Implementing a Shrink Reduction Program - Manager Bonuses

Regarding bonuses based on shrinkage – this is commonly one of the bonus criteria for store managers.

The best way to implement is to set a target shrink factor based on industry average and your own historical store inventory shrink rates. If a store has a very high shrink rate it may be more motivational to base a bonus on a percentage reduction of the shrink rate for the first year or two until it gets to an acceptable level. It is also important to communicate the store shrink rate and targets to all staff. They should know what the last year's shrink rate was as well as the target. All staff should be made aware of the programs designed to reduce shrink and how they can help reach the target shrink goal.

It is amazing how just being aware of the shrink issue and how to prevent it makes the problem go away.

Physical Inventory - How Often is Enough?

A number of my clients often ask if they should do a physical inventory more than once a year in order to cut down there shrink. As a general rule, there is usually no payback in doing inventory more than once a year unless need to for financing purposes or for a potential buyer of the business.

The cost of doing inventory usually outweighs the amount of inventory shrink that can be saved. However, it is recommended that monthly cycle counts be done on high volume items. This means selecting a handful of items (3-5) and having the stores do a count on those items only. This information is then used to verify against your perpetual computer inventory. Usually different items are selected each month so that 40-50 items are counted by the end of each year. However, if you have a problem item then you may choose to have that same one counted each and every month.