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The goal is to always be on top of your inventory reconciliation to catch shrinkage as it happens. If you have inventory that’s at particular risk for theft, such as batteries or low-cost accessories, consider focusing multiple cycle counts in a row on those SKUs. Theft, fraudulent returns and neglecting to scan items for friends and family lead to mismatches in your inventory levels and can add up to big losses for your business. According to a study from the National Retail Foundation, retail businesses lost $62 billion from “shrink” in 2019, amounting to an average of 1.6% of sales. Shrinkage is the difference between the recorded (book) inventory and the actual (physical) inventory.
Lightspeed is a cloud-based commerce platform powering small and medium-sized businesses in over 100 countries around the world. Alternatively, or in addition to the tags, you could lock particularly valuable inventory behind glass cases. This ensures employees need to speak to customers before they can touch these items, which both deters theft and gives employees a chance to upsell to customers. They should never put themselves in harm’s way, but greeting every customer and making it clear employees are alert can discourage potential shoplifters. Unless you find a way to completely eliminate accidental damage, you’ll always have some inventory shrinkage over the course of your business’s lifetime. The more employees you have, the more potential for employee theft — and the harder it is to identify the culprit.
Vendor theft is not a very large contributor to shrinkage, and many retailers will not fall prey to it. Limiting shrinkage is a vital part of inventory control, and it all comes down to being better organized as a business. Here’s what inventory shrinkage refers to and how to get it under control. Consider shopping around for commercial-grade security systems If you own a large retailer. Businesses experiencing a particularly high theft rate can also hire a team of security guards to patrol parking lots and entrances. Instruct employees on best practices to avoid spoilage, such as stocking new products behind those with upcoming expiration dates.
Restrict access to certain parts of the warehouse to only those employees who need it, making it easier to narrow down the suspects if you do have an issue. Before hiring employees, a company should vet potential employees and do a background check to weed out those with a history of stealing inventory. The company should contact the references and past employers to know the behavior and general conduct of a prospective employee.
The recipient therefore records the invoice for the full cost of the goods, but records fewer units in stock; the difference is shrinkage. If you’re not keeping an eye on your inventory levels, you’re vulnerable to being blindsided by shrinkage rates that you never even knew were a problem. However, full physical inventory counts are prohibitively time consuming—there’s a reason most retailers only count their entire stock once or twice a year. The NRSS reports that in 2018, the average inventory shrinkage rate was 1.38% across all retail sectors.
Every time product is acquired or sold, your inventory updates in real time. A better way to look at acceptable levels of retail inventory shrinkage is the median 2018 reported shrinkage. The median is the point in which half the numbers are above it and half below. Of note, what’s known as “POS exceptions” contribute to internal theft and are especially relevant to the hospitality industry. Because POS systems are so integrated into the sales of a bar or restaurant, employees have the ability to use them subtly and to their own benefit. That means ringing in obsolete prices, applying discounts, or otherwise being creative with how things are rung in.
ACME Inc.’s accounting records show $1,500,000 in inventory. After doing a physical inventory count, the company determines it has $1,470,000 in inventory on hand; therefore, the inventory shrank by $30,000. To determine the shrinkage rate, divide the total shrinkage by the total recorded inventory amount. ABC International has $1,000,000 of inventory listed in its accounting records.
When the recorded asset total on a company’s balance sheet is reduced, the amount of the reduction is charged to expense through the firm’s income statement. In effect, this means that any reduction in inventory caused by shrinkage is a direct reduction in the reported level of profitability. The situation is actually worse than that, since https://www.quick-bookkeeping.net/when-to-use-a-debit-vs-credit-card/ the business can no longer sell the inventory and earn a profit on the sale. Shoplifting occurs when a customer exits a store with more than what they paid for at the cashier. Shoplifting accounts for 38% of inventory shrinkage, and it surpassed employee theft as the leading cause of shrinkage in the 2016 National Retail Security Survey.
Shrinkage is the loss of inventory that can be attributed to factors such as employee theft, shoplifting, administrative error, vendor fraud, damage, and cashier error. Shrinkage is the difference between recorded inventory on a company’s balance sheet and its actual inventory. This concept is a key problem for retailers, as it results in the loss of inventory, which ultimately means loss of profits. Shrinkage is the loss of inventory or cash from a business due to factors such as theft, damage, or administrative errors.
Double-check systemsImprove your inventory accuracy by implementing daily or weekly stock checks and receiving counts. Ensure that your team alternates counting duties to deter mistakes or even dishonest employees from reporting false inventory records. Double-checking ensures that two workers conduct inventory counts simultaneously, then compare numbers to guarantee accurate results. how to calculate depreciation rate % from depreciation amount Your company can proactively reduce missing inventory by installing security cameras in critical areas to double checking during inventory counts. On the other hand, a steady and elevated shrink rate could indicate internal or external theft. Therefore, it’s worth revisiting your stock check/receiving processes, employee screening procedures, and overall security measures.
Those 598 cases of wine are loaded onto a truck, driven to the wholesaler’s warehouse, and unloaded. The wholesaler stocks it, scans it, inventories it, sells it, and ships it to hundreds of individual retailers. It’s actually right around average and speaks to an industry-standard amount of shrinkage control. Even a moderate amount of shrinkage can have a big impact on your business, which is why it’s important to get your shrinkage rates as low as possible.
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