Cause: Invoice Shortages
Perhaps the easiest way to accumulate unknown shrink is to pay for product you never received. Whether from your own internal supply chain, or outside vendors, every case not received, but billed is 100% unknown shrink.
Solution: Pursue shortage credits vigorously, especially from vendors. Document and make phone calls on every occasion. Retailers who quickly address and catch shortages will likely keep vendors honest. Ensure employees breaking down deliveries are trained to accurately check invoices.
Cause: Undocumented Transferred Product
Department such as the deli or prepared foods regularly use produce in its day to day business. Whenever product is moved from one location to another, it must be documented correctly. If accounting is improperly completed, unknown shrink can result as “magic” inventory physically disappears.
Solution: Be sure no product leaves your produce department without the appropriate paperwork. Train all produce employees to monitor any non-produce employees “lurking” in the back dock loading up a cart with today’s lunch ingredients. Turn in paperwork immediately to account for transfer as soon as possible. Never accept the line "We'll do the paperwork later". With produce's ever changing market costs, transfers must be done timely, before cost changes impact inventory as well.
Cause: Underweight Product Received
If your vendor is billing you for 18lb grape cases, but delivers 16 lb boxes, you just incurred 2lbs of unknown shrink per case! In many instances, product is bought in a volume box, but sold by the pound, and a weight is assigned to the product by an internal source. A good example is green peppers. Your warehouse might receive 1 1/9 bushel boxes of peppers, and bill them to a department as 25 lbs. But if unchecked from time to time, they may periodically drop as low as 23lbs, thus creating unknown shrink.
Solution: Check weights on inbound vendor product. Ensure weights match invoices. Periodically check warehoused item weights. If fluctuations are noticed notify your buying office to take action by either adjusting the pack out / cost structure or discussing with suppliers.
Fresh produce retailing is a dynamic business that requires strong attention to details, tight operations, motivated teams, and talented managers. By understanding factors that impact month end business results produce managers can hedge against the factors chipping away at profitable departments and position their stores for success.