What Is Inventory Shrinkage, And 7 Ways To Reduce Inventory Shrinkage

inventory shrinkage

What is inventory shrinkage

It is imperative that proper procedures are adopted to maintain flawless inventory. Such a situation is better said than done especially in a retail organization where the movement of goods is rapid and frequent. Before the advent of the computer-based inventory control systems, stocks were tabulated manually. Stock cards kept a track of goods received and goods sold or delivered. The stock card would be checked against the physical stock. It would be done either biannually or annually. The whole organization would come to a standstill until the stocks were verified.

After the perpetual inventory systems were introduced such manual tabulating became obsolete. The system showed the receivables and stock in hand at the tap of a key. Still, there was no guarantee that both the physical stock in hand and the books always matched.

Keeping track of such rapid movements would need an efficient computer generated system. Still, there are many a slip between the cup and the lip and when and if physical stocks are taken there could be a discrepancy between the records and the goods in hand. Invariably what could happen would be the recorded quantity would be more than the physical stock. This is what is referred to as inventory shrinkage.

The following are 7 ways to reduce inventory shrinkage.

#1. Stop customer theft

customer theft

This is a major issue encountered by all retailers. There are gangs of customers who would enter a large retail store with the primary aim of pilfering items. All precautions like security tags, scanners at entry and exit points are needed. Security should be beefed up and at optimum efficiency at all times.

#2. Stop employee theft


Employees should not be given the opportunity to pilfer stocks at any time and proper surveillance should be in place. Tight security controls are required at all points within and exit to ensure no leverage is given.

#3. Check errors in scanning

inventory Scanning

Regularly and randomly check the scanning equipment for flaws. Ensure that the system is supported and serviced by professionals. If there are any flaws it would open to flood gates and the management would not be aware until the horses have bolted. The systems for scanning would need checking more often than not.

#4. Delegate and designate responsibilities

inventory responsibility

Delegate and designate areas of responsibilities which would keep every staff member on his or her toes and also ensure that they are responsible to reduce inventory shrinkage. Once employees know their territories of responsibilities they would endure reducing inventory shrinkage.

#5. Tabulate all damaged stock

tabulate damaged inventory

Damaged stocks are a part and parcel of any type of business which should be kept at the minimum. Employees should be aware that it is their responsibility and also if such incidents occur they should be immediately informed. The Warehouse supervisor should authenticate the fact and remove such items from the system. Damaged stocks cannot be prevented hence remove from physical stocks and from the records too.

#6. The loss at the point of acceptance

inventory loss

At the point of acceptance of goods, every packing list should be thoroughly checked for any discrepancies either due to pilferage or human error. There would not be an ideal situation but with high-security systems in place, it would be able to reduce inventory shrinkage.

Stocks ordered, received and taken into the perpetual inventory system should not be flawed or discrepancies are allowed to happen. Discrepancies could occur not always due to pilferages but due to human error too.

#7. Take random stock checks

inventory check

The only way to check and reduce inventory shrinkage would be to take random stock checks of one or more items. It is only when you have the quantity of physical stock available that you could cross-check it with the system balances. Such random stock checks would place even the staff on a leash and ensure that they are kept on their toes at all times.


A penny saved is a penny earned. In that context, every endeavor should be made to reduce inventory shrinkage. It is difficult to eliminate it, but it could be controlled to be at the minimum.

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