways to Combat Inventory Shrinkage


 

  1. Perform a Cycle Inventory Count

 

One of the best ways to determine if you have shrinkage is to perform a cycle count. A cycle count consists of choosing a select group of inventory, physically counting it and comparing those results with what your inventory management software says you have. There are several types of cycle inventory counts when it comes to choosing the type of sampling. You may choose to cycle count a product category, a group of seasonal products or high-value items. You could count your bestsellers as those do contribute significantly to your profitability. Whatever you choose, cycle inventory counts are a great way to get a snapshot of how well you’re managing your inventory and whether shrinkage is occurring.

 

  1. Use Surveillance to Monitor Operations

 

By installing cameras in prime locations, such as your pick, pack and ship area or your dock, you are letting employees and vendors know they are being watched, which is a great theft deterrent. Or, if you discover that you may have been robbed, you can watch camera footage to determine how the theft occurred. Either way, cameras let everyone know they are being watched and do help prevent theft.

 

  1. Monitor Trash Removal

 

One clever way employees are able to steal from businesses is by placing product they plan to steal in the trash during work hours. Later in the evening, employees will return to your warehouse and pull the trash out of a dumpster with their stash. Instead, if you use clear trash bags, your warehouse manager can spot valuable goods much easier and deter from such thefts from happening in the future.

 

  1. Store Valuable Items in a Secure Area and Limit Access

 

Maybe you are storing high-value items, such as iPhones, that are tempting to steal. To prevent theft of such items, you can segregate these items and give access to a limited number of employees. Because these items are protected by lock and key, it may add time to pick these items. However, your most profitable, best-selling items are better protected and so are your margins.

 

  1. Perform Background Checks on Employees

 

While other offenses may be irrelevant or forgivable, something to look for in a background check for a potential new hire is theft. If a potential employee has a history of theft, it’s probably wise to walk away from that hire. The upfront cost to perform background checks could save you thousands of dollars if that hire attempts to steal high-value items from your company.

 

  1. Use Inventory Management Software

 

You can reduce paperwork and human error, both a cause of inventory shrinkage, by using inventory management software. Such software helps to automate order processing and the pick, pack and ship process. Whenever you can use automation and software to push an order through the fulfillment cycle, you will reduce inventory discrepancies or errors.

 

If you’d like to learn how Systum’s inventory management software can help you reduce human error and inventory shrinkage, fill out the form below.

 

Categories: Inventory Management

Tags: inventory management, inventory software, inventory

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