Inventory shrinkage leads to a diminish in the retail business’ income which, in turn, reduces the potential profit. How to Determine Inventory Shrinkage Percent. Inventory Shrinkage: Companies that generate revenue through products selling to their customers get the products by buying them from manufacturers, distributors or by developing them from scratch – from their raw materials. Supply Chain News: Inventory Metrics, Part 3: Shrinkage -- Into Thin Air: Just where does that Missing Inventory Go? The business should be very critical in monitoring how the inventory is managed on a day to day basis. It In accounting, inventory shrinkage (sometimes shortened to shrinkage or shrink) occurs when a retailer has fewer items in stock than in the inventory list due to clerical error, goods being damaged, lost, or stolen between the point of manufacture (or purchase from a supplier) and the point of sale. NRF: Inventory shrink cost the industry $48.9B in 2016 Depositphotos. Learn to keep a close eye on shrinkage, and keep it from stunting your company's growth. Clearly, there are clerical reasons which can cause differences in inventory balances. Inventory shrinkage is the term used to describe the loss of inventory.For example, if the inventory records of a retailer report that 3,261 units of Product X are on hand, but a physical count indicates that there are only 3,248 units on hand, there is an inventory shrinkage of 13 units. Inventory shrinkage is the excess amount of inventory listed in the accounting records , but which no longer exists in the actual inventory. The inventory shrinkage formula is represented as below: As a business owner, one of the most important things you can do to reduce shrinkage is by letting all your employees know that it is imperative to keep shrinkage down to an acceptable level. That, is for every $1 Million in sales with 30 to 40% margin, you stand to lose about $8,000 approximately due to shrinkage. The average inventory shrinkage rate in the retail industry is estimated to be 2% of sales. Retail shrink can be grouped into three different categories — clerical and stock management errors, internal (employee) theft and external (customer) theft. Organized Retail Crime (ORC) costs the retail industry approximately $30 billion each year. The National Shrink Database® (NSD) is an innovative tool for the retail industry to benchmark shrink experience and security measure utilization across the United States. (Source: NRF) Inventory Shrinkage And Manufacturing Inventory Systems. Add to this rapidly changing marketplace inventory loss, or shrinkage as those in the trade call it, and you can see that retailers are up against the tide. If it is going to cost more to achieve this, than you save, then you know what your shrinkage rate can be. In the prior installment, we explored inventory accuracy (See Inventory Metrics, Part 2). Inventory Shrinkage And Manufacturing Inventory Systems. Excessive shrinkage levels can indicate problems with inventory theft, damage, miscounting, incorrect units of measure, evaporation, or similar issues. The matching principle requires that inventory shrinkage should be recorded as an expense in the financial period in which it occurred. The following 33 stats offer a state-of-the-industry view of loss prevention, workplace violence, organized retail crime, internal shrinkage and more for 2019. It represents the difference between your book inventory and your actual physical inventory. What is the cost of all of that? What is the cost of all of that? So while I appreciate your question, I believe it should really boil down to how much will it cost to achieve a zero shrinkage rate and 100% accuracy. Once those two amounts are totaled, you will then have your total shrinkage and be able to Inventory shrinkage is part of retail life, but there are many ways you can minimize inventory shrinkage and related losses. Inventory shrinkage occurs when the number of products in stock are fewer than those recorded on the inventory list. That, is for every $1 Million in sales with 30 to 40% margin, you stand to lose about $8,000 approximately due to shrinkage. Inventory shrinkage happens for lots of reasons, from theft to accidental damage. Inventory shrinkage can result in business or inventory value loss. Organized Retail Crime Statistics. 8 Ways To Prevent Inventory Shrinkage From Affecting Your Bottom Line Jan 31, 2018 inventory management Inventory shrinkage is a term that refers to having a certain amount of inventory showing in your accounting records, but that same inventory no longer exists in reality. Most likely more than the inventory shortage. Almost half of the businesses surveyed – 42.3 percent – had an inventory shrinkage of 0.99 percent or lower, while 23.1 percent of businesses had an inventory shrinkage of 2 percent or more.

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