Inventory shrinkage is a common problem that many retailers and suppliers have to deal with on occasion. If inventory shrinkage is not handled properly, it can become a huge headache for warehouses to deal with. One of the best ways to tackle warehouse shrinkage is to implement inventory management systems. Utilizing inventory management systems that are hybrids of software and physical security components usually achieves the best results.
What Causes Warehouse Shrinkage?
The most likely culprits of warehouse shrinkage are theft, damage, and basic human error:
Unfortunately, employees and clients can often be tracked down as the main causes of warehouse shrinkage due to theft. If your current inventory management system has no protocols in place to limit the access that employees have to warehouse stock, you will likely be a victim of theft. The same notion applies to the access that customers have to parts of your warehouse, if any. In the best case scenario, systems should be put in place to limit the unsupervised access that employees and clients have to warehouse stock.
Inventory is usually moved around quite a bit before it ends up in your warehouse, and even more between then and the time any goods or services are delivered to a customer. This usually means that it is possible for goods to be damaged in transit to and from your warehouse, or as a result of poor warehouse maintenance. Either one of these occurrences can result in warehouse shrinkage.
Additionally, there is a lot of information that has to be accurately tracked when dealing with warehouse inventory. As such, if any information is recorded inaccurately, there is a chance that it will result in warehouse shrinkage. If warehouses relay the wrong shipping information, or if inventory is not properly tracked as it switches locations, warehouse shrinkage may occur.
How Does Proper Inventory Management Help?
Implementing a good inventory management system is the best way to deal with inventory and warehouse shrinkage. Ideally, this system is meant to do away with any flaws and errors that might cause unnecessary shrinkage. As mentioned earlier, the best inventory management systems are combinations of physical security measures and efficient inventory management software. Here is how inventory management can help reduce warehouse shrinkage:
1. Inventory Management Tightens Security
Using the right inventory management system will help minimize any gaps in warehouse security that lead to theft and loss of products, parts, or assets. The most effective way to tighten your warehouse security is to pay attention to the primary access points that are used to enter the warehouse. Identifying these ingress and egress points will help you implement security features that bolster your security and minimize unauthorized access.
An effective physical inventory management system will take several factors into account. These factors include the state of warehouse door locks, the presence of access control systems, as well as the presence of surveillance systems and security alarms. The Lock Blog has found that the installation of surveillance cameras, access control systems, and high-security locks are integral to creating physical security protocols that complement your inventory management system. The best ways to handle theft and loss are to implement measures that either deters the action, document the action, or point you in the direction of possible culprits.
The extent to which you implement each of these measures will vary based on the size of your warehouse and the amount of product that is stored in your warehouse at any given time. However, regardless of the how big your warehouse is, you should always strive to have access control and key control methods to limit the access employees and customers have to your warehouse.
Enhanced access control methods are usually implemented in bigger warehouses that experience heavy foot traffic. These systems help restrict access by giving each member of your warehouse team authorization levels that dictate where they can and cannot go. This makes it easier to monitor the way your employees operate within the warehouse. Smaller warehouses often utilize key control in place of access control but to the same extent.
2. Inventory Management Helps You Review Transactions and Physical Inventory
An effective inventory management system gives you the opportunity to review transaction history and cross check it with physical inventory. This reduces the chances of any parts or product falling through the cracks. One of the easiest ways to catch warehouse shrinkage before it happens is to cross check all the data that you have. Thanks to inventory management software like Fishbowl, companies can quickly review all pertinent information through a central inventory hub.
However, having the software is only one part of the equation. In addition to the software, warehouses need to implement measures that allow them to routinely check physical inventory to ensure that nothing is missing, damaged, or incorrectly reported. Furthermore, the use of barcode inventory software is a great way to seamlessly connect your physical inventory and your software platform.
Also, the process of reviewing your physical inventory from time to time will reduce the likelihood of any damaged inventory cropping up. Ideally, warehouse teams should schedule routine warehouse checks to assess the state of the warehouse, as well as the products it is housing. Inventory can easily be damaged during the shipping process or any other routine warehouse activities. Companies rarely catch onto the cause of damaged inventory until it is too late. However, if you have inventory management protocols in place that help you catch these kinds of damages, it will reduce warehouse shrinkage.
3. Inventory Management Helps Keep Your Warehouse Organized
Any inventory management system that cannot effectively verify the massive amounts of information and transactions that it is dealing with will ultimately lead to warehouse shrinkage. The average warehouse has to deal with shipping receipts, purchase orders, packing lists, etc. on a daily basis. With this volume of data being funneled through your warehouse, warehouse shrinkage is bound to happen if it cannot be kept organized and secure.
Inventory management systems help warehouse managers gain complete control over all their warehouse transactions, and this helps them stay organized and efficient. More than any of the other points explained above, warehouse organization is probably the most efficient way to reduce warehouse shrinkage.
I say this because having a well-organized warehouse will lead to higher employee efficiency, accurate inventory tracking, accurate reporting of inventory balance and inventory turnover, and more frequent cycle counts. Each of these elements, if executed correctly, will drastically reduce warehouse shrinkage.