Inventory Shrinkage - Meaning, Causes & Prevention

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INVENTORY SHRINKAGE
MEANING, CAUSES PREVENTION
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If youre a wholesaler or a retailer dealing with
substantial goods, theres a lot of
responsibilities at your end
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X
Dealing with material products has its own pros
and cons
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TODAY
Were gonna learn about inventory shrinkage
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WHAT IS INVENTORY SHRINKAGE
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Inventory shrinkage means the depreciation in the
amount of actual inventory from the total thats
recorded in your books
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WHAT CAUSES INVENTORY SHRINKAGE
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Inventory shrinkage is the misplacement of the
stock between the time of buying goods from the
wholesaler (manufacturer) and selling it to
customers
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SLOPPY DOCUMENTATION OF WAREHOUSE PRODUCTS
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Even minute deviations in the records of the
warehouse can result in major deficits in profit
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EMPLOYEE OR EXTERNAL THEFT
Stealing can be an insider or an outsiders job.
Since internal controls are easy to impose,
keeping a check on your employee activities is
well advised
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NATURAL OR ACCIDENTAL DAMAGE
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Sometimes natural calamities can ruin stocks.
Even a normal roof leak can cause damage.
Water-logged goods get damaged due to improper
maintenance of the warehouse
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Prevention of Inventory Shrinkage
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ELIMINATE HUMAN ERRORS
This means automating the data entry process and
keeping track of records by use of inventory
software
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TIGHTEN SECURITY AROUND THE PREMISES
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Control entry in critical areas
Access to authorised personnel only
Install cameras
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RELIABLE EMPLOYEES MUST BE APPOINTED TO DEAL WITH
EXTERNAL AGENCIES
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A thorough background check must be done before
the hiring process
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RUN THROUGH EACH DAYS TRANSACTION IN FRONT OF
YOUR ASSOCIATES EMPLOYEES
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Make a regular estimate of your physical
inventory at small intervals to analyse the
shrinkage percentage. You can use a Bluetooth
scanner to perform the physical count
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RAISE AWARENESS AMONG YOUR WORKERS ABOUT THE
COMPANY POLICIES RELATED TO SHRINKAGE
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Educate them about the latest fraud trends and
thus prevent them from being fooled
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STANDARD HYGIENE IS OF UTMOST IMPORTANCE FOR A
HEALTHY STORAGE AREA
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Negligence in sanitation increases the
deteriorating rate of the goods stored and
reduces their storage time
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KEEPING RECORD OF THE LOSS
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Shrinkage can be minimised by taking certain
precautions but it cannot be completely eliminated
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In the case of small loss of goods like theft,
etc. you can increase the cost of goods sold to
cover the shrinkage deductions
Prevention is better than cure. Being one step
ahead in the game makes you different from your
mediocre competitors
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CONCLUSION
The only way to shield your business against this
is to always stay on the lookout. With reliable
employees, the risk of an internal rip-off is
diminished. Keep the structure well-organized and
ensure that job-division and security are flawless
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Good luck
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shrinkage/