What is Shrinkage?
The shrinkage refers to the percentage of inventory that is listed in records but is not physically in the actual inventory.
This KPI, when excessive, may mean that you have a problem with inventory damage, theft, miscounting, or supplier fraud (when a supplier bills for more products than it sends), and that a thorough investigation should be performed.
How Do You Calculate The Shrinkage?
To calculate the shrinkage percentage, subtract the cost of recorded inventory in a time period by the cost of physical inventory in the same time period. Multiply the result by 100 to convert it to its percentage.
Shrinkage = (Cost of Recorded Inventory – Cost of Physical Inventory) ÷ Cost of Recorded Inventory x 100