Enterprise

Seek experts to cut stock shrinkage risk

stock taking

Stocktaking: One of the ways to control shrinkage is of course taking good care of your stock by ensuring there are systems that foster accountability within your businesses. FILE | FOTOSEARCH

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Summary

  • Many studies show that nearly one-third of all shrinkage is attributed directly or indirectly to employees, sometimes in collaboration with your customers.

The damning revelation by the loss-making monopoly Kenya Power that it incurred a massive Sh16 billion in system losses last year portends a failed company.

The company bought 11,462 gigawatt-hours ­(GWh) of electricity from its main supplier KenGen and other independent Power Producers but sold 8,773 ­GWh with the rest 23.46 per cent being stolen or lost along the way.

What is worrisome is that KPLC does not have a concrete strategy of containing this massive loss which it blames on among others, low efficiency transmission lines, theft of power through illegal connection, wrong meter reading and meter bypasses.

This loss of inventory or shrinkage is problem that affects many businesses in various degrees of severity.

Shrinkage is basically the difference between the stock bought and received for sale and the stock sold excluding dead stock and stock still held at the end of a trading period.

The loss is mainly attributed to factors such as employee theft, shoplifting, vendor fraud, damage and administrative or cashier errors.

Shrinkage is part and parcel of trading but businesses manage it by instituting controls while others factor in the loss in pricing of the products sold thus passing the burden to the customer. But in cases where price is controlled or customers are price-sensitive shrinkage takes toll on the profit.

Shrinkage is one of the key problems affecting businesses today regardless of their size. Whether you are operating a food kiosk, distribution shop or supermarket, shrinkage mainly through shoplifting, employee theft and damages of products is a major problem that can easily kick you out of business if not controlled.

In fact, many small businesses are unable to compete effectively or make profit due to stock shrinkage.

This means stock control is one of the most important factor to consider when running a business. Stocks should be treated with the same care as money. When you lose stock you lose money. Quite often employee steal stock and sell to your own customers or potential customers who you have spent money to acquire and keep and this is equivalent to stealing your money.

Many studies show that nearly one-third of all shrinkage is attributed directly or indirectly to employees, sometimes in collaboration with your customers.

This is pure fraud and must be treated as such by coming up with fraud prevention and detection systems in your business.

Quite often it is the most trusted employees who are likely to engage in stock theft or facilitate others to commit the crime and gain in one way or another from the proceeds.

One of the ways to control shrinkage is of course taking good care of your stock by ensuring there are systems that foster accountability within your businesses. In addition to trying to hire honest employees and closely monitoring them, ensure you have a double-checking system to weed out possible human errors.

Depending on the nature of your business you can invest in automated systems and ensure process and procedural compliance.

However, it is advisable you engage experts to help you manage stock because this is your biggest asset and holds key to your success or failure.

Mr Kiunga is a business trainer and the author of ‘The Art of Entrepreneurship: Strategies to Succeed in a Competitive Market’.