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Shrinkage is the retailer’s nightmare. Every year, shrinkage costs retailers billions of pounds. Often, shrinkage is caused by theft or wastage however, some shrinkage, ‘unexplained’ or ‘unaccounted for’, is caused by poor inventory accounting.

‘Wooden dollars’

Poor inventory accounting is often a result of errors caused by a break down in process. Inventory going to one store instead of another. The term ‘wooden dollars’ essentially means that the stock is within the business somewhere and therefore, the estate as a whole will not shrink.

However, it is not as straight forward as that. For a start, stores typically have independent balance sheets. This helps with management of the stores and areas. But, if one store has another stores inventory, creating and accounting inaccuracy, the balance sheet will be inaccurate.

In this scenario, both stores suffer. One has too little stock, potentially creating gaps on shelves leading to lost sales. The other has too much stock to handle, eating up valuable warehousing space and lowering staff productivity.

But the damage doesn’t stop there. Stock ordering systems work off three key data points. Inventory (store stock file), demand and sales. The store stock file is updated automatically at each delivery window. The system assumes everything that is supposed to be delivered, is. But of course, in this scenario, it the inventory has gone to another store. Obviously, without stock, it can’t be sold. So, the stock file is showing a case in stock but no sales registering. This immediately starts to erode demand for the future and will affect future orders.

The industry average for misdirected DU’s is 3%. That may not sound like a lot but when you consider the total inventory held by each retailer, the financial value of 3% is quite large. Buffer stocks are used to protect on shelf availability but this leads to cash being tied up in inventory, cash that could be used elsewhere to grow the business.

To say that unaccounted shrink is in the business somewhere may well be true. But it is anything but ‘wooden dollars’, directly impacting the bottom line through:

1. Lost sales
2. Reduced productivity
3. Cash tied up in inventory
4. System performance degradation

A better way?

IoT is not magic. It can’t miraculously move misdirected inventory to its correct destination. However, using Entopy’s Tracca Platform Solution to track cages and inventory, automating store stock transfer using GPS location data to make this transfer in real time, these errors will be identified quicker. The data can be directly input into the local system, ensuring accurate data, and inventory can be reordered or moved (if appropriate). By capturing errors as they happen, the accuracy of the ERP systems retailers’ use will improve. This will help to reduce total inventory holding, improve of shelf availability, and overall drive productivity.

Interested?

Get in touch today: info@entopy.com


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