Fight inventory shrinkage

Why does it shrink?

The first idea that pops into everyone’s mind regarding inventory shrinkage is that someone is stealing the goods. It could be some disgruntled or greedy warehouse worker(s), or dishonest customer(s) in your grocery store helping themselves to donuts when you are not looking. Sure, that’s a part of the problem, maybe even the biggest part, but there are plenty of other causes. For instance, if you misplace or lose track of an inventory item, you may have “imaginary shrinkage.” You think the item is gone, but it’s just hiding out. Then there is the problem of supplier fraud. You may not be set up to count the 10,000 candy canes your supplier ships to you in a big carton. Maybe the supplier left you a few canes short. Maybe it happens with other suppliers who provide more costly goods. What are you going to believe — your supplier’s invoice or your own eyes?

Detecting shrinkage

A perpetual inventory system is a nice thing, especially when its fully automated. You capture every movement of inventory, from the receiving docks to the sales register, using barcode scanners or mobile devices. In the best of all worlds, you’d know where every piece of inventory is sitting. This is a fine goal, but a dedicated thief can defeat it. For example, suppose you have a reader attached to each storage bin that automatically registers when items enter or leave.

The best way to detect shrinkage is to perform a physical count. It’s also the most impractical way — your employees have better things to do than count the darn inventory all the time….and you could be paying them for more meaningful tasks.

You could hire specialists to take the inventory, but of course that will cut into your net profits. And that’s really why in you’re in business, to make net profits, right? A good compromise is cycle counting. You count a small amount of inventory every day, until you cycle through the entire lot. Then start over again. Change up the routine to keep employees on their toes. Equipped with portable data terminals, you can cycle through your inventory lickity-split.

So now you might be prepared to monitor inventory shrinkage – an important first step. But the real challenge is preventing it.

Preventing Shrinkage

Make it more difficult for your inventory to disappear.

First of all, if you are not on a fully automated, what are you waiting for? The cost of computer systems and electronic readers is very reasonable and can save you a ton of money in the long run. It’s neither cost effective nor efficient to count by hand! You should aim for bin-level tracking of inventory. Next, make sure your inventory is physically secure. That may mean restricting warehouse access and dedicate the time of a staff person to keep inventory records accurate. Strategically placed video cameras are a real good idea, as is a posse of guards to patrol the premises – especially at night. If you are not cycle counting, begin immediately.

And never accept a shipment without counting the items on the receiving dock.

Keeping It Real

We’ve heard some stories of companies that may have gone a little too far in their zealousness to suppress shrinkage. One company issues uniforms with no pockets to warehouse employees. I wonder how much money they spend yearly buying replacement pencils and pens that are always getting lost? We don’t cotton to the idea of armed guards and attack dogs, but some companies do. It’s best to devote your energies to reasonable deterrence measures and spend the balance of your time finding ways to cut inventory costs. Have you looked at your freight charges lately? Maybe you can find a way to get those down. Is your warehouse green? You’d be amazed how much you can save by energy efficiency, recycling and reuse. Identify particular items that always seem to be disappearing and devote more energy to fixing the problem.

Shrinkage is a national nightmare that no one wants, except perhaps the thieves.

If you count your inventory and the tally is too small, grab the bull by the horns and do what it takes to make things right! Protect your bottom line; take control of your inventory today.

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Paul Trujillo

Paul Trujillo

Paul Trujillo is a Product Marketing Manager at Informatics specializing in Inventory Warehouse Management and Supply Chain product lines. His nearly 15 years of experience has put him at the forefront of industry technology and developing trends.