How To Reduce Inventory Shrinkage In 2020

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Inventory shrinkage accounts for billions of dollars of lost revenue each year for warehouses across the globe. Inventory shrinkage is a serious problem for warehouses across Australia that is often written off as the cost of running a business. However, shrinkage negatively impacts not only the profit margins and annual revenue of warehouses, it can also hinder the growth and scalability of a business.

What Is Shrinkage?

Inventory shrinkage refers to any loss of inventory that cannot be attributed to sales. The most common causes of shrinkage in warehouses is lost or damaged goods and theft. However, there are many other causes of shrinkage that will impact the bottom line of your business including admin errors, counting errors, and incorrect shipments.

How To Reduce Inventory Shrinkage

Reducing shrinkage in your warehouse can be as simple as implementing new processes when receiving inventory, ensuring that product codes are clear and consistent, improving employee vetting and training, and installing a quality pallet racking system specifically designed for your inventory and warehouse.

Improve Receiving Process

A common place for stock inaccuracies to occur is during the receiving process. This can cause the physical stock count of your inventory to differ from the recorded stock count, resulting in ‘missing’ products which will be written off as shrinkage.

To reduce the risk of inaccuracies when receiving stock, implement a double check system where more than one person is required to sign off on any deliveries and invoices. Having this double checking system in place will also help you to identify what stage of the receiving process is resulting in errors in order to improve the receiving process for increased accuracy.

Simple & Clear Product Codes

Using multiple or inconsistent product code systems can result in confusion, inaccuracies, and mismanagement of stock. It’s important to ensure that your stock is easily identified and located using simple and clear product codes.

Additionally, use a product code system that can be easily expanded to accommodate any new product lines as your inventory grows and changes.

Employee Vetting

Theft is one of the highest contributors to inventory shrinkage. In fact, according to a 2015 study, employee theft was the highest contributor to inventory shrinkage accounting for 42.7%. Thus, to reduce shrinkage it’s important to improve your employee vetting process. If you aren’t already, start conducting background checks on potential candidates for hire and ask for multiple references from their previous employers.

In addition to thoroughly vetting your employees, there are a number of processes you put in place to reduce their opportunity for theft. Start by creating a clock in system where all workers are required to sing in and out of the warehouse using their unique employee number. This will increase the accountability of workers as they will know that there is a record of who was in the warehouse at the time of theft.

Additionally, a clock-in system will help you to keep track of who is coming and going allowing you to spot any irregularities. And, when investigating stock theft, you will already have a shortlist of suspects.

Similarly, reduce the number of employees who have access to editing stock levels. For example, only allow access to the warehouse managers. This will also increase accountability, reduce the opportunity for anyone to change stock levels in the system in order to cover up theft, while providing a clear map to the culprit if theft occurs.

Employee Training

Employees are the backbone of any warehouse, responsible for receiving, counting, and handling stock. In each of the aforementioned processes, there is room for error which can lead to shrinkage, whether it be inaccurate receiving and counting, or damaged stock. So it’s important to provide each employee with adequate training as well as regular refreshers to keep the correct protocols and procedures fresh in their minds.

In addition to implementing a double checking process at receiving, ensure that all workers know how to accurately count inventory and to input stock levels. Manual handling training is also essential to prevent damage to stock when storing and picking, as well as to prevent worker injuries.

As part of your employee training, consider introducing an anonymous theft reporting process to allow anyone to report theft, scamming, or any suspicious behaviour they may see on the warehouse floor without fear of backlash from their peers.

Quality Product Storage

Finally, quality product storage is key to reducing inventory shrinkage. Ensuring that your products are stored correctly and securely will reduce the risk of product damage and subsequently reduce shrinkage.

Choosing the right racking systems for the type, size, and shape of your products will maximise storage in your warehouse, ensure that products are easily accessible based on their shelf life and overturn rate, and reduce product damage. For example, in warehouses that store products with a short shelf life, consistent product rotation is essential to prevent loss of stock.

There are a number of pallet racking systems specifically designed to prevent forgotten stock at the back of a racking system from expiring on the shelf. From selective pallet racking where each pallet is individually accessible from the aisle, to pallet flow racking where pallets are automatically rotated to the front of the system for first in, first out storage.

In addition to choosing the right racking system for your inventory, it’s important to ensure that the weight capacity of each rack is clearly signed and visible, and that all racks are regularly inspected to prevent racking failures that may result in a significant loss of stock.

Whether you need a professional racking inspection or a new pallet racking system customised to suit your products and space, Macrack has the solution. Manufacturing quality pallet racking systems for over 35 years, you can count on Macrack to provide durable racking with a lifetime guarantee at an affordable price.

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For more information on our customised Australian made pallet racking systems and a free quote, call 1800 048 821 today.