How to handle inventory shrinkage

What counts as shrinkage

Shrinkage is any unexplained drop between recorded inventory and actual inventory. Common causes are theft, damage, picking errors, supplier shorts on delivery, and staff not logging samples or returns correctly. It is different from a known write-off, which you already have a reason for.

Why it matters for ordering

If your on-hand count is wrong, every reorder calculation built on it is wrong too. A forecasting tool will calculate days of stock, reorder points, and order quantities from whatever number sits in your inventory record. If that number is inflated by shrinkage you have not recorded, you will order too late and risk running out.

How to catch it early

Run physical counts on a schedule, full counts a few times a year and spot counts on your fastest movers more often. Compare the count to the system number for each SKU. Anything off by more than a small amount is worth investigating before you adjust it, since the cause often points to a process fix, like tightening receiving checks or reviewing damaged-goods handling.

Correcting the record

Once you know the real count, adjust the on-hand quantity in your store admin so it matches. Do this for every affected variant, not just the total. Keep a simple log of what you adjusted, by how much, and why, so you can spot patterns over time, like one supplier consistently shorting shipments or one location losing more stock than others.

Step by step

1. Set a count schedule: full counts a few times a year, frequent spot checks on top sellers.
2. Compare each count to the system quantity and flag differences over your threshold.
3. Investigate large gaps before adjusting: check recent receiving, returns, and order cancellations.
4. Correct the on-hand quantity per variant in your store admin.
5. Log every adjustment with the date, amount, and suspected cause.
6. Review the log monthly to spot repeat problems, like a supplier or a specific location.
7. Let your reorder numbers run off the corrected on-hand figures, not the pre-shrinkage ones.

Worked example

A store's records show 120 units of a candle on hand. A count finds only 104 on the shelf. That is 16 units of shrinkage, worth checking against receiving records and recent order cancellations. The owner corrects the on-hand figure to 104 in the store admin. If daily sales for that candle are 3 units, lead time is 10 days, and safety stock is 4 days, the reorder point is 3 x (10 + 4) = 42 units. With 104 on hand (down from the assumed 120), the store still has more than enough to avoid an immediate order, but the corrected number will shorten the days of stock calculation (104 / 3 = about 34 days instead of 40), so the next order gets triggered sooner than it would have with the wrong count.

How SteadyShelf helps

SteadyShelf does not do stocktakes, cycle counts, or shrinkage detection, and it has no visibility into why your on-hand number might be wrong. It simply trusts the inventory figure in your store. Your job is to count stock and correct that figure manually; once corrected, SteadyShelf's forecasts and order suggestions will reflect the real numbers going forward.

$29/month flat, unlimited products and suppliers, 30-day free trial. Run the numbers now with the free reorder point calculator.

SteadyShelf is launching on the Shopify App Store. Join early access to get the install link first.

Related guides

• How to handle long lead time products
• How to handle one big order that skews your forecast
• How to handle partial deliveries
• How to handle damaged goods from a supplier

All inventory how-to guides · Inventory glossary

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