Your browser is out of date, for the best web viewing experience visit Browse Happy to upgrade your browser today.
Warehouse inventory shrinkage is pervasive in the supply chain and logistics industries. It refers to the loss of products between the time they enter a warehouse and when they are expected to be sold or used. Shrinkage is a not so “hidden cost” of operations that erodes profitability, disrupts inventory accuracy, and undermines operational efficiency. Understanding the causes of inventory shrinkage and implementing advanced technologies like Vimaan warehouse computer vision can play a pivotal role in reducing it.
Warehouse inventory shrinkage occurs when the actual number of products in stock is lower than what is recorded in inventory warehouse management systems. This discrepancy leads to inventory shortages, which cause delayed orders, customer dissatisfaction, and financial losses. Shrinkage is typically discovered during physical inventory counts or audits and addressing its root causes is essential for efficient warehouse operations.
Inventory shrinkage can be expressed as a percentage of the total inventory. For example, if a warehouse holds $1 million worth of inventory, but after a physical count, only $950,000 worth of products are found, the shrinkage rate is 5%. Though this may seem small, for businesses with large-scale operations, even a
1-2% shrinkage rate can result in substantial financial losses.
Several factors contribute to inventory shrinkage in warehouses. These causes range from human error to malicious activities, but they all lead to the same result: lost or missing inventory. The most common causes include:
1. Theft
Warehouse theft, both internal (employee theft) and external (shoplifting or burglary), is a significant contributor to inventory shrinkage. In warehouse environments, it can be challenging to track and monitor every product, making it vulnerable to misappropriation. Employees with access to high-value products may take advantage of inadequate security measures, while external theft may occur during the shipment or receiving stages.
2. Administrative Errors
Mistakes in data entry, mislabeling of products, or incorrect recording of inventory can lead to shrinkage. Human error during the process of stocktaking, order fulfillment, or product returns can cause discrepancies between recorded and actual inventory levels. Even a small error, such as entering incorrect quantities in an inventory management system, can compound over time, leading to significant losses.
3. Supplier Fraud
Occasionally, shrinkage results from suppliers failing to deliver the agreed quantity of products. Supplier fraud may include short shipments where fewer items are delivered than billed. Without proper tracking or verification processes, these discrepancies may go unnoticed, contributing to inventory shrinkage.
4. Damage and Spoilage
In certain industries, such as food and beverage or pharmaceuticals, inventory shrinkage can result from product spoilage or damage. Perishable goods with short shelf lives or items that require specialized storage conditions are especially susceptible to shrinkage due to environmental factors or improper handling. Damaged goods that cannot be sold often go unaccounted for in inventory counts.
5. Process Inefficiencies
Operational inefficiencies in how products are stored, handled, and tracked within the warehouse can also contribute to shrinkage. Inaccurate stock counts, poor warehouse organization, and miscommunication among staff can result in inventory being misplaced or lost altogether.
As warehouses strive to minimize shrinkage and maintain accurate inventory levels, emerging technologies like computer vision offer promising solutions. Vimaan computer vision and AI-driven automation solutions enhance inventory visibility, detect discrepancies, and reduce shrinkage. Here’s how Vimaan’s computer vision technology can help decrease shrinkage in warehouses:
1. Enhanced Inventory Visibility and Tracking
Vimaan systems provide up to date visibility into inventory movement and storage throughout the warehouse. Through continuous monitoring and automated scanning, the technology captures detailed images and data about each product as it moves through the warehouse. This heightened visibility enables managers to detect discrepancies early, ensuring that inventory records accurately reflect what’s physically present.
The Vimaan StorTRACK automated cycle counting system automatically identifies and catalogs products, reducing the risk of administrative errors and allowing for quicker, more accurate stock checks. This automation eliminates the need for manual inventory counts and audits, ensuring that the system remains updated at all times.
2. Reducing Human Error
By automating critical warehouse functions such as stowed case counting, pallet scanning, high bay scanning and inventory updates, Vimaan eliminates many of the manual processes that lead to human errors. Automated inventory cycle counting and inventory updates ensure that discrepancies caused by data entry mistakes or mislabeling are significantly reduced.
3. Improved Supplier Verification
Vimaan’s validate shipments from suppliers in real time, confirming that the correct quantity of products has been delivered. By capturing detailed images of shipments and performing automated checks, the technology ensures that all goods match the order specifications, thus preventing shrinkage due to supplier fraud. This level of verification happens at the pallet level using PalletSCAN systems and at the package level using ParcelSCAN.
4. Damage Detection
Vimaan’s capabilities include advanced damage detection capabilities. Using AI-driven image recognition, the system can identify anomalies during warehouse receiving like water stains, rips and tears before they are stored or shipped. This helps warehouses remove unsellable items from their inventory promptly, reducing losses from damaged goods.
5. Reduced Time Looking for Goods
Warehouses with subpar inventory accuracy dispatch employees across their aisles searching for missing items. In fact, many warehouses have reported that 10-20% of their employee’s time will be spent looking for misplaced goods.
Warehouse inventory shrinkage is a costly problem that affects profitability and operational efficiency. By understanding its causes—such as theft, administrative errors, supplier fraud, and damage—businesses can take proactive steps to mitigate shrinkage. Vimaan provides enhanced visibility and automation that reduces the risk of shrinkage while improving overall inventory management. Vimaan scans inventory across all major workflows including warehouse receiving, inventory put-away, inventory cycle counting, order packing and warehouse shipping this visibility provides the ground truth to your WMS minimizing losses ultimately driving higher efficiency and accuracy.
Contact our Inventory Shrinkage Experts Today