What Is Inventory Shrinkage? Impact & 8 Ways to Prevent It

Learn how to mitigate inventory shrinkage

Jonny Parker
February 22, 2024

No matter how carefully businesses account for sales, storage, and replenishment, products will inevitably fall through the cracks in the system. Regardless of whether the problem is in inventory management, warehousing strategies, or accounting, the result is the same: inventory shrinkage. 

The consequences of inventory shrinkage reach far into a business’s profit margins, though many businesses suffer them silently. When things don’t add up and you don’t know why, you may be tempted to raise prices or cut labor to make up the deficit. Yet, these options often keep the snowball rolling toward lower customer retention, lower employee retention, and inventory management inconsistencies. 

Identifying and learning how to reduce shrinkage is a pivotal process in learning effective inventory management. Proactive warehousing, replenishment, and even software management measures can ensure that your business safeguards its assets and stops shrinkage from cutting into your profits. 

What is inventory shrinkage?

In simple terms, inventory shrinkage is the discrepancy between the inventory a business has recorded and the inventory