Shrinkage: what it is and how to avoid it

Paola E. Haiat
December 21, 2023

Losing products is an undesirable thing, but it can happen to either a small or large extent in many companies. The errors that cause it can be multiple: from carelessness to theft - because to reach the final consumer a product must pass through many hands and different ecosystems. Hence the concept of ‘shrinkage’.

But what exactly is it? Shrinkage is a loss of stock value due to a difference between what is counted and what is marked as what should exist in a warehouse or store. Shrinkage is also a product that for reasons such as expiration date or damage to its composition, is impossible to sell, which differentiates it from ‘foodwaste’.


What can cause shrinkage?

The big problem with shrinkage is that in most cases it is not identified in a timely manner, causing significant losses that can jeopardize the efficiency of a business.

Some of the most common problems that generate shrinkage are:

1. Problems with logistics (more specifically,transportation).

2. Product waste due to non-compliance with quality standards.  

3. Excess production.

4. Incorrect storage.

5. Mishandling of the product.

6. Accounting errors.

7.  Omissions in the reception of the product.

Source: Informa BTL

Speaking of fruits and vegetables, we can think of, for example, fruits and vegetables that were not transported in optimal conditions and have decomposed, causing losses that could have been avoided if there had been a good transportation system; it can be, in turn, petty theft in stores or mishandling by a customer or worker that ends up causing damage to the product, which ends up being discarded.

In turn, the shrinkage may be a miscalculation when ordering fruits and vegetables that causes an overstock of the product, which, not being comparable with the demand, will end up losing value and being discarded.


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At the sametime, other problems that we can find are:

- When the capture is manual, making mistakes is very common.

- Late capture of cost increases, so that the selling price is not adjusted and profit margins are lost.

- Failure to update computer systems.


Now, what can we do to prevent shrinkage  from happening?

1. Pay attention to demand: Knowing how to calculate how much product is needed for each moment and scenario is a key factor that will allow you to avoid having an excessive stock of product. This is simple with a system that allows you to measure your purchases per month, compare them with other months and better understand your business trends.

2.  Supervise the distribution chain in detail: taking care of every detail of logistics, updating orders, knowing what you will receive and on what date, what you have ordered and when allows you to have a general and specific knowledge, empowering you to make the right decisions and avoid shrinkage.

3. Automate: from information capture to orders. Automating not only avoids errors, but also saves you time that you can invest in other activities.

Don't stay in theory and move to practice with Consentio, a tool that allows you to have control of your business in an intuitive platform from which you can control all the information of your orders, work as a team and centralize your processes.

Do you want more details? Request your demo.

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