Inventory shrinkage refers to the extra amount of stock listed in records but missing from the inventory. It has been a matter of concern and a challenge for the inventory management of all types of businesses.
Inventory Shrinkage can be caused due to a variety of reasons like theft, supplier fraud, shoplifting, a mistake in recording the inventory and product damage as well as expiry. It can result in lower profits, loss of capital, and decay in sales. Due to the following reasons, it is crucial to take certain measures in regular inventory management processes to suppress this problem
Using Inventory Management Software has always been a best practice to eliminate inventory shrinkage effectively. By employing proper controls and measures, we can successfully eradicate this problem from the list of challenges the inventory management faces. Let’s take a look at some ways to prevent inventory shrinkage:
#1 Install a Right Inventory Management Software
In most cases, Inventory Shrinkage is due to inaccuracy in inventory accounting. And when inventory accounting and documentation are done manually, it is prone to errors. Automating administrative tasks can solve this problem arising due to inaccuracy in records to a great extent. To automate your daily inventory management tasks using an Inventory Management Software is a prime option.
Inventory management software improves the warehouse’s visibility and the supply chain by using technologies such as RFID and Barcode systems. Barcode systems maintain the record of all the products leaving and entering the warehouse by scanning the barcodes present on them. These systems help keep track of product movement, and it’s the real-time location, therefore, making it difficult for shoplifters and thieves to steal the products.
Hence, by providing proper documentation and record maintenance, inventory management software has been proven effective in mitigating many problems that give rise to inventory shrinkage.
#2 Installing Security Cameras
Installing security cameras is the most comfortable and the most accepted practice to eliminate the problem of theft and shoplifting. Most of the time, your staff is responsible for inventory shrinkage occurring within the warehouse. So, the foremost step towards reducing theft in the warehouse is installing cameras at different locations and checkpoints. The cameras should be visible, and the staff should be aware of this security feature.
A trustworthy team should be assigned the activity of reviewing cameras the whole day and night. Cameras will not only prevent theft but will also let you monitor the behavior of your staff. Employing Security cameras in retail stores has been an old practice and has proven to be quite useful in eliminating potential theft and shoplifting.
#3 Counting Inventory Consistently
For effective inventory management, auditing inventory consistently is a good practice. Regular audits make you understand and locate your inventory better. For this purpose, cycle counting is the best inventory management technique. Cycle counting includes counting a small portion of stock each day. Portion by portion, the entire inventory is counted.
You can also opt for physical counting for accounting the inventory. Barcode systems are also considered ideal for inventory counting as these systems scan and account for each item entering and leaving the stock in real-time.
#4 Employee Integrity Screening
All businesses that deal with valuable or expensive inventories such as jewels, gemstones, electronic devices, caviar, etc., need to be more aware and secure. Theft of such a valuable inventory can lead to massive losses to the business. Moreover, these businesses are prone to employee theft, so a proper background check for every employee involved is vital. These background checks can include criminal history, past employment info, character certificate issued by the previous company, educational qualifications, etc. Employee screening before hiring will help you in building a credible team.
#5 Employee training
Proper training and schooling of employees during the joining is essential. This training should include loss-prevention programs that furnish the employees with the knowledge of repercussions of theft and other losses. The employees should be made aware of pay cuts, lower chances of promotion, and other strict measures that can be taken against them if found guilty of theft or other malicious acts.
Under the loss-prevention program, the employees should be taught specific skills, including spotting theft and the thief, that can be either a customer or a fellow employee. These programs help create awareness amongst employees, learn the skills to reduce theft, and let the staff know that the company is aware and alert against these situations. It will not only help in preventing inventory shrinkage but also will produce a sense of trust.
#6 Invest in Right Point-of-Sale(POS) System
POS systems function as a central hub for a business, where sales, customer, and inventory management merge. The system includes a central computer linked with checkout terminals and integrated with different hardware such as barcode scanners, card payment machines, etc. Employees at assigned terminals manage these systems, and each employee has a unique username and password.
An authorized and trustworthy person can be given the role of reviewing all the transactions made daily via the POS terminal. Studying these transactions and by looking at regular profit margins, losses can be spotted easily. Any inaccuracies like missing cash or missing items unrecorded in transactions can be located with ease too. In this manner, you can very easily spot any errors in transactions.
#7 Eliminate Vendor Fraud
Preventing vendor fraud is another essential task for mitigating inventory shrinkage. These can be done in two steps. The most natural step is to look and deal with vendors having a good reputation and history, a more extensive customer base, and strict security measures to prevent in-transit stock loss due to robberies and several other factors.
The next step should be executed once the order has arrived. A responsible person, i.e., a receiving manager, should be assigned the job of receiving the stock, performing a count of the items received, and matching it with the order sheet. If the delivered items match the number being ordered, the shipment should be accepted on the same manager’s approval and authority. This step will help in mitigating inventory shrinkage and adhered losses due to vendor fraud.
Eliminating inventory shrinkage is quite difficult, but by taking correct steps, you can minimize the damage and the loss it generates to a large extent. Every business should hire excellent and credible employees, install the right inventory management system and security measures. Hiring good employees will reduce the chance of employee theft as well as customer theft and shoplifting. On the other side, a sound inventory management system will promise accuracy in your entire inventory management process, from accounting the inventory and other administrative tasks to tracking the products in the warehouse.