How to Reduce Non-Perishable Shrinkage

Non-perishable goods such as groceries, health & beauty and general merchandise on average make up about 60% of a store’s sales. Damage, theft and accidents are the most notable cause of non-perishable shrinkage. Non-perishable shrinkage can be classified into known and unknown. By its very nature, non-perishable shrinkage is easier to control than perishable shrinkage with the implementation of a number of policies and strategies:

Known Shrinkage

•      Known shrinkage is a loss where the source can be easily pinpointed. It could be the result of returned, damaged, coding error or theft.

Unknown Shrinkage

•      Unknown shrinkage on the other hand is a loss where the cause cannot be specified. Incidents of theft whether customer or employee related can cause unknown shrinkage.

Strategies to lower Non-Perishable Shrinkage

1. Receiving

Over a third of all retail non-perishable products are delivered to retailers via a direct vendor delivery process, while the majority is still delivered from the organisation’s owned warehouses. Receiving accounts for approximately 10% of retail shrinkage. In order to reduce this shrinkage level, the procedures for receiving has to be made efficient and secure.

The most widely used ‘receiving’ system involves receivers manually counting and verifying all products that are listed on the delivery note. Any shortages must be highlighted and agreed with the driver who must be present during the receiving process.

Those retailers that use automated receiving systems have to ensure that the systems are used to their full potential and that receivers are well trained in the use of those systems. Effectively using this system requires a constant update of resources and support to ensure that we reduce the causes of receiving shrinkage.

2. Backroom Stock Control & Rotation

One of the main reasons for over-ordering has been found to be disorganisation in the backroom. Products not neatly stacked or rotated can result in product damage, or an increase in expiration. It is therefore important that measures are taken for the proper implementation of stock control and the relevance of this exercise underpinned regularly to receiving staff.

3. Controlling Known Loss

Controlling known loss requires the establishment of an area in the store where damaged, distressed or expired goods are processed to be discounted, returned to vendor for credit or thrown away. It is good practice to enable a visible audit trail by fully documenting the discounting process. Where possible the areas of concern should be investigated to reduce future shrinkage. Employees should be encouraged to inform store management of any suspected theft or damage to products so that management can account and investigate all areas of concern.

4. Pricing Management

When addressing the issue of pricing accuracy in the non-perishable departments, the following facts need to be taken into consideration:

  • Procedures for pricing change
  • Management of Pricing or scan information
  • Auditing of direct vendor pricing

5. Management of Physical Inventory

The accuracy and integrity of the receiving, accounting, backroom stock control of non-perishable shrinkage can only be measured by physically counting stock in the backroom and front of store. The process and timing of inventory audit defers from one organisation to the other. However, to be effective, it has to be implemented periodically. Every effort must be made to ensure the process is as accurate as it can be because an accumulation of inaccuracies eventually results in unnecessary shrinkage.

The most effective strategy for tackling known shrinkage is the implementation of a well structured shrinkage awareness and training programme for all employees in addition to creating a mechanism of accountability.

Great customer service, effective training, logical policy and accurate accounting practice will help reduce unknown shrinkage.

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