What are common causes of inventory shrinkage and how can you reduce them?

• A. Spoilage
• B. Mislabeling
• C. Theft, miscount, vendor fraud, improper receiving; mitigate with audits, secure storage, cycle counts, vendor verification, SOP adherence
• D. Data entry errors only

Answer: (C)

Shrinkage happens when the amount of inventory you record doesn’t match what’s actually on hand. The most complete understanding comes from recognizing both internal and external sources: internal issues like theft and miscounts, and external ones like vendor fraud and receiving problems. The best choice names these common causes and pairs them with practical, real-world controls. Audits help uncover losses, secure storage and controlled access reduce opportunities for pilfering, cycle counts keep correcting discrepancies regularly, vendor verification catches issues with deliveries and invoicing, and strict adherence to standard operating procedures ensures receiving and recording are done consistently and correctly. These combined measures directly address how shrinkage starts and how to detect and prevent it, making them the most effective approach. While other factors such as spoilage or mislabeling exist, the targeted controls above specifically tackle the main drivers of shrinkage and how to mitigate them.