Inventory shrinkage, or the loss of stock, can directly impact your small business's bottom line. According to 2015 data from the National Retail Federation (NRF), U.S. retailers experienced $44 billion in losses due to inventory shrinkage in the year prior. Organized retail crime and shoplifting accounted for 38 percent of those losses, while internal theft and assorted administrative errors accounted for 35 percent and 17 percent, respectively. Vendor fraud and theft can also be significant sources of shrinkage.

Small businesses can tackle their shrinkage problem by taking the following three steps:

1. Track Shrinkage

If you don't yet have a tracking system in place, you can ask two employees to receive your deliveries and conduct a count to ensure that the stock matches your orders. But whether you use a manual or automated system to track and control your stock, you should organize regular audits to assess the scope of your inventory shrinkage problem. After all, you need to understand the particulars of this problem in order to craft effective solutions.

2. Detect Causes

As the NRF data shows, typical causes of inventory shrinkage often involve malicious customers or employees. If you find that internal theft is becoming a growing problem in your business, you can strive to update your hiring practices accordingly. For example, you could consider incorporating background checks into your interview process.

3. Develop Solutions

In order to prevent future theft, you may want to enhance security in the areas where you keep stock. One possible solution is to install cameras to monitor your stock, especially in areas where customers or employees congregate. The presence of cameras will likely deter potential thieves, and the footage can help you detect sources of shrinkage. You may also wish to complement the cameras with signs warning that "Theft will be prosecuted," or a similar message.

A second possible shrinkage solution is to limit access to your stock. This may involve requiring passcodes or keys to enter stockrooms, or prohibiting customers or employees from entering those areas altogether. You could also install locked display cases for particularly valuable stock that may be at higher shrinkage risk.

Finally, you should consider hiring security guards to monitor your stock and check employees as they leave work for the day. Like cameras, security guards can serve as powerful deterrents to shrinkage and can also help apprehend thieves.

Overall, it's clear that getting a better handle on shrinkage involves a careful process. As shrinkage can be a costly headache for your small business, getting this problem under control may be one of the best investments you can make. By following the suggestions above, you'll be better equipped to protect your bottom line.

Tags: Operations Management Theft operations Revenue Sales Workplace Security