Calculating shrinkage and damaged goods can help retailers understand their inventory management and make necessary improvements.
Obtaining Perpetual Stock Value
This is your theoretical stock value before you start the stocktake. This figure is stored in your POS Software in stock reports; if you prefer, use your best estimate.
Physically Counted Inventory Value
This is the stock value you actually had after doing the stocktake.
Sales of Stock Product
Use your total report to get this figure. You need to take out the non Stock item sales, e.g. lotto.
Calculating Shrinkage
The Shrinkage is calculated by finding the difference between (Perpetual Stock Value) and (Physically Counted Inventory Value). This is commonly expressing it as a percentage of Sales of Stock Products. Use the following formula:
Shrinkage% = ((Perpetual stock value) - (Physically Counted Inventory Value)) / (Sales of stock product) * 100
A typical shrinkage rate in 2020 was stated as about 1.4%, but it was found to range from 0.1% to 6%. Higher than-average shrinkage indicates inventory loss or waste. I suspect they figure today would be similar.
Calculating Damaged Goods
What I suggest you do is also calculate your Damaged Stock Value.
Your stock sheets should be able to give you these figures.
Percentage of Damaged Goods% =(Damaged stock value) / (Sales of stock product) * 100
High levels of damaged goods indicate issues with quality control or carelessness. A common reason is goods left too long in the sun in the window.
Conclusion
After determining the overall measurements of your inventory shrinkage and damaged goods, you might want to dive deeper into specific departments by performing this analysis across departments and also consider doing it by key items and locations. Using this, you can pinpoint areas of concern. With this knowledge, you can set achievable targets and monitor progress against industry benchmarks or personal goals, ultimately enhancing your overall inventory management performance.
