What is Shrinkage?
Shrinkage in e-commerce refers to the loss of inventory due to various reasons such as theft, fraud, errors in packing and shipping, returns and exchanges, and damage. In inventory shrinkage, the actual inventory size differs from the recorded number. It can also refer to the reduction in the size or scale of an e-commerce business.
Significance of Shrinkage
Shrinkage is an e-commerce business issue as it can significantly impact their bottom line. Reducing shrinkage can help a company to control its costs better and improve its financial performance. The significance of shrinkage:
- Inventory loss due to shrinkage can lead to reduced profits and damage a company’s reputation if customers do not receive the products they ordered.
- In addition, high shrinkage levels may indicate problems with a company’s inventory management practices, fulfillment process, or security measures, and addressing these issues can help improve efficiency and customer satisfaction.
Prerequisites of Shrinkage
Several factors can contribute to shrinkage in e-commerce, including:
Human error: Mistakes can occur at any stage of the fulfillment process, from picking and packing the wrong items to shipping them to the incorrect address.
Theft: Both internal and external theft can lead to inventory loss in an e-commerce business.
Fraud: It can include fraudulent returns or exchanges and orders placed using stolen credit card information.
Damage: Products can be damaged during storage, handling, or shipping, leading to shrinkage.
Returns and exchanges: A high rate of returns and exchanges can also contribute to shrinkage, especially if the original packaging needs to be intact or the product has been used.
Use Case of Shrinkage
A customer received an order missing a charging cable, resulting in shrinkage for the e-commerce business and potential dissatisfaction with the customer. The e-commerce business might prevent this issue by implementing a double-checking system or using technology such as barcode scanners to ensure accuracy in fulfilling orders.
