Inventory loss: what is it and how can you avoid it?

As a small business owner, you're no stranger to the challenges of managing inventory. Whether you're a retailer, manufacturer, or distributor, maintaining accurate stock levels is crucial for meeting customer demand and ensuring smooth operations. However, there's a silent profit killer lurking in the shadows: inventory loss. In this article, we'll explore what inventory loss is, its common causes, and practical strategies to minimize it.

What is inventory loss?

Inventory loss, also known as shrinkage, occurs when the recorded stock levels do not match the actual stock available. This discrepancy can be due to various reasons, including theft, damage, administrative errors, or supplier fraud. According to industry reports, inventory shrinkage can cost businesses billions of dollars annually.

Common causes of inventory loss

Understanding the root causes of inventory loss is the first step toward minimizing it. Here are the most common culprits:

• Theft and shoplifting: one of the most common causes of inventory loss, theft can be internal (employee theft) or external (shoplifting by customers)

• Administrative errors: mistakes in order processing, pricing, or inventory tracking can result in inaccurate stock records

• Supplier fraud: receiving less stock than what was ordered or being overcharged can lead to inventory discrepancies

• Damage and spoilage: perishable goods or fragile items may get damaged, making them unsellable

• Obsolescence: products that become outdated or irrelevant can lead to inventory loss if they cannot be sold

How to avoid inventory loss

1. Implement strong security measures: install security cameras and anti-theft devices in-store and in warehouses and conduct bag checks and monitor high-risk areas to prevent employee theft.

2. Improve inventory management systems: use inventory management software like Cantant to track stock levels in real time and automate as much as possible to reduce human errors.

[Banner] Track your inventory in real time and get low stock alerts

3. Train employees on inventory best practices: educate employees about the impact of inventory loss, encourage them to report suspicious activities and implement strict stock management protocols.

4. Strengthen supplier relationships and verification: work with trusted suppliers to ensure accuracy in deliveries. Cross-check received inventory with invoices before approving payments and Establish clear contracts to outline penalties for discrepancies.

5. Reduce product damage and waste: Store inventory in a controlled environment to prevent damage and spoilage. Implement the FIFO (First-In-First-Out) method to rotate stock and minimize obsolescence. Additionally, use past sales data to guide your purchasing decisions, ensuring you procure products that are likely to sell, reducing the risk of stock becoming obsolete.

Inventory loss can greatly impact a business’s finances, but with the right strategies in place, it can be avoided. Investing in preventive measures not only saves costs but also boosts overall efficiency. Businesses should regularly assess and refine their strategies to stay ahead of potential risks. To ensure smooth operations and profitability, start taking proactive steps today!