Are goods disappearing from your storeroom?

Gargi Banerjee

Nearly all business owners especially those who run manufacturing units, restaurants or processing units have had to face the problem of disappearing inventory. Most of the times, inventory disappears because of employee theft, manhandling or misplacing of items. In financial terms this is called inventory shrinkage.

Rough estimates done by brand experts across the country suggest that business owners in India lose up to 2-3 per cent of their profits because of this very problem. Though it may not seem like a significant number up front, for a small business owner who has a low profit margin it can be quite a burden. Inventory management is thus of utmost priority for small and medium business owners. Here we have five methods that can help you control inventory shrinkage.

Identify issues of potential theft
More often than not, manufacturing units and hotel owners become victims of employee theft, which leads to loss of inventory over the long term. Needless to say, you need to hire honest, hardworking people who bring with them the right ethics. If you are a restaurant owner you need to keep a watch over employee behaviour. Be wary of those who look for extra tips or have the habit of offering free food to their friends and acquaintances. For manufacturing units, installing surveillance cameras or keeping access areas well lit may solve a lot of problems.

Employees are your biggest asset
There is however no reason for you to believe that your employees are potential thieves. In fact if you are a small business owner, it will be detrimental to your business if you constantly suspect your employees. Instead, walk that extra mile to empower or involve your employees in your business, make them feel as if they are stakeholders in the success themselves. Swati Amrite, HR manager and former store in charge of Kolhapur based Swati Pulley Company Pvt Ltd points out that the training and constant appreciation of employees are a must for any business owner.

“Not only do we have a training programme in place for our staff who are in charge of inventory, we monitor their progress through our supervisors and give them points based on their performance.”  Amrite says. While good performance is adequately compensated, those who show a de-growth and counseled if necessary. Being involved and being there for your employees, is a must for all business owners. When employees feel taken care of, there remains little motivation to steal. Similarly restaurant owners can give out employee discounts or a fixed number of free meals that make an employee feel involved in management.

Use of effective packaging and labeling
For those in the manufacturing units, especially in that of apparels have faced inventory shrinkage, not so much because of theft, but because raw materials may have been misplaced or manhandled by unskilled laborers. Suman Bharti, founder of Corset Wholesale who runs a manufacturing unit in Gurgaon, points out that just training one’s employees may not be enough, and manufacturers have to think of effective methods of packaging or labeling that makes it easier for manufacturers to identify the stock.

“Earlier, all our raw material used to come packaged in gunny bags that sometimes got misplaced because they were not put in the right place. We invariably lost out on valuable time identifying the right material.” Says Bharti. In order to take care of this problem, he requested his suppliers to shun the use of gunny bags and used translucent plastics for better identification. Also adequate labeling systems were put in place and storage space was effectively used in the warehouse to take care of such problems.

Monitoring purchase
Most small and medium business owners do not realise that much of the wastage or inventory shrinkage happens because they tend to buy raw material much ahead anticipating the needs of an overbearing customer. These kind of buying on impulse can hamper your business a great deal, as it may result in wastage. Instead make sure you have put in place a system where you are completely in sync with the needs of your customers and buy only the amount of raw material that is necessary to meet your orders on time. Buying well in advance, or taking advantage of a supplier sale may not always be the best way to go.

Use Surveillance systems
Most small and medium business owners become victims of inventory shrinkage willy- nilly because they think they are way too small to even consider the use of technology or surveillance systems to monitor inventory shrinkage. While it is all very good for business owners to be humble, it is a must for them to realise the damage these seemingly small problems can do. A one time investment in proper surveillance systems or making use software packages that provide digital records with complete details of any purchase or sale from a supplier at any point of time can solve a majority of your problems.