SHRINKAGE IN MANUFACTURING FIRM: FRAUD OR ERROR?

INVENTORY SHRINKAGE IN MANUFACTURING FIRM: FRAUD OR ERROR?

Inventory shrinkage is an issue for businesses in general . There are a variety of reasons why inventory numbers don’t add up, and the amount of product going out to customers doesn’t make sense. Whatever the cause, if you are missing $100 worth of products and your profit margin is 10%, you must sell $1,000 more worth of product to make up for it.

Possible causes:

Human error in entering data. Receipts of product components may not be accurately entered.   How about the number of products completed, removed by quality control or shipped out the door? Errors also occur in entering units; for example entering cases instead of cans will have a dramatic impact on usage and inventory numbers

Errors in the calculation of raw material used. A vat of paint may paint only 95 pieces, when it is expected to paint 100. Or, it may be the norm for 64 parts to be cut from each blank sheet of metal, only to have blanks come in short by an inch and result in eight cuts being wasted.

Fraud and pilferage. The amount of raw material received might be accurate, but bits of it are being pilfered. Blank sheets of metal, copper, chemicals or paint stolen result in a reduced number of products being produced. For example a well known door lock manufacturer discovered the brass key cylinders used in their products were running unexpectedly low. It turned out that employees working in the stores area were pilfering crates of key cylinders and selling them as scrap metal.  Video surveillance security cameras in the parts stores area and at building access doors would have made this particular theft operation far more difficult, perhaps impossible.  Theft of the finished product is also a common problem. Theft may be an internal problem with employees or your facility may be burglarized or accessed from the outside.

Solutions:

  • 1. Keep historical data on all material usage and regularly review volumes of materials in and the number of units produced.
  • 2. Inventory counts will help calculate usage averages as well as keep track of the raw materials and supplies on hand. Calculating usages will show any discrepancies in material inventory as well as products per piece in the manufacturing process.
  • 3. Establish strict protocols for handling inventory of raw materials, supplies and products. Secure inventory with controlled access systems and a check and balance systems for materials being moved from and into inventory.
  • 4. Automatic locks on all doors and secured access areas prevent unwanted visitors from entering without permission or unnoticed.
  • 5. Access control systems prevent unauthorized access to secure areas and tracks users.
  • 6. Install  video surveillance security cameras and review footage daily.
  • 7. Motion sensors, alarm systems and perimeter lighting will deter unwanted visitors from secure areas.

Protect your assets through processes, people and technology. Establish inventory management processes and systems that help you control usage and inventory. Then contact Conzer Security. We listen to understand what concerns you have and can partner with you to create a security system that best meets your needs and protects your business.

Call now to receive a FREE security consultation!