Internal and external thefts, fraud, and bad processes are the leading causes of shrinkage. Our post will discuss the silent threat of shrinkage, its causes, and how you can protect your business.

Shrinkage causes and dangers

Commercial shrinkage has various causes with the common ones being:

• Internal theft and fraud - When employees or the company’s vendors exploit their access to inventory and steal for the company that hire their service.
• External theft - When customers shoplift items, this can be a planned action or crime of opportunity.
• Bad processes - This is usually through an innocent occasion, such as when errors take place due to inefficient processes or just distracted employees.

Shrinkage is a silent threat because it might seem unpreventable and sometimes accepted as a normal situation in running a business. But in fact, it usually adds up to a huge annual loss which shouldn’t be accepted at face value. If you look at the number of items gone, you might think it’s not that bad compared to an entire stock but in reality, it can add up to millions of dollars being lost with no clear reason why and how. In addition to the financial loss due to shrinkage, there are additional risks:

Lost sales

You can’t accurately replenish items you don’t know are missing. In such a case, the next time a client comes to purchase an item you believe you have; they will leave empty-handed and probably disappointed. This is a very unfortunate situation when a client is ready to buy, but the item is not available. This makes you lose potential sales, damages your client experience, and decreases your ability to interact with him and upsell.

Unreliable planning

Shrinkage can lead to misleading data, resulting in missing items and incorrect replenishment decisions. This not only affects operational efficiency but also misguides business's perception of product availability and demand. If the business believes certain items are in stock based on inaccurate data, they may mistakenly assume low sales or lack of demand, leading to missed opportunities for restocking popular items. Thus, maintaining a real-time and precise understanding of the stock situation through RFID technology is critical to making informed decisions and optimizing the overall performance of the deployment.

Environmental effect

business deal with shrinkage by overstocking to make sure items are available to customers even without the traceability, yet overstocking also mean overproducing, and creating more stuff than is actually needed, so you're utilizing resources that didn't need to be, hence harming the environment and simply not sending the right product to the right store to drive sales.

Customer experience

When you provide customers with an exceptional experience, they will be loyal to your brand, but when you fail to meet their expectations and disappoint them, they will rarely return. Having a shopper unable to find their desired piece or size can be upsetting, but it’s worse if they checked availability beforehand or even ordered online, and it isn’t available in reality. Not only does this ruin their shopping experience, but it also destroys the trust they have in your company or brand.

Employee morale and trust issues

When shrinkage happens, there's a risk of attributing suspicion to staff dishonesty, which can strain relationships and dampen morale within the organization. This negative work environment can significantly impact productivity and staff retention. Additionally, if salesfloor employees are unable to access accurate stock information due to shrinkage, they might become frustrated, as they'll face difficulties in closing deals and achieving their targets. Ensuring a reliable RFID system to monitor inventory effectively can help mitigate such issues, foster trust among employees, and promote a more positive and efficient work environment.

Combat the shrinkage

Thankfully, the shrinkage threat can be reduced and even prevented, with the right actions.

Implement RFID and be vocal about it

RFID is a powerful technology which can help reduce shrinkage by giving each item a unique identification code and being able to track them in real-time. But it also has another benefit, even by just speaking about your business' strong security practices (and RFID implementation) you can reduce internal theft. If your employees know that every piece of item is carefully tracked, they will not even attempt to steal for fear of being caught.

Conduct quick inventory counts frequently

Thanks to technology, tagged items can be scanned quickly and frequently, meaning inventory counts do not have to be laborious or time-consuming, so you can conduct them more often. That way you don’t let issues pile up, and you can attend to errors in real-time as well as investigate how and why errors occur.

Utilize the power of cloud-based software

Implementing an inventory management system that tracks all your assets from end to end is your best bet for reducing shrinkage. Platforms such as Chainlane allow stores to manage their inventory, and count inventory quickly and hassle-free thanks to technologies such as RFID, NFC, and others, while also providing management an active dashboard to track and gain insights across the entire supply chain. You can not only be in close touch with your stock levels but also gain important insights for improvement and accurate forecasting.

In conclusion, shrinkage poses a silent threat to businesses, leading to financial loss, lost sales, inaccurate planning, environmental effects, compromised customer experience, and employee morale and trust issues. However, there are effective ways to combat shrinkage. Implementing RFID technology and openly discussing strong security practices can deter internal theft. Conducting frequent inventory counts using technology enables real-time error detection and investigation. Harnessing the power of cloud-based software, such as Chainlane, provides end-to-end tracking and management capabilities, offering valuable insights across the entire supply chain. By taking proactive measures and leveraging innovative solutions, businesses can protect themselves against the silent threat of shrinkage and safeguard their operations, reputation, and bottom line.