What is inventory shrinkage?
Inventory shrinkage is stock you paid for but can no longer sell, lost to theft, damage, spoilage or recording errors.
Shrinkage (or shrink) is the gap between the stock your system says you have and what is really on the shelf. If the records show 50 units and a count finds 46, four units have shrunk. Each one was paid for, so shrinkage goes straight to cost of goods sold and comes straight off profit.
The causes fall into four groups: shoplifting, staff theft, damage and spoilage (broken, expired, spoiled or returned unsellable), and paperwork errors such as a delivery received short but entered in full, a sale rung as the wrong item, or a transfer never recorded. In restaurants, over-portioning and waste are the usual culprits. Not all of it is theft; much of it is process.
To measure it, count stock, compare with the system, and value the difference at cost. Shrinkage rate = shrinkage at cost divided by sales for the period, times 100. Counting fast-moving and high-value items more often (cycle counting) finds problems while the trail is fresh. The habits that cut shrink are dull but effective: check deliveries against the invoice, record every write-off with a reason, lock refunds and voids behind a manager, and count often.
In SeroPOS, write-offs are recorded as Stock Adjustments in the back office, with a type of Normal or Abnormal, a reason and any amount recovered (for example an insurance claim). The Stock Adjustment Report totals them, and the Activity Log shows who changed what. For a single product, the stock details view lists opening stock, purchases, sales, transfers and adjustments, so a mismatch can be traced and fixed.
A pharmacy's system shows $186,000 of stock at cost. The quarterly count finds $182,650, a shrinkage of $3,350. Quarterly sales were $410,000, so the shrinkage rate is 0.82%. Breaking it down, $1,900 was expired stock already written off as Normal adjustments and $1,450 is unexplained, which points the manager at the high-value aisle.