The 10 Biggest Inventory Shrinkage Mistakes You can Easily Avoid – Michael Guta


Inventory shrinkage took a heavy toll on American retailers last year, amounting to US$45.2 billion in lost revenue, a recent survey report indicates.

Researchers attributed most of that to the usual suspects. Shoplifting, organized retail crime and employee theft accounted for about three-quarters of inventory shrinkage, most heavily impacting the grocery and apparel sectors.

While administrative errors, paperwork problems and unknown glitches represent a much smaller portion of shrinkage causes, they add more wrinkles to the difficult problem of avoiding shrinkage up and down the supply chain. What can a retailer do more than put a security moat around its stock? What can a wholesaler do more than monitor its employees?

Bill Lee, a long-time supply chain consultant in the building industry, says half the problem in shrinkage occurs when there are no procedures and systems in place for monitoring and tracking inventory and ensuring employees are following directions. Lots of mistakes can happen in a busy lumber yard, making it important for suppliers to do things such as making sure pick tickets are converted into invoices once a day and receiving shipments only based on purchase orders not a vendor’s shipping documents.

All well and good, but as Deloitte and Touche’s Mark J. Sullivan suggests, even solid procedures can end in costly mistakes.

“Paper shrink is the term applied to all discrepancies between physical inventory and book inventory that are not out-the-door losses caused by theft, shoplifting, or fraud,” Sullivan writes. “Paper shrink results from incorrect counting or pricing, misdirected shipments, careless paperwork on the loading dock, and a range of other accounting and recordkeeping errors.”

The estimate is that paper shrink can account for as much as US$17.50 out of every $100 of shrinkage.

So, how do companies shrink the shrinkage out of their supply chains? Here are a few best practices you might consider.

Trash Paper

Get as much paper out of the supply chain as possible. Use a system that minimises or removes data entry requirements, such as with automated purchase order and inventory processing and associated barcode printing.

Watch the Flow

Institute a process for receiving inventory and ensure everyone on your team is following it. It isn’t enough to have data available at your fingertips if the inventory isn’t received correctly. Routinely check your physical inventory against your recorded inventory.

Integrate Your POS

Technologies being used at the point-of-sale include data-mining and surveillance camera analytics. One easy, less intrusive tool to add is an integrated POS system that requires unique logins for every clerk using the POS. This can deter potential employee theft and also help rule out theft as the cause of shrinkage.

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