As we detailed in our previous article,
Tracking Nightmares, inventory shrinkage is a huge problem in North America effectively robbing retailers of billions each year. It’s bad enough when inventory disappears because of theft by customers, employees or suppliers, but it’s especially frustrating when your inventory shrinks through preventable mistakes and poor inventory management procedures. Here are six classic
inventory tracking for small business challenges and a few tips to prevent or fix them.
1. Outdated Systems
If you’ve been in business long enough, you face the problem of legacy computer systems, procedures, and equipment that are no longer up to the task. Unless your business is tiny, it’s hard to justify paper-based systems and manual counting. These are notoriously slow, inefficient, and prone to error. You might be using an old computer application that hasn’t been updated. We’ve heard of cases where businesses have lost the source code to their ancient systems -making changes and fixes impossible. If you are struggling with creaky software and decrepit
barcode readers, figure out how much time and money you’re losing because of counting and recording mistakes. Chances are you’ll save a bundle by replacing the whole system with modern inventory management and tracking solutions.
2. Obsolescence
An electronics supply chain felt it could capitalize on impulse sales by stocking an inventory of cuddly toys near the cash registers. Their problem? The items were too expensive to attract that spur of the moment purchase. The toys languished, forlorn and unloved, for months at a time. A plush bear may not go out of style, but it does get soiled and shopworn by people who can’t resist handling the merchandise. Eventually, the chain donated the vast bulk of the inventory to charity.
Obsolescence can also stem from inefficient inventory accounting that causes businesses to overstock out of fear of losing sales due to stockouts. After all, if your counts are always wrong, how can you trust them? You end up buying more items than you need. They sit in a warehouse or stockroom as new models come out, prices fall and the public’s taste changes. The result is the “w” word -- write-offs.
To resolve this problem, consider a modern perpetual inventory system that gives you timely information on inventory levels and that automatically reorders items only when it’s optimal.
3. Failure to Return
If you have inventory items that aren’t selling or are defective, you may be able to return them to the vendor - who must authorize the return and will no-doubt charge a restocking fee. For this scheme to work, you must first be aware that your inventory is building up or moving slowly. A
perpetual system with real-time inventory tracking will provide this information and may even handle some of the return processing. A manual periodic inventory system with infrequent counts causes you to miss the deadlines vendors set for authorized returns.
4. Victim of the Fickle Public
We touched on how changing public tastes can cause your inventory to lose value. Businesses dealing with fashions, toys and electronics are especially vulnerable. We remember when a laptop maker came out with brightly colored machines that were a hit until they weren’t. The retailer then faced losses through markdowns and wholesaling. Part of the problem is bad luck and, perhaps, bad judgment. The other part is not tracking your inventory well enough to know you’re building up high stock levels. We call that mismanagement. If your inventory procedures and systems aren’t giving you the information you need, replace them.
5. Shrinking Meat
Here’s a literal case of shrinkage. A restaurant chain found it wasn’t getting the number of servings of prime rib it was expecting or that the servings were undersized. The culprit turned out to be a supplier who substituted lower grade, fattier meat. As the fat melted away in cooking, the customers were left with shrunken portions. To compensate, the restaurant butchers cut thicker portions. The restaurant owner didn’t have the proper receiving procedures or the equipment to check incoming shipments. This resulted in a form of short count. Finally, an alert chef tipped off the owner. Do you know if you are receiving everything you ordered? It’s fine to trust your supplier, as long as you have equipment at the receiving dock to verify that trust.
6. Light Invoices
An appliance repair company found itself with a significant shrinkage problem. They figured out that field technicians weren’t accurate when invoicing the materials, parts and supplies they used to make repairs. In other words, they were giving away the merchandise. They were busy and didn’t have the time to write everything down. A barcode reader or RF gun in every truck would have stopped the problem. If you have busy employees who don’t have time for a lot of paperwork, make it easier on them. You’ll also save money by automating field procedures featuring wireless tracking of goods and materials as they are used and by on the spot printing of field-generated invoices.
Inventory shrinkage costs retails billions of dollars each year, but it doesn’t have to happen to you. Avoid tracking nightmares by having effective inventory management procedures in place and up-to-date.
