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Corporate Policies Minimizing Inventory Shrinkage

  • Create a corporate policy designed to minimize inventory shrinkage related to theft, stocking errors, shipping errors, etc., indicating how the policy will be enforced and procedures that may need to be implemented.

  • Inventory control requires constant attention. Propose a set of guidelines that reflect the necessary monitoring controls for three distinct types of business (e.g., a shoe retailer, a physician’s office, and a food vending truck) to minimize loss and waste. Indicate how each control will minimize risk of inventory loss.

Corporate Policies Minimizing Inventory Shrinkage

Inventory is the key asset of a business. These are raw materials, goods in production or finished products and materials that an organization holds dear and protects with all their might for the sole purpose of resale. Inventory turnover is primarily the main objective of running a successful business as the inventory is an asset that generates revenue to the business. Inventory shrinkage is the loss of the products from the point of manufacture or purchase to the point of sale. This shrinkage can occur as a result of theft, stocking error, limited shelf life of perishable goods, fraudulent acts by retailers, understatement of sale prices, warehousing discrepancies, misplaced goods or damage during shipping. The shrink therefore refers to the profit margin to be realized after the sale of the product. As inventory is pivotal to the businesses success, organizations are ardently seeking ways to minimize the inventory shrinkage. Companies are now formulating corporate policies that dictate how inventory should be handled and provide required guidelines to protect against shrinkage. Corporate policy as pertaining to inventory are therefore the formal declaration of an organizations guiding principles and the due procedures to be followed in the minimization of inventory shrinkage (Dutta, 2013)

In order to prevent losses emanating from inventory shrinkage, organizations have instituted an effective corporate policy to help in minimizing the anticipated inventory shrinkage. Due procedure have been implemented to minimize inventory shrinkage. These include: limiting the admission of employees from the point of sale (POS) terminals to help prevent theft of merchandise by employees. This is achieved through the use of an efficient POS software. The software helps management identify employee theft by reviewing the daily business transactions to determine any suspicious behavior, identifying and critically examining any deleted sale history, establishing a pass code for entry into the point of sale so as to keep track of employee movements and engaging the POS security software to ensure that fraudulent workers don’t gain access to customer financial databases such as credit card information. The POS software also assist to analyses and evaluate the daily record to determine the profit margin of the business so that in the occurrence of losses, questionable doubt can be raised.

Corporate policy can also be enforced by organizations instituting a strict employee theft policy. The corporate policy can state the grave consequences of theft and constantly refer to examples of past actions taken on culprits to assert the authority and seriousness of management towards inventory shrinkage as a result of employee theft.

The corporate policy can also advocate for the procurement of the necessary amount of perishable goods. By ordering and buying the adequate required number of perishable goods, businesses can minimize inventory shrinkage by having the right amount of perishable goods needed by their consumers. This minimizes spoilage and the losses accrued by throwing away the spoiled goods.

Corporate policy on minimizing inventory shrinkage can also be enforced through the protection of goods in transits. Merchandise in transit can be protected from theft by using car tracking systems in transit vehicles to protect against theft and also use of special container goods to ensure that the goods are not tempered with.

Inventory shrinkage can also be minimized by organizations adopting an efficient employee training system. Employees should have sound understanding of the POS to fully comprehend how to record stock properly and minimize errors. Warehouse staff should also be trained on proper product handling to ensure that warehoused goods are properly stored in the right conditions and that damage to goods during handling is minimized.

The corporate policies should also state the recommended retail price of their products to protect consumers from fraudulent vendors. Vicious retailers take advantage of their customers by selling to them substandard goods, hiking prices to cover for losses from inventory shrinkage and selling expired goods.

Different businesses need to adopt corporate policies that are in accordance with the uniqueness of their business. Necessary monitoring and control systems need to be enforced with special regard to the uniqueness of the business and the urgency of attention required for example for example in a fast food business such as a milk bar, the business owner or management can adopt various monitoring controls to minimize inventory loss. The business can put in place a backup power supply to ensure that refrigerated milk does not go bad. Special security cameras can be put in place throughout the milk bar to monitor the movement of employees and ensure no one trespasses the no admission points. Also a special password code can be put in place to enhance security of the cash safe by only permitting the authorized people to access the safe, therefore minimizing cash theft and also keeping track the transactions. The owner of the milk bar can also purchase the necessary required amount of milk to make sure that there are no leftovers and extra milk doesn’t go bad.

In a computer sale store, the following monitoring control measures can be adopted to enhance minimal risk of inventory loss. The management can train the store staff on how to properly handle the computers to ensure that they are not damaged or exposed to unfavorable conditions that might compromise their functional efficiency. Special spy and security cameras can be put all around the store, monitors the store space and provides evidence in case of a break in or theft. A special security alarm system can be also put in place to alert in the event of a security breach and swift measure taken to prevent the risk of inventory loss. Special pass codes and biometric doors can also be used to ensure that only the authorized personnel have access to designated entry points such as the storage room.

In drug store business such as a soft drinks production company, special monitoring controls need to be established to minimize the risk of inventory loss. The company’s management need to keep a special workers clock in and work logs systems to ensure that employees are always working correctly and no absenteeism and production line slowdowns that could temper with the quality of the final product. A safe transportation mode should also be emphasized on such as use of crates and proper packaging to minimize damage of goods in transit. The companies’ staff can also be equipped with necessary skills to help them acquire proper stocking and recording skills to minimize risk of inventory loss through errors in stocking and financial recording.

In conclusion, inventory is a undeniable asset to any business and management should strive to establish a sound corporate policy that provides the necessary guidelines and procedures geared at minimizing the losses resulting from inventory shrinkage in order to promote more sales and improve the businesses revenue output.


Beck, Adrian & Colin Peacock (2009).New Loss Prevention: Redefining Shrinkage Management, Palgrave MacMillan.

Dutta k. Saurav, (2013). The Challenge in Forensic Accounting. FT Press Financial Times

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