Final answer:
Inventory shrinkage is the loss of inventory between acquisition and the point of sale, often due to theft, damage, or errors. It's a critical issue for businesses to manage as it affects profitability and operational costs. Control measures include better tracking, security, training, and audits.
Step-by-step explanation:
Inventory shrinkage refers to the loss of products between the point of manufacture or purchase from a supplier and the point of sale. This loss could be due to various factors, such as theft, damage during handling or shipping, misplacement, or administrative errors. The impact of shrinkage is significant for businesses as it results in the direct loss of sales revenue and potentially increased operational costs.
Businesses aim to minimize inventory shrinkage to maintain profitability and efficiency. Techniques to control shrinkage include implementing better inventory tracking systems, increasing security measures, improving employee training, and conducting regular audits. Any discrepancy found during stock-taking highlights the problem areas that management needs to address.
For example, if a retailer starts with 100 units of a product and can only account for 90 units at the time of the sale, this indicates that there is a 10% shrinkage in the inventory.