What is the difference between inventory record accuracy and shrink?

The ECR Retail Loss Group chooses to define Inventory record accuracy as the percentage of inventory records in any given location where the physical quantity exactly matches the quantity stated in the inventory system, or as some call it, the perpetual inventory record. Retailers acquire this data through an audit of the inventory where either the retailers staff or a third party conduct a physical count of the inventory they find in the store. Using this method, the retailers would count the number of inventory records with a variance, and compare them to the total number of inventory records in that location. In the ECR research, only 40% of inventory records were found to have an exact match.

Shrink or unknown loss is a number that can also be derived from the same audit data. Shrink or unknown loss is the variance between the total value of the inventory expected to be in the location and the actual quantity found at the count. The value of this variance, typically a negative, is then expressed as a percentage of total retail sales for the period between the time of the previous audit and this audit. Typically this variance is valued at between 1-3% of sales valued at retail.

So the differences are:

  • Shrink or unknown loss is typically viewed as a financial value while inventory record accuracy is looking at unit integrity
  • Shrink or unknown loss is mostly viewed relative to sales while inventory records are looked at relative to number of records

What they share are the reasons that explain the variances, wrong deliveries, pick errors, loss and theft in transit, receiving mistakes at the store, misplacement in the back room, damage and spoilages not recorded, wrong counting, theft from staff, third party vendors and non paying customers, errors at EPOS, errors with returns and wrong transfers. There are more reasons but broadly, the causes are the same.