Many providers of third-party logistics (3PL) see inventory shrinkage in the warehouse as part of the cost of doing business.
And while zero shrinkage is an unrealistic expectation, there comes a time when the cost of shrinkage is simply too high.
Using tamper-evident security tape to seal boxes and prevent unauthorized opening not only helps you reduce losses, it’s an essential step toward protecting your margins, improving customer satisfaction and securing customer loyalty.
Inventory shrinkage happens when the amount of inventory listed in the accounting records exceeds the physical count of products. While a certain amount of shrinkage is unavoidable due to administrative and human errors, an excessive amount of shrinkage signals other problems such as employee theft, supplier fraud or inadequate inventory management practices.
Shrinkage, as it turns out, is at an all-time high. In its 2020 survey, the NRF estimated that the annual cost to the retail industry was approximately $61.7 billion. What’s even more alarming is that the trend is accelerating: the number of retailers reporting shrink rates of 3% or higher has doubled over the span of a year.
The cost of shrinkage directly affects brands’ profit margins. After all, an item lost is an item that cannot be sold. The loss is even bigger during times of low inventory and high demand, because an item lost is also an item that can’t be sold at full price.
At a time when supply chain issues continue to drive demand, you can be sure that brands will be keeping a very close eye on shrinkage in the warehouse.
You may be familiar with Malcolm Gladwell’s book The Tipping Point, where he explains there is a moment when an idea, trend or social behaviour crosses a threshold and becomes viral.
The pandemic-fueled e-commerce boom is that tipping point. Companies simply need more warehouse space to fulfill e-commerce orders. And the more products stored in the warehouse, the more shrinkage that occurs.
But even when the shrinkage percentage remains constant, when the quantity of products in the warehouse increases tenfold, a $100,000 loss becomes a $1,000,000 loss.
While these losses can occur anywhere throughout the supply chain, they’ve become a source of tension between 3PL companies and their customers.
3PL contracts typically include a 2 to 10% shrinkage allowance, meaning that the fulfillment centre only reimburses the client if the missing amount of inventory exceeds 10%.
In this context, customers who see their warehouse shrinkage increase can easily accuse their 3PL provider of not taking enough precautions to keep it low. On the other hand, 3PL providers can hardly prove the shrinkage is due to other causes outside of their immediate control.
No one wins at the blame game. But there is a more proactive solution.
Try doing a quick Google search on “how to reduce inventory shrinkage in the warehouse” and you’ll get suggestions that range from investing in surveillance cameras to training employees, investing in a better inventory management systems or improving your receiving and stocking processes.
These solutions, especially when combined, have proven to be effective. But they often take months to implement and require hefty investments. Whereas security tape is such a small investment to reduce the risk of fraud and theft.
As Occam’s razor puts it, the simplest solution is almost always the best. Unlike regular packing tape, security tape cannot be opened and resealed without leaving clear evidence, such as a “void” or “opened” message, which is often enough to deter thieves because the chance of getting caught is much higher.
Now that you know how tamper-evident packing tape can benefit your business, all you have to do is show your loss prevention manager how it works with this two-minute video.
Graduate from the Chemical Engineering Department at McGill University, Jesse has been with the Tamperguard team since 2016 and has helped develop novel chemistries for the security of Tamperguard’s products. He also helps on articles for the Tamperguard website!