Shrinkage Costs

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Inventory shrinkage occurs when actual inventory levels are less than what is recorded. In general, this means something has gone wrong.  Formally defined, inventory shrinkage is the depletion of the actual quantities of inventory that is on hand, in process or in transit.  ​This may be caused by regular reductions, scrap, deterioration or even theft. 

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​How is Inventory Shrinkage Calculated?

1. Inventory Shrinkage Rate = (Recorded Inventory – Actual Inventory) / Recorded Inventory.
2. Multiply this number by 100 to convert to your inventory shrinkage rate percentage.

This percentage can be used to have an understanding of the risk or loss that may occur.
Challenge:

• Now let’s challenge your mind a bit.  In this post you learned how to calculate inventory shrinkage.  Remember, it is calculated by subtracting the actual inventory from the recorded inventory and then dividing your answer by the recorded inventory.  Then you multiply the answer by 100 to convert your answer to a percentage.  With this in mind let's assume that the actual amount of inventory on hand is $100 dollars, however your recorded inventory is $150 dollars.  What would your inventory shrinkage percentage be?  Share your thoughts in the comments section below and receive a coupon to one of Lean Strategies International LLC's courses.

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