eCommerce Logistics

What is Inventory Shrinkage in the Ecommerce and Warehousing Segment?

What is Inventory Shrinkage in the Ecommerce and warehousing segment?

Simply put, inventory shrinkage refers to the difference between the actual inventory and the expected inventory a business holds in its storage or warehousing unit. This is a recurring problem for all businesses at every stage of production and may happen for a number of reasons. Let’s discuss a few and how they can be avoided.

Inventory Management Systems

Third-party warehousing and fulfillment centers work with two different types of inventory management systems, with the main difference being the frequency at which the inventory is updated within the system. Certain companies employ systems that run continuously, updating the count whenever a transaction or change is made in the warehouse, while others employ systems that run updates periodically with less frequency e.g. every other Friday.  To limit inventory shrinkage, it’s preferable to have a continuous WMS that updates every time inventory is added or an order is sent out so that real-time changes are recorded at every step. Unfortunately, every system regardless of reporting frequency is going to have leakages and discrepancies, as all systems rely on physical cycle counting and receiving which demands human involvement. Manual counts will always have human errors, but the idea is to have a continuous WMS with lower chances of shrinkage.

Physical Damage

 When it comes to physical items, they are exposed to the physical world in different ways, and naturally, some instances take place where damage may occur. Products and goods moving in and out of warehouses go through several stages of handling from loading and offloading on trucks and forklifts, to stacking and palletizing. Some items may lose their product integrity if they are not handled and stored correctly, so it’s imperative that all items be packaged securely and safely. You must ensure that the items and packages are in a state that will be able to withstand all the wear and tear involved from getting the product from the factory to the door of the valuable customer. Proper packaging also helps warehouses ensure your product’s quality and functionality remain intact.

Incorrect Order Processing

Another common issue that can lead to inventory shrinkage is incorrect order processing. Once again, due to human involvement, simple errors such as adding a zero or a duplicate order can lead to a host of issues for an eCommerce business, resulting in huge losses. Checks and balances must be always in place such as matching order values to order quantities, to avoid running into such catastrophes.


Although not so common in warehousing compared to retail spaces, criminal activities including theft and insurance fraud sometimes cause inventory losses, where parts of your inventory go missing directly from the warehouse. To avoid this, it’s always a good idea to go with reputable shipment centers that have adequate security measures in place.

Every industry operates with an acceptable level of shrinkage as it is always expected to happen primarily because of human error. To safeguard your business from high potential losses, you should work with Third Party Logistic Centers that have excellent performance records and who focus on quality and customer satisfaction.

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