Every business must address losses. Now and then, small businesses are affected because of inventory shrinkage. Inventory shrinkage is an accounting word that describes inventory loss because of employee theft or misconduct, breakage, shoplifting, and data entry mistakes. A recent study on inventory shrinkage shows a constant increase that cuts into cash flow and impacts profits—two major areas of concern for every business.

Most of the problems with shrinkage can be prevented. If your company is looking to address losses, you want to begin with developing a tactical loss prevention strategy. Simple loss prevention strategies have three steps: researching, developing, and then implementing strategies. Loss prevention strategies take more time, so give yourself one hour every day to develop yours. Experts also recommend the involvement of employees to enhance their engagement with the company.

Loss Prevention Strategy Basics

An excellent loss prevention strategy means a lot more than just installing a few security cameras around the premises. Your business requires a top-down, tactical focus on loss prevention if you want to have an actual effect on inventory losses.

The Harvard Business Review studied the loss prevention techniques of some of the country’s top small business owners and identified the major aspects of a good loss prevention strategy. Some of these aspects include:

  • Loss prevention instilled at every level.
  • Commitment at the senior management level.
  • Evidence-based approaches.
  • Communication about inventory shrink throughout the business.
  • Accountable and empowered store workers.

In summary, effective loss prevention isn’t a one department responsibility — it takes action and commitment of the whole organization. Retailers who manage to reduce shrink follow a top-down approach. It begins with the most senior executives and flows throughout the organization.

Appropriate Approaches To Strategic Loss Prevention

The approach you take to prevent loss may differ from what another business owner will take. Below are steps of  general loss prevention strategy: 

Step 1: Research and Size Up the Problem

Developing an effective loss prevention strategy requires commitment and much more. It begins with conducting research. Research is the ideal way to determine if your business is experiencing a problem and how substantial it is. Next, thoroughly review your store policies. Also, you might have to observe your staff to understand how they carry out their duties.

The next thing you have to do is analyze historical data. The business’s inventory management techniques must have good reporting tools to show any data patterns that’ll point to seasonal increases in employee errors and preventable losses. Fraud, shoplifting, and employee theft are challenging to detect unless you discover the holes in the numbers that show something is amiss.

After you’ve determined whether your business has a problem, you’ll then need to have a comprehensive understanding of the problem before solving it. For example, understand what inventory loss looks like for your company, the amount of money you’re losing every year in sales, and the amount of money you may gain if you implement a new or improve your existing loss prevention strategy.

Calculating inventory shrinkage isn’t all complicated. Shrink is the difference between the inventory value reflected on the books and the actual inventory in front of you. For instance, if your accounts say you have one hundred dollars in inventory, but after conducting a physical count, you find you have inventory worth ninety-eight dollars, your shrink is two dollars. Dividing inventory shrinkage by your total sales for the same period will give you an inventory shrink percentage. These calculations are a starting point to assist you in setting concrete goals for your loss prevention strategy.

Step 2: Develop Your Strategy

After you have conducted your research, it’ll enable you to create a coordinated, proactive strategy to prevent losses. We have two forms of losses— non-malicious and malicious losses. Malicious losses occur through fraud and theft, while non-malicious ones are accidental. Your prevention strategy has to differentiate between these two. Additionally, it must maintain a continuous record of non-malicious loss because of damage, spoilage, pricing errors, delivery mistakes, product obsolescence, or problems at checkout.

Your strategy may entail taking the following approaches:

  1. Having Clear Policies

You need to enforce loss prevention frequently and consistently if you need your effort to bear fruits. The quickest means of losing staff buy-in is when they see that the company is inconsistently applying loss prevention techniques. A well-documented policy is an ideal tool for enforcing a loss prevention strategy.

All your staff should know how they’re supposed to curb losses. They ought to understand the organization’s responsibilities. In addition, your policy ought to state all the required measures for responding to and preventing inventory loss.

If your organization has handled internal theft previously, you may have to consider changing your hiring policy. Whereas you must treat your staff like assets when dealing with loss prevention, ensure you hire employees that’ll safeguard your business.

Consider whether more background screenings and reference checks may be helpful for store worker positions, for instance, and if credit checks will be sensible as one way of screening potential accountants.

  1. Training Practices and Audit Hiring

As we mentioned, inventory shrink happens for several reasons— shoplifting, paperwork errors, supplier fraud, and employee theft. By considering loss prevention during the hiring and training of your staff, you could curb the two most significant of these factors—employee theft and shoplifting.

As far as employee theft is concerned, you may imagine store employees pocketing goods for themselves. But, apart from that, employee theft also has to do with things such as using discounts to offer price breaks to friends and family and keeping damaged goods that ought to be given back to the supplier for credit.

Whenever you retain store employees, what skills and qualities do you consider? You should screen for reliable candidates who have integrity. Workers who excel in these areas can help you fight loss prevention. The chances to misuse their powers as workers are low, and they’re more invested in your business’s success. They are more devoted to assisting you in reducing inventory shrink.

Excellent workers want to curb inventory losses. However, it is your responsibility to assign them the training and tools required to achieve this. Training your employees to detect and stop shoplifters could make a significant difference, reducing your shrink rate by over 70 percent.

  1. Secure Buy-In

Successful loss prevention begins from the top then flows down throughout the business structure. Fighting shrinkage means securing buy-in from everybody in the company. How do you achieve this?  The most critical approach to having your staff give much time and effort in loss prevention is simple—being open about the loss your business is experiencing. Communicate shrink numbers throughout the organization. Assist your staff in conceptualizing the amount of money you’ll gain by dealing with inventory shrink. Share your loss prevention objectives with them and let them know the progress you’re making.

For most high-level managers, the advantage of loss prevention boils down to the numbers. What of store employees who might not be involved in the company’s performance? You require buy-in from them, as well. To secure the buy-in, empower the workers to assume responsibility for the store’s success. Set clear benchmarks and reward workers who meet or surpass their goals. Share the success of the team with all the organization members.

  1. Establishing Internal Procedures

Workers can also unintentionally cause inventory loss by failing to follow established procedures. Should you fail to implement procedures or lack them whatsoever, you may experience losses in your business. You want to fill all the supply chain gaps—from selling to receiving stock—where simple errors can lead to waste.

Begin with your cash register. Make sure your procedures lead to a full accounting of payments and sales. Cash returns or shortages without receipts may signify that there’s someone siphoning cash. Clock the number of ‘’no sale’’ transactions to help you monitor how frequently the drawer opens when there’s no customer present.

Receiving desk staff should also crosscheck all orders coming in to ensure the store is not overcharged. Workers often sign after receiving inventory without counting how many boxes they are and checking what contents are inside. Anytime you pay for something you did not receive, you’re losing profit.

Train your staff on how to handle damaged or returned items. In most cases, you could receive credit from your supplier or restock the goods and sell them at a discount. Excluding the product from the inventory and disposing of it will lead to a loss since you won’t recover its cost.

  1. Using Strong Deterrents

Presenting strong security is just as critical as having strong security. Showing you take losses in your business seriously with noticeable security measures is very effective. Is your current staff dedicated to preventing inventory shrinkage and shoplifting in person at all locations, or will you instead have to install surveillance cameras? Security cameras’ presence is a strong deterrent for shoplifting, even if they are not recording anything. Noticeable anti-theft labels on goods will also discourage thieves. Simple posters at the entryway warning that you’re monitoring shoplifting can send thieves somewhere else.

  1. Having an Open Floor Plan

Take into account where your goods are placed on the retail floor. Note the high-theft or expensive products stocked away from your staff or without additional security measures. Display expensive merchandise in locked cases or somewhere your employees can easily monitor them, such as near the cash register.

Preferably, your employees should be capable of scanning the store from afar. If a shoplifter can hide in any place due to high-end shelves, you might need to redesign your layout. Maintaining the tidiness of the store with well-organized and neatly faced stock will make it difficult for thieves to hide their intentions to steal. In addition, a neat store will make it easy to see what is missing on a display or shelf.

  1. Having Friendly and Welcoming Floor Staff

Shoplifters successfully steal when they leave the premises without being noticed. Therefore, most business owners choose to serve everybody who enters the store to deter theft. This means greeting every customer at the entrance or in the corridors and assisting them with finding whatever product they need. These simple techniques discourage thieves from attempting to leave the store with stolen products.

A loss prevention manager is vital in preventing inventory and profit loss. Loss prevention managers work in stores with the primary purpose of preserving business profit. Workers committed to preventing losses ensure that preserving profit is a top priority. Even though all workers should engage with customers, a loss prevention manager prioritizes the engagement. They monitor customer activity actively and intervene whenever something seems to be wrong.

  1. Developing a Culture of Store Pride

Your store employees have to work hand in hand to detect and curb inventory loss. Workers willing to work hand in hand to achieve a certain goal are vital to any effective loss prevention strategy. In addition, if they pride themselves in what they do, workers are less likely to disobey the rules and regulations or disregard established policies.

To develop a culture of store pride, empower and support your workers in all their tasks. Let them know they’re appreciated and a vital part of your team. Hold brief and regular sessions to review incoming inventory, returns guidelines, damaged items, and use of employee discounts.

If these reminders and rules are in place, your employees will more likely obey them. Loss prevention is as critical to the success of your business as customer service and marketing. You should therefore give it as much attention. Often, only a few critical steps make a considerable difference.

  1. Monitoring Loss Trends

Sometimes you only realize that you’ve incurred losses when much time has passed. Accounting mistakes often become noticed this way, and slight inventory losses may accumulate over a long period. You have to gather a lot of data on these accounts and inventories. Monitor emerging trends and analyze unexpected losses or data for patterns. Keeping a comprehensive account of losses, accurately tracking inventory, and reporting on breakdowns does not only help you know where losses are coming from, but it may also help you change or modify policies to be more effective.

Perform scheduled, regular audits for these accounts. For example, ask your managers to conduct a given number of random audits every three months. Regularly assessing your loss prevention strategy performance will keep it cost-effective and prevent you from overspending on unnecessary technology or new initiatives.

  1. Using Automatic Inventory Controls

Determine what measures you’ll automate. Automation helps offset the additional labor needed to do more effective loss prevention. For example, deploying intelligent asset lockers can be an option. These prevent the loss of your costly business equipment. In addition, they automatically record all transactions, allowing you always to know who signed out what equipment, without any possibility of human error.

Content surveillance systems in lockers can verify that the appropriate items are put in compartments. Every asset is labeled with a wireless tag. The tag is read in the locker system whenever equipment is returned or taken.

This reduces honest mistakes and internal theft. For example, a user cannot falsely claim that they returned equipment to an unattended locker as the system will verify whether or not the equipment was indeed put in the compartment. You could even configure the locker system to alert your supervisors if company equipment isn’t returned or someone attempts a false return.

Step 3: Implement Your Strategy

Developing and executing a business loss prevention strategy will save you a lot of money. A clear strategy and new policies will guide the successful implementation of your prevention measures. You might have to change your strategy slightly to incorporate real-world affairs. Collecting feedback from your employees will assist you in seeing what works and what doesn’t.

Don’t try changing your strategy too much, as significant changes might thwart your loss prevention efforts. Keep in mind that you develop your strategy based on your research and proven approaches to prevent profit loss. If you stick to it, you will see significant improvements in inventory management and your bottom line.

Contact a Reliable Security Service Near Me

Inventory loss is a serious issue that affects businesses and eventually leads to profit loss if not properly addressed. If many activities are happening in your business, especially during holiday seasons, it is expected that you will be overwhelmed by many customers. Unfortunately, not all customers have good intentions. Some come intending to commit theft. Your employees could also steal from you since they know you’re too busy to notice. Also, some items may be damaged since you’ll all be up and down with loading and unloading stock.

Because of the goings-on, you need to act and address activities that could incur losses. The most effective way of doing this is developing a loss prevention strategy with a security expert’s help. At Green Knight Security, one of our areas of expertise is offering loss prevention services. When you partner with us, inventory loss due to shoplifting or any other cause will be a thing of the past. We’ll help you develop a strategy to protect your business in Los Angeles, CA, from losses and maximize your profits. Contact our Los Angeles security team today at 844-457-8326 to hire our professional services.