Are disengaged employees shrinking your inventory?
No, we’re not talking about a magic trick.
We’re talking about stock that’s lost because of things like:
- Incorrect units of measure
- Supplier error
Inventory shrinkage can be a serious and expensive issue for retailers. But things like these are just a cost of doing business, right?
Question the cost of inventory shrinkage
Certainly, some shrinkage is to be expected. However, businesses have every reason to query their expenses.
In the USA, the aggregated shrinkage costs for 2015 were around $45.2 billion. Globally, average shrinkage for retail businesses is around 1.97% of sales.
In business, margins are often slim. A small improvement in shrinkage figures can be a boon for the bottom line. On the flip side, when shrinkage gets worse, it can be catastrophic.
Not all shrinkage is inevitable. There is potential to reduce it.
In fact, recent evidence shows that employee engagement may be a significant factor in the shrinkage equation.
Shrink linked to employee engagement
In 2009, The MacLeod Review cited a study that compared businesses with low engagement to ones with engaged employees. It found that inventory shrinkage was 51% worse in the workplaces with low engagement.
In 2013, James O’Toole of The Neely Centre reported that disengaged workers in the US cause serious negative outcomes. The cited list of outcomes includes ‘contributing to inventory “shrinkage”, [and] causing accidents’. O’Toole cited estimates of the total cost of this disengagement phenomenon: US$500 billion for 2013.
Tackling causes of shrinkage
The National Retail Security Survey 2015 identified five categories of shrinkage, and reported on the prevalence of each type of cause:
- Shoplifting (38%)
- Employee/internal theft (34.5%)
- Administrative and paperwork errors (16.5%)
- Vendor fraud or error (6.8%)
- Unknown loss (6.1%)
Not all of these are things that can be directly acted upon by the lever of employee engagement. Of the shrinkage categories, internal theft and administrative errors may be most easily managed from within. Indeed, on the basis of our previously reported research into the positive outcomes of employee engagement, we’d expect both of these to be correlated with effective management of the organizational culture.
Between them, internal theft and administrative errors make up 51% of shrinkage. Therefore, we can estimate that improved employee engagement could influence over half of the potential causes of shrinkage.
Positive engagement of your workforce cannot eradicate shrinkage, but it may significantly reduce it.
All businesses would welcome a couple of extra points on their bottom line. Given how much shrinkage costs retail businesses, reducing it via better employee engagement has the potential to pay for itself multiple times over.
Reduced shrinkage is one of many benefits that an organization can get from an engaged workforce. A proactive and dedicated approach to engagement is proven to boost innovation, productivity, well-being and profit. At the same time, costly issues such as staff turnover, absenteeism and—of course—inventory shrinkage are mitigated.
To find out more about the benefits of engagement for your business’ bottom line, take a look at Culture Amp’s Impact of Engagement White paper. You can claim a free copy here.