Inventory Shrinkage: causes, consequences & solutions

As a supply chain manager, you face many challenges on a daily basis: Inventory Shrinkage (IS) is one of them. This phenomenon, which corresponds to the difference between theoretical and actual stock levels, generates considerable financial losses, seriously disrupts your supply chain, and even damages the reputation of your company and your teams. A recent study by the Conseil National de la Sécurité des Magasins revealed that shrink represents almost 1% of French retail sales, or several billion euros each year. 

No worries though! EYESEE offers you an innovative solution to take control of your IS and optimize your operations. 

IS: a complex nuisance 

IS is a complex problem that spares no industry: from pharmaceuticals to retail, all logistics activities are affected. But what are the causes? 

Administrative errors 

  • Incorrect entries in inventory management systems.  
  • Double counting during physical inventories.  
  • Transfer errors between warehouses. 

Damages 

  • Products damaged during transportation or storage.  
  • Products that have expired, particularly in the food and pharmaceutical sectors. 

Theft 

  • Internal theft: committed by employees, often motivated by financial difficulties or a sense of injustice. 
  • External theft: burglary, shoplifting, theft of transport vehicles.  

Process-related losses 

  • Demand forecasting errors, leading to overstocking or stock-outs. 
  • Product obsolescence, particularly in technology sectors.  
  • Losses during picking and packing operations, due to handling errors or unsuitable packaging. 

Forgery 

  • Counterfeit products, particularly in the fashion, cosmetics and pharmaceutical sectors. 
  • Substitution of products by equivalent products of inferior quality. 

How does IS affect your business? 

The consequences of inventory shrinkage are manifold and have a direct impact on your business: 

  • Direct financial losses: each missing unit represents a loss in sales of up to several percentage points, reducing your profit margin.  
  • Reduced customer satisfaction: stock-outs lead to dissatisfaction, order cancellations and can damage your brand image. Customers may choose not to return after an out-of-stock situation.  
  • Increased forecasting complexity: IS makes it difficult to forecast demand, leading to overstocking or stock-outs, and thus increasing storage and transport costs.  
  • Increased costs: costs linked to stock management, inventories, customer complaints and replenishment operations are all impacted. For example, a company may see its storage costs increase due to high IS. 

Measuring the IS: the first step towards improvement  

Calculating the IS rate is essential to assess the extent of the problem within your company. This metric is calculated as follows:  

IS rate = (Registered stock level – Actual stock level) / Registered stock level  

By regularly monitoring your IS rate, you can implement corrective actions and measure their effectiveness. 

The keys to mastering the IS 

To significantly reduce your SI, it is essential to implement actions targeted at the identified causes: 

  • Enhance security: access control, video surveillance, alarms, regular audits.  
  • Optimize processes: standardize procedures, train staff, use high-performance WMS systems, implement rigorous quality controls.  
  • Improve traceability: use technologies such as RFID, barcodes, IoT, inventory drones to better track products throughout or at a particular stage in the supply chain.  
  • Implement rigorous quality controls: carry out regular checks on incoming and outgoing products, set up return procedures.  
  • Optimize returns management: implement clear and efficient procedures to manage customer returns, avoid accidental re-injection into stock.  
  • Improve demand forecasting: use predictive analysis tools, take into account historical and seasonal data. 

EYESEE: your partner for optimized inventory management 

The EYESEE solution gives you complete visibility of your inventory thanks to: 

  • Real-time traceability: precise tracking of each pallet, detection of inventory errors.  
  • Early detection of losses: rapid identification of missing or damaged SKUs.  
  • Process optimization: automation of a repetitive task, reduction of manual errors.  
  • Easy integration with your existing systems: import-export compatibility with market WMSs and specific integrations. 

Ready to boost your inventory management? EYESEE offers you a powerful solution that will enable you to significantly reduce your losses, optimize your supply chain and, consequently, increase your profitability. By offering an enhanced customer experience, you lay the foundations for sustainable growth. 

Ready for the challenge? 

Contact us today to find out how EYESEE can help you optimize your inventory management and boost your competitiveness. 

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AUTOMATE YOUR WAREHOUSE INVENTORY WITH DRONES

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