Inventory Shrinkage Factors

As a warehouse owner or manager, you know inventory comprises a large part of your business assets. It’s critical to account for all inventory items and focus on minimizing inventory loss. In business terms, losing inventory is called shrinkage. To maintain peak productivity and profitability, you need to minimize inventory shrinkage.

There are many inventory shrinkage factors. First of all, you’d probably think theft is the main inventory shrinkage factor by percentage. Both internal and external pilferages are large factors that cause inventory shrinkage in the retail business sector. But, theft isn’t the main reason why the warehouse and wholesale industry experiences inventory shrinkage.

Inventory shrinkage statistics for warehousing indicate product damage is the main reason that warehouses suffer inventory loss. That happens for reasons such as equipment failure, worker inattentiveness, improper product placement, poor working conditions and not using the right material handling equipment.

common causes of inventory loss


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About Inventory Shrinkage

Inventory Shrinkage Statistics

The best inventory shrinkage definition is the loss of products between the time you purchased them from your supplier and the time you’re ready to sell inventory to your customer. In high turnaround warehouses, this can be a matter of days. In large volume, long turnaround facilities, it can be weeks, months or years.

Wise warehouse managers use tight inventory control methods. They account for stocked inventory at all times. Some warehouses use sophisticated computerized tracking systems with barcodes and radio frequency identification devices, or RFIDs. Other warehouses rely on manual recording methods. Manual tracking might be slower than automated systems, but it can be every much as accurate. Regardless of your inventory management system, some shrinkage will still occur.

Take condolence that even the best-run warehouses suffer some amount of inventory shrinkage. It’s just part of the cost of doing business. According to the Warehouse Education and Research Council, the average warehouse suffers 0.2% in inventory shrinkage. Their statistics show the lowest reported shrinkage was 0.005%, and they report any shrinkage over 0.46% should sound alarm bells.

While it’s virtually impossible for you to prevent all inventory shrinkage, there are effective methods to reduce your inventory shrinkage problem. Knowing how to reduce inventory shrinkage in a warehouse starts with looking at the main inventory shrinkage factors. Let’s go through the most common reasons why you might suffer inventory shrinkage in your warehouse. It’s sure to give you some ideas on how to reduce shrinkage in inventory.

Malfunctions to Equipment or Machinery

Malfunctioning material handling equipment or machinery is a main reason why warehouses suffer inventory shrinkage. It can be a hydraulic lift giving out at the wrong time. You might have inferior-quality bins or containers that fall apart when carrying a heavy load. Or you might have worn out pallet racks that finally collapse and ruin an expensive load of palletized products.

Forklifts are notorious offenders for damaging products. Mechanical failure or operator error accounts for a large part of inventory shrinkage. So does malfunctioning conveyers, stretch wrappers and lift tables. You might suffer product loss and inventory shrinkage through poorly maintained machinery that suddenly fails and destroys valuable products.

Your best insurance against machinery malfunctions is through purchasing top-quality material handling equipment. However, even the finest machinery can damage goods if your operators aren’t properly trained. Excellent training improves operator efficiency, and that leads to fewer accidents. Ultimately, you have less shrinkage and a better bottom line.

Another strategy for preventing equipment failure and improving your inventory shrinkage statistics is by doing regular machinery inspections. Make sure you train your workers to conduct regular walk-arounds and watch for problem signs. Trained workers understand the problem of inventory shrinkage caused by malfunctions to equipment and machinery. A diligent and aware team can be your first line of defense in the fight against inventory shrinkage.

Concentration Lapses

Impact of Inventory Shrinkage on Profits

Inattentive employees are another factor contributing to or causing inventory shrinkage. Products and materials get destroyed when workers get distracted or become lackadaisical. They can drop packages, mislabel containers and misplace items. This adds up to inventory loss and a serious effect on your profitability.

Workers have concentration lapses for many reasons. Some write inattentiveness off as a “brain fluff,” but the root cause usually lies deeper than a momentary judgment loss. Fatigue is a large factor. So is impairment by substances or being distracted by personal issues. Then, there’s always the human problem of low morale in the workplace.

Concentration losses have a big impact on your inventory shrinkage. Fortunately, there are steps you can take to keep your employees sharp. Taking regular breaks is a huge help in fatigue prevention. Rested workers are much more careful and far less likely to make costly mistakes that damage your products or equipment. Attentive employees are also more aware of what other workers are doing. They’ll spot actions that might result in inventory shrinkage.

You can prevent loss by taking the time to communicate with your warehouse employees about the impact inventory shrinkage has on your business and their interests. Workers who are aware of how inattentiveness leads to product damage are much more likely to pay attention to their duties. You can also reduce their distractions by eliminating cell phones in the workplace as well as removing background noise and other irritations.

Avoidable Accidents

Many experts in the safety industry state almost all accidents are avoidable. While that may be true, it’s a fact of life that accidents do happen. It’s frustrating for you when your products are damaged, and your inventory shrinks from some accident that was clearly avoidable. Preventing accidents is a main measure for lowering your inventory shrinkage and raising your bottom line.

Hazards of Workplace Distractions

Employee inattentiveness is a main cause of warehouse accidents. Distracted workers can be dangerous hazards to your products and equipment. They are also hazardous to other workers. All safety programs aim to prevent or reduce workplace accidents. Excellent programs focus on worker behavior issues and remove barriers to preventing accidents. These behavior-based safety initiatives change workers' mindset from being merely compliant with safety rules to being totally committed to safety. These trained workers watch out for each other.

While the vast majority of warehouse accidents are avoidable, you can learn from those that do occur. That way, you’ll have a good understanding of the root cause and what you and your workers can do to prevent similar situations from happening in the future. You should thoroughly investigate every accident and near-miss incident to find out the cause. Identify the elements in your operation that led to the event. Make sure you share your findings with all your staff and let them know why it happened and what takeaways everyone can benefit from. You should also make your workers aware of what impact an avoidable accident had on your inventory shrinkage.

Manual Handling of Materials

Hazards of Workplace Distractions

Many tasks in your warehouse are too large or heavy for employees to handle manually. There might also be too much repetition to manually keep up with during product transport, placement and picking. However, many warehouses still rely on a good deal of manual labor. It’s these manual labor businesses that suffer the most amount of inventory shrinkage.

Manual handling of materials invariably leads to inventory shrinkage through product damage. It also leads to worker injuries that cost your business in lost time, reduced productivity, medical expenses and possible fines from regulatory authorities. Problems from manual material handling can also lead to unnecessary costs and business interruption due to product shortage.

Selecting the right mechanized material handling equipment goes a long way toward eliminating these costly issues. Proper equipment minimizes manual handling and greatly reduces damaged products. The right material handling equipment also speeds up your operation. In turn, this lowers your inventory shrinkage and costs associated with manual handling.

Help your team get more done in less time with fewer strains by investing in excellent material handling equipment. You can utilize hydraulic lift tables, container tilters, powered handcarts and electric pallet trucks. These mechanical labor-savers reduce or remove any need for your workers to handle products manually. Having the right tools goes a long way to help your team get more done with efficiency. Proper material handling machinery also eliminates many common workplace injuries that come from poor ergonomic practices.

Dirty and Disorganized Jobsites

No one enjoys working in a dirty and disorganized jobsite. Unclean and cluttered warehouses present many hazards leading to preventable accidents and causing worker injury and inventory shrinkage. Conditions like dirty floors, piled debris and disorganized goods have a debilitating effect on worker attention, morale and carefulness. These dangerous factors all lead to expensive product damage, time loss and inventory shrinkage.

Bad housekeeping and poor building maintenance lead to other problems that affect inventory conditions. Leaks in roofs or walls cause water damage and spoiled goods. Wet conditions lead to mold and mildew that also ruins products. Cluttered spaces become fire traps, and dirty conditions result in contaminated goods that have to be discarded. All this adds up to shrunken inventory and profit loss.

Keep your warehouse clutter-free and clean. Invest in organizational equipment like containers, pallet racks and decking. These aren’t expensive outlays, and they’ll quickly bring you an excellent return on investment. Good storage systems also let your employees work faster and safer. Again, it’s a win-win for everyone.

Clean and organized jobsites have many positive spin-offs. A well-kept site is the sign of professionalism. It lets your visitors, customers, regulatory inspectors and investors know they’re dealing with a business that cares about its operational image. That positive impression pays back repeatedly. Being clean and organized also boosts your workers’ morale and their productivity. It lowers your accident rate, your inventory shrinkage and your overall liability.

Unsafe Work Environments

Maintaining a safe worksite is more than just practical. It’s the ethically correct thing to do. No one wants to see their employee or fellow worker get hurt. Highly regulated government agencies like the Occupational Health and Safety Administration (OSHA) mandate safe worksites by law. Running afoul of OSHA might cost you more than you bargain for.

Workplace safety should be forefront in your warehouse operation. Your safety program must place accident prevention as its prime priority. You can take many steps to eliminate an unsafe work environment. Having total employee commitment to your safety plan is the first step. The next step is investing in first-rate accident prevention equipment.

Proactive Measures for Workplace Safety

Take a proactive approach to workplace safety by using products like floor tape to mark off hazardous areas and visual signage to keep aisles and corridors orderly. Another suggestion is to improve lighting around work areas so employees can better see what they’re doing and spot potential danger. You might also use protective netting to catch products that errantly fall from a load. Protecting products ultimately protects inventory shrinkage and preserves profitability.

All safe work environments contain products and equipment properly. Hazardous materials should always be kept in the right containers. Loaded pallets should be stacked on dependable racking. And smaller items should be stored in suitable bins and containers. These are only a few safety suggestions you can implement to make your work environment safer, smoother and less susceptible to inventory shrinkage. Plus, working safely is the morally right way to go.

Careless Product Placements

Product damage often results from careless placement. That usually involves overloaded racks and shelves. Putting too much weight on an inferior rack or pallet will cause load failure. That results in product damage and shrinkage in your inventory.

Careless product placement also causes worker injuries. That might result from ergonomic strain while placing goods on a pallet or rack. Injuries might also come from an overloaded rack giving way and collapsing on one of your workers. Neither of these is a suitable option. Fortunately, you can prevent careless product placement in several ways.

Inventory Shrinkage and Proper Handling Techniques

The best method is by training your workers in the right way to place products. Remind them to put your heaviest products at the lowest height possible. You can guard against inventory shrinkage by teaching your workers the proper techniques for handling material. That includes proper instruction in operating material handling equipment.

The next way to reduce inventory shrinkage through careless product placement is by investing in excellent material handling equipment. Give your employees the tools to eliminate manual handling that leads to improper product placement. Make sure you train them in safe operation, and that they understand the equipment’s capabilities and capacities are. Safe operations, protected product placement and reduced inventory shrinkage stat with leadership that understands how necessary the right material handling is to their business’ financial stability.

Using the Wrong Pallets

Not all pallets are the same, nor are they created equally. One of the main factors behind inventory shrinkage in your warehouse is likely the pallets you’re using. Inferior pallets that collapse under loads can damage or ruin your products. That will cost you in money, time and profitability.

Plastic vs. Wood Pallets

Many warehouses still depend on old wooden pallets. They see wood pallets as a cheap alternative to plastic and metal pallets. However, smart warehouse managers know wood pallet limitations. And they know wood pallets aren’t one of the preferred methods of reducing inventory shrinkage.

Wood pallets break easily under heavy loads. That leads to product damage and loss. Wood pallets also contaminate products easily. That also leads to inventory shrinkage. You don’t have those problems with plastic and metal pallets. These pieces of material handling equipment are far stronger and more reliable than wood pallets. They also last longer and deliver that sought-after return on investment.

You can eliminate inventory shrinkage caused by pallet failure. That’s done by choosing the right pallets for your application. Depending on your business, you might choose an assortment of different pallets and use them for various applications. The trick is knowing what pallets are available and choosing the right supplier who knows their products.

Cherry's Industrial Equipment is your trusted supplier for top-quality pallets and other excellent material handling equipment. Cherry's Industrial has been in the warehouse supply business for three decades. We know our plastic and metal pallets, and we know the difference they make in protecting your products. After all, protected products don’t contribute to inventory shrinkage.

Minimize Inventory Shrinkage with Equipment From Cherry's Industrial Equipment

You can minimize your inventory shrinkage problems by partnering with Cherry's Industrial Equipment. Now that you have a better understanding of the main inventory shrinkage factors found in warehouses, it’s helpful to look at a few of our products that will assist you to control product damage and loss in your facility. Here’s a lineup of what you’ll find on our website

  • Pallets: Pallets are staple material handling pieces in every warehouse and industrial manufacturing facility. supplies you with the best quality plastic and metal pallets available in America. You can choose from pallet configurations like stackable, rackable, nestable and export pallets. We also stock hygienic pallets for use in the food, beverage and pharmaceutical industry.
  • Pallet racks: Racking is another main piece of material handling equipment you’ll find in every warehouse setting. We carry adjustable racking with wire mesh decking in a range of heights, widths and depths. Our rack systems include upright frames with diagonal bracing, support bars and a choice between wire mesh and solid surface decks. We can also build you custom racks specifically for your unique warehouse needs.
Warehouse Safety and Caution Signs
  • Safety and caution signs: We know how important communication is in your warehouse. We also know a lack of communication is a main factor influencing inventory shrinkage. Safety and caution signs are the best way of communicating warehouse hazards. Browse through our online catalog and choose from a wide variety of safety and caution signs.
  • Aisle markings and floor safety tape: Your warehouse aisles and floors can be busy places with potential hazards for workers and products. You can easily alert workers to hazardous points by marking your aisles and floors with safety tape. This inexpensive investment pays big returns. Highly visible markings stand out to alert people and protect products. Cherry's Industrial carries an assortment of safety products which you can view on our online catalog.
  • Storage containers: Our bin and storage containers are practical solutions for product damage problems and shrinking inventory. We have a great selection of containers for agricultural, bulk storage, fixed wall, meat containment and automotive parts application. We also have shelf bins and stack-n-nest containers. We can also custom build customer containers if our standard containers do not meet your dimensional specifications.
  • Powered handcarts: If you’re looking for a cost-effective way to safely handle warehouse products and reduce inventory shrinkage, have a look at our selection of handcarts. Choose from standard platform carts, light-duty lift top powered carts, convertible powered trucks, off-road traction-driven powered carts, electric platform carts and power tug carts.
Electric Pallet Trucks
  • Electric pallet trucks: Product damage often happens in warehouses that rely on manual pallet trucks and jacks. Smart operators know that electric pallet trucks reduce worker strain and prevent inventory shrinkage through product problems. You can find three electric pallet truck models at We handle the SPTE33X semi-electric pallet truck, the PTE33X light duty electric pallet truck and the heavier WPT45 electric pallet truck.
  • Roller skids: You’ll always find a use for roller skids in your warehouse. Roller skids and machinery skates make moving heavy equipment effortless. At, we supply you with individual roller skids, roller skid handles, complete roller skid kits and custom-designed roller skids. We also supply a complete machinery skate line.
  • Container tilters: If you are looking to keep your parts and product readily accessible or are looking to stock containers without risk of back injury then explore our selection of container tilters. Depending on your facility's particular needs you can choose from any of our stationary tilters or mobile tilters.
  • Hydraulic lift tables: Protect your workers and products with our hydraulic lift tables. You’ll reduce your inventory shrinkage with this long-term performance equipment. Be sure to check out our hydraulic lift tables including models , XPB series, LS series, XZ series, and the US FLL 1000 RF SS which is our floor level stainless steel lift table.

Contact Cherry's Industrial to Lower Your Inventory Shrinkage

Cherry's Industrial Equipment is your one-stop source for material handling equipment that will lower your inventory shrinkage. We handle a wide range of equipment that’s sure to improve your inventory control and raise your bottom line. Cherry's Industrial Equipment is America’s leading warehouse equipment supplier. We’ve been trusted that way for over three decades.

For more information on how Cherry's Industrial can help you reduce your inventory shrinkage and let your workers work safer, call our product specialists today. We’re at 877-350-2729. Or you can reach us through our online contact form.