Inventory management is an important part of manufacturing businesses that helps you improve cash flow. However, if you don’t have access to the right technology and tools, it can affect your inventory counts and can cause inventory shrinkage as well. Even if you manually track and manage your inventory properly, some items will go missing due to theft, damage, data errors, or fraud. This can reduce your overall productivity and increase operational costs. Barcode inventory software helps you overcome these losses with real-time tracking, accurate data entry, and effective inventory management. In this blog post, we will understand all about inventory shrinkage, and the benefits of using barcode inventory software for avoiding it.
What is Inventory Shrinkage?
Inventory shrinkage is an accounting term. Inventory shrinkage is the loss when you have less inventory than what was recorded in the books. This can happen at any stage of your supply chain and is usually discovered at the time of inventory counts. Frequent shrinkage can directly affect your business’s revenues and reduce your profits and increase operational costs.
Major Causes Of Inventory Shrinkage
Some of the most common causes of Inventory Shrinkage are:
- Theft and Pilferage: Employees or workers may steal small items or parts from the warehouse.
- Administrative Errors: Lack of security, errors in inventory counting, and warehouse management can lead to shrinkage.
- Supplier Fraud: Your suppliers may deliver fewer products than invoiced or deliver low-quality items that are hard to detect without effective inventory systems.
- Damage and Spoilage: Inventory can be lost due to improper handling, shortage conditions, or product expiration.
- Misplaced Items: Misplaced items are usually considered lost, which can happen due to improper inventory logging.
Learn more about Inventory Shrinkage: Understanding, Causes, Prevention, and Solutions.
Calculate Inventory Shrinkage
Calculating inventory shrinkage is important to know the amount of loss you have suffered and identify the cause of those problems. Without proper shrinkage calculation, your business may lose profits and share incorrect data in your inventory accounting reports. Here are the easy formulas to calculate your inventory shrinkage:
- Inventory Shrinkage Rate = (Recorded Inventory - Actual Inventory) divided by Recorded Inventory
- Inventory Shrinkage Value = Inventory Value Record - Physical Inventory Value
- Inventory Shrinkage Percentage = (Shrinkage Value - Book Value) X 100
How Barcode Inventory Software Works?
Barcode inventory software mainly works with barcodes (black and white stripes) that help in tracking products, especially in big lots. It uses barcode scanners and a set of computers to read that product’s information. The systems then track items and information related to them, providing real-time insights into your inventory software. Barcode inventory systems help you make informed decisions about what and when to keep your operations running and fulfil your customers' demands in time. Read Best Barcode Inventory Software in 2024.
Overview of Barcode Scanning Technology
Barcode scanning technology uses a machine-readable code (barcode) to convert information into a pictograph pattern. These patterns include multiple bars with white spaces of different sizes, and their combinations represent specific text characters. You can use a laser barcode scanner to emit light onto the code, and the computer will read it to provide you with the embedded information. You can use barcode inventory software for effective inventory management, speeding up the point-of-sales process, managing the supply chain, and more.
Real-Time Inventory Monitoring and Tracking
Real-time inventory tracking is a major advantage of using barcode inventory software. It helps you to continuously monitor your inventory levels, reducing the chances of shrinkage due to theft, administrative errors, or misplaced items. By knowing products’ location, prices, and quantity at any given time, you can easily find shortages or overstocking and make quick decisions. For example, in a warehouse, you can use barcode scanners to track the movement of goods, from receiving them to storage and shipping. With real-time tracking, you can easily maintain accurate inventory records and reduce the risks of misplaced items.
Benefits of Barcode Inventory Software in Reducing Shrinkage
Barcode inventory software helps you with multiple aspects like reducing losses due to manual data entry errors or thefts. It lets you scan items at the Point Of Sale (POS), providing accurate data like when and how the item was sold. You can also use this information to conduct scheduled audits and reconcile inventory levels. Below are some more benefits of barcode inventory software.
1. Accurate Inventory Management
Accurate inventory records are important to identify shrinkage and implement effective loss-prevention strategies. Barcode inventory software helps you improve inventory accuracy and reduces the chance of human errors by automating data entry. With the precise data it provides, you can make informed decisions on pricing, stock levels, and reordering.
2. Enhanced Warehouse Management
Barcode systems can improve your warehouse management by quickly capturing and processing item details. This way, you can speed up your processes for inventory counting, order verification, and pick and put away. The barcode system’s up-to-date stock level details also help you effectively organize your inventory and track products whenever needed.
3. Automated Inventory Management
Automation is one of the key features of barcode inventory control software, as it helps you reduce manual errors and oversight. By automating tasks like inventory counts, stock fulfillment, and order processing, you can minimize the risks of administrative errors causing shrinkage. Automation of these tasks also frees your staff, allowing them to focus on more complex operations and strategies.
Strategies for Reducing Inventory Shrinkage with Barcode Inventory Software
Your inventory management system is considered effective only if it has identified discrepancies in time, proper storage, and security measures. With effective strategies and the best practices of using barcode inventory software, you can easily reduce shrinkage and take appropriate actions on time.
Shrinkage Reduction Strategies
- Take advantage of real time stock level tracking and monitoring.
- Use proper stocktaking procedures to use the software accurately.
- Train your employees to use the barcode systems correctly.
- Take security measures to get real time updates on suspicious activities.
- Integrate barcode scanning software to speed up the process with accurate data.
Inventory Accuracy
Accurate inventory counts are important to make sure that your business stays profitable and satisfies customers. Inaccurate inventory in your warehouse or stock can lead to backorders, delays, stock shortages, shipment errors, order cancellations, and frustrated customers. Make sure your inventory accuracy stays at least 92% (Ideal for manufacturing businesses).
Inventory Loss Prevention
It requires a combination of the right technology, processes, and employee awareness for effective inventory loss prevention. Here are a few recommended techniques to prevent your inventory loss.
- Use barcode stock management software for real time visibility into your stock levels, automating your data entry and reducing human errors.
- Invest in reliable barcode and inventory management software to prevent stock shortages and keep your records accurate.
- Count your inventory to prevent anything from being stolen or lost without your knowledge.
- Implement security measures like CCTV cameras in your warehouse or stockrooms to capture suspicious activity in real time.
- Use clear and detailed labels with the correct barcode on every product.
Integration with Inventory Management Solutions
To access updated inventory counts, you first need to choose a compatible barcode system. Then, you need to configure the important settings with your inventory management software. During the process, you also need to assign unique IDs to your inventory to quickly identify the items. Once the integration is over, you must train your employees and confirm everything works fine before implementation.
Role of Barcode Inventory Software in Inventory Management
Barcode inventory software helps you manage your inventory processes, from receiving goods to shipping. As soon as you scan a product, whether at the time of arrival, moving, or shipping, the data is automatically stored in the inventory management systems in real-time, providing you with accurate stock levels. Integrating your inventory management systems with the barcode inventory system also automates your order replenishment and management processes. When your inventory reaches a specific limit, the software automatically creates a purchase order and alerts you about it. You can also customize your barcode inventory software for easy integration with your existing systems like ERP software, POS, and CRM.
Reduce Your Inventory Shrinkage with TranZact
As your business grows, reducing inventory shortage becomes extremely important to meet the demands and remain profitable. Barcode inventory software helps prevent it and improves your business’s workflow from inquiry to dispatch. With features like inventory accuracy, automated data entry, and minimum human interference, your stocks are always safe and accounted for.
TranZact offers an effective barcode inventory solution with easy data monitoring to prevent inventory shrinkage. Its 14-day quick implementation time, easy integration capabilities, and team collaboration features make it much easier for you to simplify your inventory management operations. Choose TranZact today to simplify your inventory counts with effective barcode management.
FAQs
1 What is inventory shrinkage, and how does it affect businesses?
Inventory shrinkage happens when the amount of your current physical inventory is less than your recorded inventory. It usually happens due to theft, problems at the supplier end, data entry errors, and fraud. It affects businesses with stockouts or understocking, increased costs, delayed production, incorrect accounting, customer dissatisfaction, and reduced profit margins.
2 How can barcode inventory software help reduce inventory shrinkage?
Barcode inventory software helps reduce inventory shrinkage by automating data entry, providing real time tracking, and reducing human errors.
3 What features should you look for in barcode inventory software to effectively manage inventory shrinkage?
The features you should look for in barcode inventory software to effectively manage inventory shrinkage are:
- Custom barcode label generation
- Speed barcode scanning
- Flexible and multiple-user access
- Automated and timely alerts on stock levels
- Easy integration with existing systems
4 What are the benefits of real-time inventory tracking with barcode scanning technology?
The benefits of real-time inventory tracking with barcode scanning technology are:
- Improved inventory accuracy
- Reduced inventory shrinkage
- Reduced human errors
- Improved data processing speed
- Production efficiency
- Faster business scalability
5 How do you calculate inventory shrinkage?
You can calculate inventory shrinkage using simple formulas as given below:
- Inventory Shrinkage Rate = (Recorded Inventory - Actual Inventory) divided by Recorded Inventory
- Inventory Shrinkage Value = Inventory Value Record - Physical Inventory Value
- Inventory Shrinkage Percentage = (Shrinkage Value - Book Value) X 100
