Business Automation and Software Blog

How to Use Distribution Automation to Control Shrinkage

Posted by Robert Baran on Wed, Aug 10, 2016 @ 11:00 AM

Distribution automation has many benefits that help you reduce costs and errors in your warehouse. One of those benefits is helping you to control and even eliminate shrinkage.

Inventory shrinkage hurts your profitability. Eliminating the mistakes and theft that causes shrinkage is one step toward improving your bottom line. Using barcoding and warehouse management systems, you can get rid of mistakes and reduce shrinkage.

Shrinkage—Who’s to Blame?

According to the National Supermarket Survey, often used as a bellwether in the area of shrinkage and loss control, 64 percent of losses are due to operational issues compared to 36 percent due to theft. In other words, problems in how a business is managed—and how inventory is managed—account for the majority of shrinkage problems reported by supermarket retailers.

You may not be selling bananas or eggs, but your products are also subject to shrinkage. And, according to the same survey, operational-caused shrinkage is often due to human error. Manual counting, for instance, opens the potential for many mistakes and under-reporting of inventory, leading to incorrect data and a higher shrinkage percent.

Nationwide, shrinkage costs other types of retailers $42 billion per year. Unfortunately, employee theft tops the list of reasons for this figure, along with shoplifting. But included among that mix is—you guessed it—inventory mistakes like improperly recording inventory in the first place, misplacing inventory, or miscounting it.

Theft Prevention Through Barcoding

Many companies put specific loss-prevention devices in the warehouse to prevent employee theft. This includes security personnel who monitor people moving in and out of areas where products are housed, as well as surveillance cameras, electronic warning devices that beep when moving out of authorized areas, and other loss-prevention methods.

But what if barcoding itself could be used as a theft deterrent? Many experts have noted that the risk of getting caught can outweigh a thief’s need to steal. For instance, thieves target homes and businesses without guards or surveillance cameras because they are less likely to get caught.

When your warehouse uses barcodes, thieves know that the inventory control is watched carefully. You can spot shrinkages almost instantly, as well as shrinkage trends that can indicate something inappropriate is going on in your warehouse. If you notice that one item keeps coming up short, you can investigate who has access to that item, and when the inventory levels change. That may provide you with clues about who is responsible for the shrinkage.

3 Best Practices That Reduce Shrinkage

There are several best practices warehouse managers can use to reduce shrinkage. Using distribution automation, such as barcoding software and scanners, and a warehouse management system can help you implement these best practices.

Some of the suggested best practices from the Retail Research Group include:

  1. Use the rule of three: Order only what you can sell within three days. If it’s there longer, it’s tempting to steal. Use the data from your inventory management system to reorder products selling more briskly and to hold off ordering slowly-moving products.
  2. Investigate losses immediately: Use your inventory data to spot losses that are unaccounted for and investigate them immediately. If your staff knows you’re on top of things, they’re less likely to give in to temptation.
  3. Incorporate scanning and product IDs: The more you implement distribution automation, the better. Scanning unique product IDs with barcodes makes it easier to track every item, down to the last detail.

You may not be able to prevent all losses, but the more you can prevent, the better your bottom line. Start with smart procedures and common sense. Then use a good scanning system for inventory control. Warehouse management systems such as Sage 300 and SYSPRO distribution modules, along with barcoding systems, make it easier to control your inventory and track items. When staff know you’ve got your eye on every product and can access inventory details with the click of a mouse, they’ll be on their guard and may be less likely to succumb to temptation.

Distribution Automation Systems

When you are looking for ways to reduce inventory costs such as shrinkage, consider distribution automation systems from PositiveVision. We can help you put a plan in place to automate your inventory processes. We’ve been helping businesses in the greater Chicago area implement distribution automation and software since 2002. Contact us to get started.


Topics: Distribution Automation, Warehouse Management System