Inventory shrinkage happens when a business has fewer items in stock than its records show. It’s the difference between what’s on paper and what’s actually on the shelf.
Shrinkage usually means a loss in profit, as the missing items can’t be sold. It can affect both small and large businesses and often points to issues in the supply chain or internal processes.
What causes inventory shrinkage?
Common causes include:
- Theft: This includes employee theft or shoplifting.
- Damage: Items damaged during handling, storage, or transit.
- Administrative Errors: Mistakes in counting, scanning, or recording stock.
- Supplier Fraud: Receiving fewer goods than billed for.
How shrinkage affects businesses
- Lost Revenue: Fewer products to sell means lower profit.
- Reordering Issues: Stock records become unreliable.
- Customer Frustration: Products may appear in stock online but aren’t available.
How to reduce shrinkage
- Use Inventory Tracking Systems: Helps catch discrepancies early.
- Regular Stocktakes: Spot-checks and full audits can flag problems.
- Staff Training: Reduces errors and improves accountability.
- Security Measures: Cameras and restricted access help deter theft.