Inventory Shrinkage Management: How to Control Inventory Shrinkage – Part 2

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.

However, there are things you can do to get your shrinkage rate as low as possible.

Employ frequent cycle counting

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.

Good stock management practices will help you keep on top of inventory shrinkage, though, so implement frequent cycle counting practices instead. 

Cycle counting refers to the practice of counting a small amount of your inventory on an ongoing basis. You might do a weekly count of 10 different products, for example, or you might pick 20 particular products to count weekly for a month to monitor stock level changes for those products.

Either way, here’s how the process works:

✅ Pick a section of your store to focus on.

✅ Count the products in that section of the store.

✅ Compare the count to the stock levels in your inventory management software.

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 products.

Cycle counting is more of a warning system than an inventory shrinkage deterrent in and of itself, however. It helps you pinpoint where shrinkage may be happening and if you need to invest more in your loss prevention strategies.

Implement anti-shoplifting measures

Shoplifting is a serious contributor to shrinkage, so it’s worth it to take the time to invest in anti-shoplifting measures.

Your sales staff can be an important shoplifting deterrent. They should never put themselves in harm’s way, but greeting every customer and making it clear employees are alert can discourage potential shoplifters.

In addition to training your staff, loss prevention tools include:

✅ Electronic security tags: these are those plastic tags that can only be safely removed by staff at the front counter. They can either sound an alarm when the tagged merchandise is carried out of the store or ruin the product in some way, such as with ink, when tampered with.

✅ Security cameras: security cameras installed throughout your store are a powerful anti-shoplifting deterrent. To avoid alerting potential shoplifters of blindspots in your store’s security system, consider hidden cameras with signage indicating shoppers are being recorded. If any shoplifting does happen, you can consult your camera footage for visual evidence. Security cameras are also effective in lowering employee theft.

Mitigate employee theft risk factors

Unhappy and under-trained employees are risk factors for theft. 

Because sales staff who steal may do so because of external life stress or internal strife, one of the easiest ways you can cut down on theft is by having an open line of dialogue with your employees.

Trust and high morale can go a long way. If employees know they can come to you about working conditions, they’re more likely to speak up about what they need instead of taking it from you.

In addition, you could consider:

✅ A buddy system: there should always be at least two employees working at all times. Ensure voided sales and refunds require another employee, preferably a manager, to be present.

✅ An anonymous tip line: whether you do this by email, phone or online form (such as a Google form), make sure employees have a way to remain anonymous. Employees who witness theft may be more willing to report it if they won’t be found out by their co-workers.

Use an all-in-one system for less admin errors

One of the best ways to cut down on human entry error is to remove the human entry part. With a fully connected inventory management and point of sale system, you can worry less about mismatched numbers.

An integrated system makes decisions about what to do about shrinkage easier, too, because you have a lot of the information you need on hand for easy reference.

If you’re using a POS System like SimbaPOS, you can check your inventory levels and past cycle counts at a glance, making it simpler to monitor potential shrinkage rates. Cycle counts also take less time, because you can scan inventory levels directly into the system—which cuts down on potential administrative errors entering the counts.

Invest in item tracking or theft deterrent

The fashion industry is a master at this—just think about those ink-blot tags many stores use, making it difficult to make use of stolen goods without ruining them. For bigger ticket items, you could attach item tracking tags that are deactivated by staff when customers check out.

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.

Create an inventory shrinkage action plan

Time to tackle your inventory shrinkage!

✅ If you’re not already using one, switch to a fully connected inventory management and point of sale system.

✅ Evaluate your current loss prevention measures. Consider implementing electronic tags and security cameras if you haven’t already.

✅ Examine your employees’ shifts and ensure at least two employees are working at all times.

✅ Establish an anonymous employee theft tip line and inform employees. Emphasize that all reports are truly anonymous.

✅ Find ways to increase employee morale so they’re less likely to engage in theft.

✅ Set up your cycle counting schedule. Clearly define how you’ll pick products to count each week and write out the steps for cycle counting employees.

If you’re interested in learning how SimbaPOS Retail System could help you cut down on administrative errors and speed up how you work, let’s talk.