Essential Inventory Management Strategies: How to Reduce Shrinkage, Improve Accuracy, and Optimize Stock Levels
You shouldn’t have to check every shelf to know when to reorder. Inventory software can alert you when stock runs low, generate reorder reports automatically, and even trigger a purchase order. Go over them with staff during training and post them in key areas like stockrooms or loading bays. Also, track them with barcodes, RFID tags, or other inventory tagging systems to know their status. With it, you can see what’s in stock, where, and how it moves.
Calculate Inventory Shrinkage Rate
These effective measures include improving your security measures and inventory management strategies. It might result from employees damaging items in the warehouse or customers damaging them in stores. It may even be a result of bad weather (flooding) or other factors you can’t control.
Out of those 200 units, they sell 180 but then fail to find the other twenty. It’s missing inventory that a business purchased but can’t sell for various reasons, which we’ll go into more detail later. Now that we’ve established the significance of preventing inventory shrinkage, it’s time to explore some proactive strategies to safeguard your stock.
Damages
If you haven’t already done so, make sure to create clear guidelines for the receiving process. Implementing redundancies in the receiving process will help create so-called “safety nets” in case one check fails to catch a mistake. Conduct comprehensive background checks before doing business with them and establish clear receiving protocols. Consider investing in anti-theft systems like Electronic Article Surveillance (EAS) and Radio Frequency Identification (RFID) tags. Now subtract total inventory in the stock from inventory mentioned in the books.
Impact on Pricing
- These perpetrators can range from casual, one-time offenders to organized criminal groups.
- This reduction in inventory not only affects your stock levels but also adds costs for markdowns or disposal which will further hurt your business’s profitability.
- In the world of logistics and supply chain management, efficiency is key.
- Ecommerce business owners are all too familiar with the challenges of inventory shrinkage.
- Ready to get your business organized and do more to prevent inventory shrinkage?
- The best way to deal with inventory shrinkage is to prevent it before it happens.
However, the scope of reducing the temperament of carelessness can turn the wheel around to reduce Inventory shrinkage. There are a lot of ways in which a business can save the cost of inventory shrinkage. Simply curate the right tricks and rules and implement some in the business. It is vital to understand the major causes of inventory shrinkage to reduce the inventory shrinkage rate. It is also vital to curate measures to rectify the causes of shrinkage. If you can’t find where else shrinkage may be occurring, it’s worth looking at your management system.
Disrupted Inventory Turnover
Businesses typically notice inventory shrinkage during year-end inventory counts when they realize that accounting’s inventory records do not match reports from the physical audit. Inventory mismanagement doesn’t always come from theft or damage—it often comes from poor planning. Setting minimum and maximum stock levels helps businesses maintain an ideal inventory balance, ensuring they don’t run out of critical products while also preventing overstocking. Additionally, automation helps businesses detect unusual inventory activity.
Step 2: Data Consolidation and Integration
The more organized your inventory system is, the easier it will be to detect when something has gone awry with your stock levels. Additionally, ensure that your staff understands the importance of staying organized. This will significantly reduce inventory loss due to human error or negligence.
- In some cases, significant inventory shrinkage can lead to compliance issues, especially for public companies that must report accurate financial statements.
- Reporting errors, data input errors, and problems reconciling the accounts contribute to administrative inventory shrinkage.
- Unlike these known losses, shrinkage usually indicates a problem in your inventory control process.
The acceptable level of shrinkage is less than 1%, but many companies experience much higher levels. Here is the industry formula for calculating your inventory shrinkage rate. This system not only helps catch errors but also serves as a deterrent to potential theft or fraud. It’s an excellent way to identify stages in the inventory management process where discrepancies are most likely to occur. Shoplifting and organized retail crime contribute significantly to inventory shrinkage.
One of the main culprits contributing to inventory shrinkage is warehouse theft. In fact, 42.7% of inventory shrinkage is attributed to employee theft. So, as much as we’d like to trust every employee, the truth of the matter is that warehouse theft can and will occur. Effective communication among teams is essential for a proactive shrinkage reduction strategy. Tools 3 Ways To Reduce Inventory Shrinkage like Team Chat allow for streamlined collaboration, ensuring that all relevant departments—from procurement to inventory management—stay in sync.
Stages in GOP in Make-In-Order Production
Security checks should be a non-negotiable concept when it comes to inventory. The warehouse or the retail outlet should be covered with a web of CCTV cameras. The products can be pinned with tracking devices if limited in numbers. Anti-theft alarms can be placed at the security check along with a manual checking process. First, calculate your inventory shrinkage value by subtracting actual inventory from recorded inventory. Divide that shrinkage value by your recorded inventory value and multiply by 100.
Overcoming these hurdles requires not only investment in technology but also a cultural shift in the way pharmacies approach data management. Building a robust ecosystem that combines smart software with trained professionals is key to reducing losses effectively. Calculating inventory shrinkage is critical to determining shrinkage cost and formulating strategies to mitigate it.