Question

What happens to the "shrinkage" or shortage of inventory-(inventory that is lost due to theft- whether it is through employee theft, employee error/incompetence, or shoplifting)? How this affect the company?

Answer 1

{Notes- Answer is not lengthy , i was break answer into points for your better understanding.}

•What is inventory shrinkage ?

Inventory shrinkage is when your business has less inventory (e.g., goods) than what you recorded in your books. Although some inventory loss is generally a normal part of running a retail business, high inventory shrinkage can indicate underlying problems.

• In 2008, the retail industry in the United States experienced shrinkage rates of around 1.52% of sales.

• Reasons for inventory shrinkage -

Top reasons for inventory shrinkage is-

•Damaged or expired items

• Miscounted inventory

• Employees theft

• Shop lifting

Number of reasons for inventory shrinkage. Inventory shrinkage can take place when items, such as expired produce, are naturally no longer sellable. Or, shrinkage might be due to damaged items.

•Inventory shrinkage may also be the result of errors.

•You or one of your employees might miscount items.

•Your vendor might also make errors when they supply you with inventory items.

•In some cases, you might have inventory shrinkage because of malicious actions, such as (theft, shoplifting, or fraud.)

• Vendors may commit fraud and give you less inventory than what you purchased.

•Or, employees might steal inventory. •Shrinkage is also common when customers shoplift from your business.

• The impact of shrinkage on company.

The largest impact of shrinkage is a loss of profits.

This is especially negative in retail environments, where businesses operate on low margins and high volumes, meaning that retailers have to sell a large amount of product to make a profit.

In addition, shrinkage can increase a company's costs in other areas.

• For example, retailers would have to invest heavily in additional security, whether that investment is in security guards, technology, or other essentials, to prevent shrinkage that was caused by theft. These costs work to further reduce profits, or to increase prices if the expenses are to be passed on to the customer.

{Some points }-

•Lost Revenue-

Lost inventory equals lost revenue. Anytime an item walks out the door with a customer or employee, you lose out on the chance to generate revenue and cash from it. Similarly, it impacts your profits because you have to eat the costs of acquiring the goods and making no money on your investment. Very high shrinkage can make the difference between a slight profit or a loss for some small businesses.

•Internal Trust-

Shrinkage problems resulting from employee theft also impacts the internal culture of your business. When extreme, retailers implement bag and coat checks when employees come and go and monitor break rooms and other common areas. This creates a significant barrier between managers and employees, especially with those who have not been a part of the problem. This feeling of guilt by association and a lack of trust from managers negatively effects morale.

• Service Impact-

Your employees may become leery of customers and become less friendly toward them if shoplifting is contributing to your shrinkage.

•Management Distraction-

High shrinkage rates command attention from store managers. In fact, district and regional-level managers often get involved when stores experience alarming rates of loss.

I am so glad you asked for help when you needed it.