Inventory Shrinkage is the difference between your inventory on hand and what it should be according to sales records and purchase orders. This difference can be substantial ? between 2% to 5% annually, according to retail industry studies. A good Point of Sale (POS) solution can help cut this figure in half, by addressing two of the major contributors ? internal theft and ?messed up paperwork?.
Earlier articles dealt with internal theft issues, and offered suggestions on how to use both positive and negative reinforcements (the ?carrot and the stick? approach) to change the underlying reasons why staff would take ?five fingered discounts?. This article will deal with how a good integrated POS system (like Windward System Five, but there are certainly others that do as well, so do your homework) can help reduce Inventory Shrinkage through the elimination of ?messed up paperwork?.
But instead of just focusing on the tracking of inventory, I'd like to also talk about how a POS system can optimize your inventory ? get the biggest retail bang for your inventory buck!
A fully integrated POS system (we like to call them intelligent point of sale software solutions) can help you reduce inventory shrinkage and optimize value:
?Reconcile Billings to Purchase Orders quickly and accurately, so you're not overpaying, or in some cases even paying twice!
?Use barcodes to eliminate confusion. Stock that is properly barcoded and labeled can't be ?accidentally? sold as something else. Make sure your POS system can generate and print unique barcodes, or allow you to use manufacturers barcodes, if you wish
?Use data collectors to scan inventory and keep counts accurate. New wireless models make frequent ?mini-inventory counts? a breeze
?Make sure your POS can print Receiving Reports that can be matched to packing slips. Making it easy for your Receiver to note short shipments or other discrepancies will ensure the accuracy of new inventory
?Keep track of your back orders and special orders. Your POS should be able to always keep you up-to-date on the status of backorders and special orders ? by supplier and by individual inventory item
?Also keep track of RMA's. Make sure you're getting proper credit from your suppliers ? it can quickly add up to be a substantial amount
?Handle superseding parts properly. Inventory can be incorrectly written off as obsolete unless your POS can easily prompt you with correct information and alternatives
?Optimize your inventory value by keeping track of aged inventory and allowing for FIFO (first in, first out) when selling stock
?Use alternate supplier tracking to ensure you get the best price for your orders
?Take advantage of ?Pay Early? discounts by having your POS prompt you with ?pay by? dates and amounts to be saved
?Buy what you need, not what you think you need. Let you POS prompt you on what to order based on past sales history, established ?high-lows?, and seasonal adjustments, not on ?gut-instinct? (but make sure you can enter ?gut-instinct? purchases if you want)
?Negotiate better discounts from suppliers by also tracking sales volumes from your end, and not just trusting their records
Obviously, being able to put 2% of your annual inventory costs back in your pocket allows you to maximize your business investment and better grow your company. It can even pay for your Point of Sale software system, allowing for even greater savings from improved efficiencies and increase customer satisfaction.
The way I hear it, the ?typical? annual rate of inventory shrinkage in the retail industry is in the order of 3 to 5% - let's split the difference and say 4%. ?Industry Experts? (whoever they are?) suggest that of that total inventory shrinkage, 50% is due to external theft; 30% is due to internal theft; and 20% is due to ?messed up paperwork?. Other reasons for business losses, such as breakage, robbery, and vandalism, are separate problems that we're not going to deal with here.
Do the math in your head ? what's 4% of all the stock you've ordered this year worth? Pretty grim numbers. If you're still with me, I'd like to suggest a way to reduce these figures by almost half ? a way to reduce inventory shrinkage to a more manageable 2%! I work for a company that develops an integrated point of sale software system that ties together the front end point of sale with inventory control and back-end accounting, so it should come as no surprise that I'm going to suggest such a system as a solution to reduce inventory shrinkage. Many of our clients have reported a dramatic savings, enough to pay for the software and then some in less than a year.
What I'm not going to do is suggest that our Windward System Five is the only quality product that does what I'm going to cover ? so do your homework and consider any POS system that measures up. A good Point of Sale system can help eliminate internal theft and ?messed up paperwork? that accounts for 50% of the total inventory shrinkage.
In this article, I'm going to show how a Point of Sale system can be used to reduce internal theft by using various positive measures. Following articles will deal with reducing internal theft through increased security measures, while the last article will address how eliminating the ?paperwork mess? can help reduce inventory shrinkage.
?Why would my staff steal from me!? you say? The retail industry attracts unskilled workers, often at minimum wage. Some will be tempted steal, for whatever reasons. What we will try to do is shift the Risk/Benefit ratio to a point where the risk of being promptly caught is much greater than the minimal benefits they can gain. Think of it as the ol? ?carrot and the stick? approach. The ?carrot? includes things like fair compensation, a good working environment, employer-sponsored activities that improve morale, good communication and concern for the success of a company.
The only way to reach some employees is through a ?stick? of an effective security program and a straightforward policy of prosecuting any employee caught stealing. A good Point of Sale system should balance between carrots and sticks. This article will out line some carrots, while the next in the series will be the sticks. Note: Any additional cost from ?carrots? will be more than made up by savings from reduced inventory shrinkage.
?Reward good salespeople by paying commissions. Even a small percentage sends a good message. Your Point of Sale system should be able to easily track and report on commission sales ?People like discounts, and to save yourself from the ?five fingered discounts?, set an Employee pricing level for some or all of your inventory. Your POS should help identify the profitability of inventory items, letting you set a variety of pricing levels. You can even expand on this by allowing staff to sell a certain amount of inventory at Employee discounts to friends and family (it does wonders for their ego). Monitor these amounts through your POS ?Move old stock and improve staff morale with the use of SPIFs (Sales Promotion Incentive Fund). A couple of movie tickets or a gift certificate awarded with a little bit of ceremony can go a long way. Any cost is more than made up by having moved stale inventory. Your POS should be able to easily report on specified SPIF-eligible sales ?Profit sharing is the quickest way to make all staff feel they have a vested interest in making the company profitable. Think about re-investing the money saved from a successful inventory shrinkage reduction program back in to the company in the way of a profit sharing program. Your POS system should integrate fully with an Accounting backend, so profit can be monitored on an ongoing basis, rather than a month or two after year-end ?Good communication goes a long way to make staff feel they're part of the company. Use the CRM part of your POS to keep track of employee birthdays and special events. Use the e-mail features to keep in touch with all the staff
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Jim Hawkins has sinced written about articles on various topics from Trade Shows, Information Technology. Jim Hawkins works at Windward Software, developers of , and is passionate about promoting "best practices" in business. For more information about how Windwa. Jim Hawkins's top article generates over 1900 views. to your Favourites.