Inventory shrinkage
Inventory shrinkage is the gap between what records say an organisation holds and what it actually holds, expressed as a share of value.
Inventory shrinkage is the gap between what records say an organisation holds and what it actually holds, expressed as a share of value.
← Equipment management glossary
Also called: shrinkage, equipment shrinkage, stock loss.
Treating the whole figure as theft is the most common and most expensive misreading, because it points every intervention at security when most of the gap is usually administrative.
The four causes need different responses. Theft, internal or external, needs controls and accountability. Administrative error — miscounts, mis-keyed records, duplicate entries — needs better process. Damage and loss needs handling and storage attention. And unrecorded disposal, where equipment was legitimately scrapped and nobody updated the register, needs a disposal procedure and is genuinely not a loss at all.
That last category is frequently the largest for equipment, and it is not shrinkage in any meaningful sense — it is a records problem being counted as a financial one.
The standard formula is value-based, which suits retail stock. For equipment it is worth also tracking the count of items unaccounted for, because a single missing excavator and forty missing hand tools produce similar value figures and describe completely different problems.
Shrinkage rate = ((Recorded value − Actual counted value) ÷ Recorded value) × 100
A register claiming £250,000 against a counted £242,500 shows 3% shrinkage. Classify the £7,500 by cause before responding — some of it is usually unrecorded disposal rather than loss.
Attributing all shrinkage to theft leads to spending on security while the real cause — usually unrecorded disposals and administrative error — carries on unaddressed.
Itefy reduces the administrative share directly: custody is recorded at handover, locations have a changelog, and disposal archives the item instead of leaving it in the register. Read more.
Retail benchmarks around 1–2% are not a useful comparison for equipment, which is reusable and individually identifiable. What matters is whether your rate is stable and explained, not how it compares to a shop.
It appears in the calculation but it is not a loss — the equipment was legitimately retired and nobody closed the record. It is worth separating out, because the fix is a disposal procedure rather than a security response.
An inventory audit is a physical check of what an organisation actually holds against what its records claim, followed by reconciliation of the differences.
DefinitionChain of custody is an unbroken record of who held a specific item, and when, from the moment it was acquired to the moment it left the organisation.
DefinitionAsset lifecycle management is the practice of managing equipment deliberately at every stage — from specifying and buying it through use and maintenance to disposal.
DefinitionAn item's home location is where it belongs when idle; its current location is where it is right now. The two are separate fields for a reason.
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