Reduce Shrinkage for Increased Profitability

Looking for ways to boost company profits? You’ve probably looked into shrinkage reduction in the past in attempts to cut costs and raise profitability. However, tactics you’ve tried in the past may not have been successful. For some businesses it all comes down to a series of trial and error until you find a method that works for your business.

What is Shrinkage?

In the world of business, the term shrinkage is used to identify inventory recorded as present that is either unsalable or missing. There are many causes of shrinking including thefts by employees or customers, damage, or simple bookkeeping mistakes. While it can happen in any industry, it is a major concern for businesses in the retail industry.

What Causes Shrinkage in the Retail Industry?

Before you can take action to reduce shrinkage, you need to understand what’s causing it within your organization. There are three primary culprits when it comes to shrinkage

1.   Ordering Mistakes
2.   Theft
3.   Spoilage

Ordering Mistake Solutions

Many businesses have addressed ordering mistakes by turning to software to aid in the ordering process.

Software can track historical data and general trends to help determine the proper amount of merchandise and supplies to order. As shrinkage decreases, software can adjust to meet changing inventory demand, too.

Theft Prevention

Theft is a bigger problem that requires a closer look by most businesses – largely because it occurs on so many fronts.

Employee theft is a bigger problem than most businesses want to admit.  CBS recently reported on just how big the problem of employee theft is in the U.S. stating that “75% of employees steal from the workplace and that most do so repeatedly.”

How do you combat a problem that big? You start by creating policies that discourage theft. You educate your employees to be on the lookout for each other, and you have a system of checks and balances so that no one person is in charge of ordering supplies, paying for them, and checking them in. This helps keep everyone honest.

Customer theft is deterred by training employees how to watch for it, installing security and surveillance in your retail stores, and using mirrors in order to watch in blind spots. Small efforts add up to real success when it comes to reducing shrinkage.

Spoilage Prevention

Spoilage is another matter that can be better combated by taking smaller, more frequent shipments of fresh produce, dairy, and meat products that spoil more readily. Also implementing policies about proper rotation and getting products to the shelves quickly so they don’t spoil before even making it to store shelves.

Shrinkage accounts for approximately two percent of the global retail industry’s total yearly sales of nearly eight trillion dollars. Taking action now to reduce shrinkage in your business can help you take a bite out of that very large pie for your business. In addition, be sure to be armed with commercial crime insurance and spoilage coverage for shrinkage due to theft or spoilage, respectively.