Tips to reduce inventory shrinkage for your multi-channel business

To simplify Inventory shrinkage is any loss of inventory that isn’t due to stock being sold. This has affected revenue in every business especially in retail.

One of the reports by the National Retail Federation, U.S. retailers lose 1.33 percent of sales on average to inventory shrink, costing the U.S. retail economy a total of $46.8 billion in 2017.

Some of the major factors of inventory shrinkage are shoplifting, damage to stock, fraud, error, and mismanagement of inventory.

It’s essential to take control of inventory shrinkage before it affects your profit too much.

However, the good news is that inventory shrinkage can be significantly reduced by putting reliable loss prevention technique, almost everywhere like customer care, customer service, employee training, etc.

1. External Theft
2. Internal Theft
3. Administrative and Paperwork Errors
4. Vendor Fraud
5. Upgrade Your Inventory Management System to control Inventory Shrink

Let’s have a look at the most usual reasons for inventory shrink and how to prevent it.

1. External Theft

External theft is the biggest contributor to shrink, As per a survey by NRF to 63 retailers earlier found that shoplifting by outsiders was the biggest source of inventory loss in 2017, estimating about 36.5 percent of missing stock on average and a much more complicated challenge for brick-and-mortar businesses.

To prevent such unethical shoppers from taking advantages, involve your employees and train them to look for the signs of shoplifting and behave in ways to avoid. Take proactive security measures such as install cameras, hire a security guard to man the front entrance, get theft-prevention price tags, or the other anti-theft protection for your business. Consider store layout and product displays. If you place expensive items near the entrance, it’s way easy for shoplifters to take. Also, arrange the products in such a way that it’s easy to identify missing items.

2. Internal Theft

Internal theft by employees and others comprises almost 43% of inventory shrink. However, which is why most retailers take measures to ensure the integrity of potential employees, such as criminal conviction checks, verification of employment history, personal references, and drug screenings. It’s also essential to have training procedures in place, so that staff members know how to handle inventory properly and count stock. Many of such mentioned tips apply here, and there are also additional steps you can take to moderate the risk of internal theft.

Increase accountability by allowing employees to take ownership of specific tasks. It empowers them and helps you by keeping them accountable. Having a team of two, where they can check one another’s work can also help in taking shrink in control.

Educate yourself by understanding the common tactics that employees use to steal, as they’re different from external thieves.

Let your employees know how much theft damage the business and costs to your business, how it affects them, and the role they have in your company in preventing shrink.

3. Administrative and Paperwork Errors

This is the third most cause of inventory shrinkage accounting 21.3%.

This depicts many possibilities however it may vary depends on the retailer and there are ways you can address the issues like label your inventory, monitor the process. Also, keep reviewing, modify your existing processes to prevent shrinking. Monitor your SKU numbers and see if they are valid. As having multiple team members and possibly external vendors accessing your system, will be difficult to track inventory records if numbering system is without logic. Do regular audits. Different types of audits help to monitor shrink and allow you to plan actionable prevention.

4. Vendor Fraud

Inventory shrinkage by vendor fraud estimated 6.8 percent. Which isn’t major counts but also something that can be prevented. Vet carefully, ask in your network, do online research if there are no common issues with vendors. Also, you can ask your vendor to speak with some of their existing customers that are similar to you, and if they’re skeptical about it, then it’s a red sign for you. Maintaining friendly rapport can go a long way in business. Keep your own records regardless of how detailed or accurate your vendor may be.  That’s how you’ll be able to identify mistakes more quickly as they pop up, and you can validate the accuracy of your data.

5. Upgrade Your Inventory Management System to control Inventory Shrinkage

As per plenty of research and requirements, we discovered more than 75% of retailers said the most common reason for inventory issues is from human errors and manual processes which is quite similar to our administrative and paperwork point mentioned above.

Ultimately an inventory management system that can centralize, automate, and streamline your processes will address many of these human errors.

While choosing the right inventory management system for your business, it is important to consider the integrations. If you have other systems or external tools already in use, an IMS which can seamlessly integrate will help you to stay on top of stock and reduce shrink.

1. External Theft
2. Internal Theft
3. Administrative and Paperwork Errors
4. Vendor Fraud
5. Upgrade Your Inventory Management System to control Inventory Shrink