Question

The Safeparts Company, a California-based distributor of automobile parts, recently conducted an inventory at its Los Angeles facility that showed inventory losses of $850,000. Concerned about the losses, management at Safeparts sought immediate action. You are a partner at Klein and Smith Loss Prevention Associates, a consulting firm. Safeparts executives contact you for assistance. A meeting is arranged. After competition with two other security and loss prevention firms, Safeparts executives decide on a 2-month contract for your firm’s services. You are in charge. What are your specific plans and actions?

Answer 1

Inventory loss

First let us understand what an inventory loss is

Inventory loss, which is also known as shrinkage, is a measure of how much inventory doesn’t make it into customers’ hands. While it’s nearly impossible to eliminate shrinkage entirely, accountants and managers should keep track of shrinkage in an effort to manage it.

Causes of inventory loss

1. Theft
2. Administrative
3. Vendor fraud

The first step that we will take is to understand the source of the inventory loss and get deep details about it

Investigation and solving a problem cannot really happen unless we know what the source of the issue is

Once we have identified the root cause of the issue, I will take the following steps

1. Create a seperate inventory loss management function at the firm, who will constantly monitory the Key metrics

2. Improve the Visibility of the Inventory Loss Problem, by providing data to the management

3. Align Incentives -

4 . Invest Significantly in Data Collection and Analysis

5. Engage in technology as an enabler function