Inventory shrinkage is a term used to describe the loss of inventory. It is the difference between the physical count of inventory stock and the recorded quantity. Categorised as inventory waste, the four major types of inventory shrinkage are shop-lifting, theft by employees, clerical errors and supplier fraud.
Placement
Shoplifting is the leading cause of shrinkage, accounting for over a third of all inventory shrinkage. Retail businesses are particularly prone to inventory shrinkage as a result of petty theft. Therefore, the placement of products within the retail store environment is an important way of reducing the loss of the most valuable items. Placing expensive inventory items in cases, on locked hangers, near the point of sales, and at the back of the store, helps to reduce inventory shrinkage caused by opportunist theft. Increased security through the use of digital tags, CCTV cameras and other security measures will also help reduce the risk of customers stealing your inventory stock.Perversion
Vendor fraud is another area of inventory shrinkage that occurs through either a fraud being committed by vendors acting alone, or some type of collusion between vendors and employees. Common fraud schemes often include:- A supplier invoicing a company for a number of goods shipped but not shipping all of the goods. The recipient then records the invoice for the full cost of the goods and because the inbound stock has already been recorded as fewer units, the difference is shrinkage.
- Overbilling where an employee may intercept a duplicate payment when it is returned to the company and deposits it into their own personal account.
- A vendor can submit inflated invoices for their goods including charges for greater quantities than actually received.
- Theft may also occur during transit from the supplier’s warehouse to the business premises or when loading and unloading the inventory stock.