Inventory shrinkage occurs in retail stores and businesses when the physical tally of the stock or merchandise contrasts from the count that records specify should be there.
Causes of inventory shrinkage
Inventory shrinkage is unavoidable no matter what precautions you take to avoid it. On the other hand, you can measure the pace through appropriate inventory management practices. Shrinkage can happen due to dishonest behaviors such as:
- Fake sales and employee theft
- Retail theft, i.e., counterfeit coupons, petty theft, breaking, shoplifting
Nevertheless, inventory shrinkage is not accredited to a hurtful swindle. It could also be that there are below par defined operational standards and procedures which, in return, lead to complex administrative errors. A trickle-down effect occurs in the entire business, including financial and warehouse operations.
How to avoid inventory shrinkage
To decrease inventory shrinkage in your business, you will have to increase your control and security in each sector that involves merchandise.
- Constrict security by putting up cameras in the customer and employee areas, including break rooms and stock rooms. If need be, change the locks to the stockroom areas. Allow only the higher-level employees to have access to the excess stock.
- Bolt the back doors. If needed, hire a security provider to watch your store if theft in the area is high. Make sure that at least one of your employees is always present on the sales floor. For retail stores, train employees to greet customers verbally so that any prospective shoplifter knows that they’ve been recognized and seen in the store.
- Elect certain specific employees to accept, open, and distribute new shipments. The items inside the load should be matched according to the order sheet instead of the transporter’s packing list. You should immediately register the merchandise into the store’s inventory system and book as received right before they are put away. Ensure that the associates sign off the packing list once all the items have been verified to be correct.
- Verify that packing lists, purchase orders, shipping receipts, and invoices are accurate before they file. Organize the paperwork in a file cabinet, scan copies, and make duplicates of the forms in a computer. Make sure that you have a backup copy.
- Review each day’s transactions in the presence of your associates for accuracy. Check for repetitive and suspicious transactions. Instances can happen when an employee regularly cancels cash transactions. Provide employees with their passwords to use the cash register. This way, in case of theft, you will know which employee committed the crime.
- Calculate the physical inventory you need to have in your business. Make a habit of doing this at least every year to keep a check on the actual numbers you should have in your possession.
All in all
Shrinkage can be due to a variety of factors occurring in combination or singly. These include theft, inadequate record-keeping, misplaced stock, order fill errors, or shipping errors. Even though paper errors indicate a trace of inaccurate loss, robbery can be an actual inventory loss.
Inventory shrinkage refers to a loss of merchandise due to damage/spoilage, theft, administrative mistakes, and faults on articles from the industrial site to the end consumer. The shrinkage is a strike to the loss or margin of profit. Keeping track of this information is vital.
Where do you get the information to keep a check on your inventory shrinkage? Bookkeeping will provide all the necessary and relevant information from which all your accounts formulate. The process of bookkeeping is a recognized and well-defined process in the field of business and accounting. Bookkeeping is a vital part of the business.
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