Cycle counting requires you to work in regular intervals, moving from one subset of products to another to keep accurate inventory records. A lot of inventory shrinkage comes from poor tracking processes. Whenever a SKU’s inventory levels are less than they were recorded to be for accounting purposes, there has been inventory shrinkage.
If you have errors in your accounting records, inventory costing methods, payments, or invoices it will snowball into inaccurate shrinkage rates. No matter what industry you’re in, there are numerous software solutions for your business. Whether your products are all sold in bulk with an MOQ (what does MOQ mean?) in place or not, automation can help. The metric used to measure inventory shrinkage is known as your inventory shrinkage rate. Expressed as a percentage, your inventory shrinkage rate tells you just how much you’ve lost to theft, fraud, errors, and damage. Keeping this percentage low is essential to keeping your inventory levels where they should be—and your profits on the grow.
Whether inventory shrinkage occurs because of theft, shipping damage, or human error, it’s in the best interest of your company to prevent shrinkage. Inventory shrinkage is when actual inventory levels are less than accounting has them recorded as. Usually this means something has gone wrong, either from an accounting error or theft. To combat significant inventory shrinkage, you must familiarize yourself with what it is, why it happens, and the preventative actions you can take. When it does happen, you need to understand how to make correcting entries in your books for proper inventory accounting.
And, implement a small business return policy to prevent customers from returning stolen goods. To find the inventory shrinkage rate, you need to know the cost of goods sold, how much inventory you have, and how much was lost to shrinkage. If one of the wine bottles is dropped and shatters, that’s loss of merchandise.
Accounting
Your vendor might also make errors when they supply you with inventory items. According to the shrinkage statistics from the 2019 National Retail Security Survey, inventory shrinkage accounted for 1.38% of all retail “sales.” That’s almost 48 billion dollars. To give you some perspective, the entire wine industry has a market value of 70.5 billion dollars.
But Flowspace’s platform goes beyond just tracking supply chain KPIs; Flowspace’s platform gives retailers actionable insights in order to improve and optimize their inventory KPIs. On the employee theft side of things, conducting surprise audits can prevent employees who are stealing from being prepared. Heightening security in warehouses or brick–and–mortar stores can also prevent employee theft.
- It’s a best practice to use technology that can keep inventory counts update in real-time rather than in Excel, which is static and not synced to anything.
- So, with money on the line, it’s obviously in your company’s best interest to identify and prevent shrinkage.
- SMBs often don’t get their fair shake when it comes to service level agreements (SLA’s).
- As a high-end brand committed to using only the highest-quality ingredients, they couldn’t afford to sustain the average of 1 to 4 cans of damaged product per shipment they were seeing.
As such, an acceptable inventory shrinkage rate is as small as possible. Every time you sell an item, the value of your inventory on hand is reduced by the price of that item. Conversely, whenever you place a new order of stock, the value of your inventory increases by the amount you ordered. Your shrinkage is whatever discrepancies arise between the sales and orders you have recorded and the actual value of the inventory you have on hand.
Reasons for inventory shrinkage
To record the losses you will have to understand the losses. Understand these losses with synchronization to their value. Analyze the size of the loss to place them in the right account in the books. Monitor your inventory by calculating your shrinkage rate periodically, like once a month. That way, you can compare shrinkage rates to past accounting periods. If your shrinkage rate suddenly increases, look into possible causes.
Say you work at a car dealership that sells surfboard racks. According to your inventory records, you have 75 sets of racks on hand. But when your team actually counts inventory in the warehouse, they can only locate 73 sets. Want to learn more about emerging trends for reducing inventory shrinkage and other industry best practices? An accurate inventory count should be readily available at your fingertips.
How can Vencru Help you Stop Inventory Shrinkage or Loss and Grow your Business?
Placing your order fulfillment in the hands of professionals could actually save you money. The shrinkage factor isn’t the only reason it’s a good idea to shorten the time it takes to log your shipments into stock. Products sitting on the loading dock aren’t available for sale, so they aren’t making you money. You could even end up with backorders of goods that you have in stock because of receiving delays.
How to Calculate Inventory Shrinkage?
The lower your inventory shrinkage rate, the less inventory you lost. The NRSS reports that in 2018, the average inventory shrinkage rate was 1.38% across all retail sectors. Even though that’s the average, it’s still pretty high because it equally weights even the highest inventory shrinkage rates.
Reduce Shrinkage by Automating Inventory and Reporting With NetSuite
Restrict access to certain parts of the warehouse to only those employees who need it, making it easier to narrow down the suspects if you do have an issue. On the shoplifting side, install security cameras in the store or train your staff to spot suspicious behavior to reduce shoplifting. Change stocking procedures by putting higher-priced or frequently stolen goods behind the counter. Limiting shrinkage is a vital part of inventory control, and it all comes down to being better organized as a business. Here’s what inventory shrinkage refers to and how to get it under control.
He can start by using a tagging system and tag every product. This way, he can track the movement of every product, even without his physical presence. So, how can merchants maintain inventory and even lower their inventory shrink rate? Through the power of automation, machine learning, and data, SMB’s cloud bookkeeping can use their natural inclinations for being nimble and adaptable to meet the moment and solve big problems. Get in touch with Flowspace today to learn more about inventory management solutions. There is another way of ensuring the inventory is safe by giving employees cross-checking responsibility.
How To Spot and Prevent Shoplifting In Your Store
If one employee makes a mistake, plenty more follow up behind to catch it and make sure, for example, that a part was replaced at a certain milestone. If you’re interested in learning how Lightspeed Retail POS could help you cut down on administrative errors and speed up how you work, let’s talk. It doesn’t take much shrinkage to make a noticeable impact on your business. Even with shrinkage lowering to 1.44% in recent years, that number translates to over $94 billion lost. Sometimes goods are broken without any theft or administrative error being at fault. Price tag swapping also falls into this category, where a shoplifter pays less than what an item is worth because a different item’s SKU is recorded in the sale.
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