Shrinkage is one of those euphemistic industry terms that technically means the disappearance of stock before it has actually been sold. However, most in the industry know that this usually means people stealing things.
Sometimes though it can also mean the disappearance of stock on account of simple human error or a problem with inventory management. Nevertheless, as electronic tracking and warehouse management systems become the standard in all but the very smallest of ecommerce ventures, the association of shrinkage with outright theft becomes closer and closer.
Olympic Eyewear, distributors of discount sunglasses, say that reducing shrinkage, therefore, really just means improving security about the warehouse to prevent stock “going missing”. Generally speaking, shrinkage scales up as a business grows.
Of course, you can look at it in another less pessimistic way. Business growth can mean an increased chance of shrinkage instead. Do things right, and there is no need to yield to it as if this is just some inevitability. It is not an inevitability. It is just one of the many new organizational challenges that come with growth. Therefore, if you notice that you need to do more to prevent shrinkage then take heart – it is an indication that your business is moving in exactly the right direction.
Human Error and Damage
Dealing with shrinkage is a matter of inventory security first and foremost. But there is another form of inventory loss that counts as shrinkage, and this is the effects of human error and inventory damage. Sometimes, no matter how automated your warehouse is, this is inevitable.
There are still too many situations where inventory can be dropped when it is being removed from a high shelf, when a particular order can be incorrectly loaded onto a shelf, or when, say, an accident happens involving something far too heavy being placed on top of something else that cannot take the weight. These are just some examples, but there are many.
So, apparently contrary to what was said above, there is a degree of inevitability to shrinkage, but you cannot know what is inevitable and what is preventable until you put the right measures in place to reduce shrinkage as much as possible. And the security aspect, for example, is certainly something that you can always do something about.
Tips for Reducing Inventory Shrinkage
Setting aside damage and human error, there are some employee security measures you can put in place to reduce warehouse theft:
Scannable credential badges that are integrated into software systems which monitor what an employee does over the course of the time they are “clocked in” can serve as both a preventative measure and a remedy for shrinkage. It will serve as a deterrent (preventative) and will also let you know where to start looking when something does go missing.
Restrict Warehouse Permissions
If a particular employee never needs to be in a specific area of the warehouse to fulfill their role – or if they never need to do a particular job – then you can limit their access to these areas and the information required for those jobs. A thief, remember, is most likely to steal from somewhere not associated with them.
Track the Movement of Inventory at Every Stage
There are many more stages that items go through apart from entering and exiting the warehouse. Ensuring an electronic log of who did what at each stage will significantly reduce shrinkage.
If it is controlled, inventory shrinkage can certainly be reduced to negligible. If you neglect it, however, then it has the potential to seriously impact profits.