Shrinkage (accounting)

In financial accounting the term inventory shrinkage (sometimes truncated to shrink) is the loss of products between point of manufacture or purchase from supplier and point of sale. The total shrink percentage of the retail industry in the United States was 1.7% of sales in 2001 according to the University of Florida's, National Retail Security Survey. [National Retail Security Survey (2002) University of Florida]

48.5% of shrinkage is due to employee theft and 31.7% due to shoplifting. [National Retail Security Survey (2002) University of Florida] The prevention of this type of shrinkage is one reason for security guards, cameras and security tags. Also, some shrinkage is due to damage in transit, shipping errors, or misplaced goods. When dealing with perishable goods, such as produce, natural spoilage becomes a source of shrinkage.

The four major sources of inventory shrinkage in the retail industry are:

*Employee theft
*Shoplifting
*Administrative errors (e.g. warehouse discrepancies)
*Vendor fraud

In the United States, the National Retail Security Survey is published annually as part of the [http://web.crim.ufl.edu/research/srp/srp.html Security Research Project] at the University of Florida. The Security Research Project endeavors to study various elements of workplace related crime and deviance with a special emphasis on the retail industry.

One effective measure to prevent against loss due to shrinkage is to implement an inventory management application offered by a third party vendor. These applications allow for better control over inventory and will alert companies of the source of the inventory shrinkage.

A more accurate picture of inventory also provides significant cost savings for companies as costs associated with stock-outs or excess inventory are eliminated.

References

ee also

* Loss prevention
* MUF