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Preventing Losses
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Shrinkage
Shrinkage is an unknown loss of money/stock incurred by a stockroom which is not measured until stock is counted, or during stocktaking day. By that time, mostly, it is too late, and the loss has already occurred. The most important thing to realize about shrinkage is that it is not measured and unknown, and the loss must be taken off the profit. In some cases, the loss is so much that the organization does not make a profit at all.
Main Causes of Shrinkage
Shrinkage is the cause of human action.
- Staff theft.
- Inefficient handling of documents and paperwork such as sending them late.
- Negligent actions such as under-ringing; goods are wrongly processed, mainly less than their actual prices.
- Not changing prices on time or counting stock but not changing the prices.
- Marking the items at the wrong price.
- Administrative errors are caused by incorrect price labelling or late introduction of the price increases.
- Failure to conduct regular stock rotation may result in wastage or stock counts may be incorrect.
Avoiding Shrinkage
Shrinkage can be avoided by being aware of its causes and by following a systematic approach to correcting it. All employees of an organization must ensure that shrinkage and causes of shrinkage are avoided. An organization must instil a feeling of belonging amongst its employees so that they see a loss to the organization as a personal loss. Effective personnel management skills and good conditions of service instil a sense of belonging amongst the employees.
Effects of Shrinkage
Shrinkage directly affects profit, and this has a direct impact on the remunerations of employees. A loss-making organization will be forced to close/scale down and leading to staff retrenchment. Low profit will make it difficult for organizations to provide employees with incentives such as bonuses and salary increases.
It is important to note that shrinkage occurs at every stage of the movement of the goods from the time they are loaded onto the delivery truck to the offloading, storage, and dispatch to the departments or stores. It is incumbent upon the management and all workers to protect the goods from shrinkage through this journey.