Abnormal (Inventory) Shrinkage – Definition

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Abnormal (Inventory) Shrinkage Definition

Inventory shrinkage is used in describing inventory loss. For instance, if a retailer’s inventory records report that there are 3,261 units of Product X available, but a physical count shows that only 3,248 are available, then an inventory shrinkage of 13 units exists.

A Little More on What is Abnormal (Inventory) Shrinkage

Inventory reduction, which is also called simply contraction in clear contexts, is a term used to address product loss ranging from the time they were produced to the time they were traded. Usually, this is the product quantity which is not sold for certain reasons, including poor manufacturing, loss during transportation, and theft. A company plans on operating with a low level of inventory contraction, however, certain companies experience more from this type of problem than other ones. There are cases where this problem can result in business owners raising the prices of goods in order to compensate for profit loss. One major cause of the inventory contraction is employees’ theft.

It is confusing resolving exactly how much inventory loss as a result of theft, however, the statistics are surprisingly on the high side in many industries. Companies whose employees are well paid and give them treats often have less likelihood of suffering from this inventory shrinkage type, but almost every large company experiences theft from an employee at a point

Another main reason for inventory shrinkage is theft. With good security, this loss type can be prevented. Some item types like small cheap items are usually more prone to theft of this kind. Security is usually better when expensive items are sold in a store, thereby reducing theft.

Other inventory shrinkage types can be prevented as well. Many businesses keep detailed records of items which the company purchased in order to ensure that nothing got lost in the process. Ensuring that every item is of pure quality is pertinent, especially in the context of food, where damage occurs frequently. By adopting proper planting procedures, the expiration of items can be prevented or else, they would be lost. Reducing this kind of contraction is a good and effective strategy for any company and can also save money over time.

The effects of a business contraction depend on how severe the loss is and its time of occurrence. Usually, companies plan for a specific amount of objects, as well as, price, but by the time there is a growth in the contraction, there should be an increase in price also. In certain populations like small town markets or college campus, making the possible effects of the contraction to customers can bring about a reduction in the amount of loss from theft. Large companies can utilize some other strategies to avoid shrinkage, and depending on how severe the loss is, it may be beneficial investing in some implied measures to avoid theft, even though they may be expensive when compared with the price of the individual elements.

References for Abnormal Shrinkage

Academic Research for Abnormal Shrinkage

Bullwhip effect and supply chain costs with low-and high-quality information on inventory shrinkage, Dai, H., Li, J., Yan, N., & Zhou, W. (2016). European Journal of Operational Research, 250(2), 457-469.

Comparing improvement strategies for inventory inaccuracy in a two-echelon supply chain, Xu, J., Jiang, W., Feng, G., & Tian, J. (2012). European Journal of Operational Research, 221(1), 213-221.

Inventory management shrinkage and employee anti-theft approaches, Smith, A. D., Smith, A. A., & Baker, D. L. (2011). International Journal of Electronic Finance, 5(3), 209-234.

Corporate fraud: The basics of prevention and detection, Bologna, J. (1984).

Can wages buy honesty? The relationship between relative wages and employee theft, Chen, C. X., & Sandino, T. (2012). Journal of Accounting Research, 50(4), 967-1000.

Inventory management in pharmacy practice: a review of literature, Ali, A. K. (2011). Archives of pharmacy practice, 2(4), 151.

Implementing an effective inventory management system, Harrington, T. C., Lambert, D. M., & Vance, M. P. (1990). International Journal of Physical Distribution & Logistics Management, 20(9), 17-23.

Optimal ordering policy of a risk-averse retailer subject to inventory inaccuracy, Zhu, L., Hong, K. S., & Lee, C. (2013). Mathematical Problems in Engineering, 2013.

Exploring inventory systems sensitive to shrinkage–analysis of a periodic review inventory under a service level constraint, Rekik, Y., & Sahin, E. (2012). International Journal of Strategic value of RFID in supply chain management, Tajima, M. (2007). Journal of purchasing and supply management, 13(4), 261-273.

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