Inventory shrinkage refers to the loss of products in your inventory. There are several causes why inventory shrinkage occurs, including theft, deterioration, and expiration. Inventory shrinkage is an important factor of a business that needs to be controlled to ensure your business continues making a profit and has the products to meet customer demand. Reducing your inventory shrinkage can be a troublesome task to take on alone, especially when you need to focus on other business areas. That is why most businesses should consider partnering with a 3PL to alleviate their day-to-day operations and as a result, drastically reduce recurring inventory shrinkage. In this blog, we will cover the most common causes of inventory shrinkage loss within a business, and how a 3PL can work with you to rectify these losses and prevent them in the future.
Warehousing
Temperature Sensitive Goods
A large contributor to inventory shrinkage concerning exiprables such as food and sensitive materials is incorrect storage. This can arise from poorly trained staff, malfunctioning or inaccurate equipment and errors occurring from ordering and inventory management. As expected, when products that need special handling and attention are not kept at their recommended temperatures, this is where premature expiration and damages occur. This is a substantial area where unnecessary inventory shrinkage can occur, and cost you money.
When partnering with a 3PL to manage your inventory and daily operations, incorrect inventory storage can be reduced drastically. While accidents and malfunctions can still occur, the standard at which a 3PL operates is drastically higher than many individual businesses. As a 3PL is managing tens to hundreds of clients and their products, the margin for error is slim. As well, if a fault or malfunction occurs regarding your products whilst in their care, there are steps the 3PL can take to remedy the situation. Whereas if you were to experience the same malfunction or issue, your business would be solely responsible for the solution, often resulting in missed orders and an increased loss of money.
Organization and Storage
Another area where a 3PL can help reduce the amount of shrink is through its optimized warehouse layout and organization. When running your operation and managing your inventory, errors and misplaced items are more likely to occur. This can be avoided through the implementation of advanced technology, however, this is always expensive.
shrinkage due to products getting lost or becoming obsolete is usually a result of a poorly organized warehouse. While your books may say you have the correct number of products in stock, often if workers don’t know how to navigate the warehouse, products get misplaced. This results in lower than anticipated stock, and an increased number of obsolete or expired products that don’t get found until too late.
This is where a 3PL can again be a huge benefit for you. A 3PL not only has access to those expensive technology systems to boost efficiency across the board, but also expansive space with lots of organization. With their efficiency and effective warehouse management and organization. Their pick and pack crews can accurately pull the correct product while an inventory update is changed either in real-time or soon after. The same effectiveness is demonstrated in the receiving and storing of new products as well. All products have a home and clear indicators of what goes where. This level of organization and efficiency is great for removing the room for operator error and decreasing shrink.
Transport
The second overarching area where shrink occurs is during the transport phase. This includes breaking cold chain compliance orders, or orders being delivered late.
Cold Chain and Temperature Compliance
If your company produces and delivers temperature-sensitive products either directly to consumers or the store, this is a large area where excessive inventory shrinkage can occur.
Without the proper care and attention to temperature-sensitive products, you are essentially writing them down as a loss the moment they leave your facility. That is why it is essential to maintain temperature compliance throughout the whole process. For many businesses, this entails purchasing a small fleet of refrigerated or insulated vehicles and then maintaining this fleet. This can add up to be an expensive necessity.
This is why most businesses with the above issues should consider partnering with a 3PL.
Not only do most 3PLs have access to their fleet of cold chain and temperature-compliant vehicles, but the vehicles are the 3PL’s responsibility. The 3PL you partner with will work to ensure your products are kept and delivered in the correct environment to ensure no products get damaged.
Timely Deliveries
Another contributing factor to inventory shrinkage during distribution is the time some deliveries may take. This issue goes back to a business being ill-equipped to provide fast and timely services on account of cost. For example, the cost of sending a truck half loaded is not worth it for many businesses, as a result, customer orders can get delayed or canceled since the cost outweighs the profit. Longer or delayed distribution increases the risk of products being damaged or going bad while on the road.
With a 3PL however, that cost is reduced significantly as most trucks share a load from multiple 3PL clients, cutting the cost for everyone. So, not only are businesses saving with a 3PL on distribution but as a result, they can establish a standard same-day or next-day delivery. With this, you can rest assured that your time-sensitive deliveries are getting to their destination promptly and in good condition. With more deliveries getting to their destination on time with less time on the road, the chance of inventory shrinkage occurring is lessened compared to that of an in-house operation.
Labor and Training of Workers
The third area which can lead to unnecessary inventory shrinkage is improper training and management of employees.
When running your in-house operations, finding reliable staff at an affordable rate can be a task in itself. Training and managing them is another added cost. However, to reduce or eliminate all excessive inventory shrinkage, proper training is a necessity. Theft, mishandling, accidents and more common when employees are not properly trained and managed.
When you partner with a 3PL, their staff will fulfill all of the outsourced tasks they will be working on for you. These staff are trained specifically for their work in 3PL and are managed by leaders who understand the industry. With well-trained employees and prepared managers, inventory shrinkage caused by employee error can be drastically reduced.
Reduce Your Unnecessary Inventory Shrinkage With Birkby 3PL
With 10,000 orders delivered each month, we power customers' growth of 37% YOY. Working with us, our customers reduce shrink by 12% on average. We work for you to increase your profit and reduce your inventory shrinkage. This saves you time and money, all while keeping your customers happy.
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