Inventory shrinkage doesn’t just plague shop floors and high-street retailers. For B2B manufacturers, distributors, and wholesalers, even a fraction of a percent of lost stock can wipe out already-thin margins. Every pallet that “vanishes” is money you’ve spent on materials, labor, and storage.
The good news? Shrinkage is largely preventable. By understanding where losses originate and putting the right people, processes, and technology in place, you can tighten control, protect profits, and keep customers happy. This article breaks down the root causes of shrinkage in B2B operations and offers practical, tech-enabled tactics to stamp it out, starting with ERP-integrated e-commerce.
What is inventory shrinkage and why should you care?
Inventory shrinkage is the gap between what your system thinks you have on hand and what you can physically count in the warehouse. In other words, it’s stock you’ve paid for but can’t sell.
Financial impact: Even a 0.2 % shrink rate on €10 million of stock equals €20 000 straight off the bottom line. At a 6 % profit margin, you’d need more than €333 000 in extra sales just to break even.
B2B businesses often assume shrinkage is “retail‑only,” but benchmarks show typical warehouse operations see around 0.2 % shrinkage per year. Anything above 0.5 % is a red flag. Left unchecked, shrinkage forces companies to raise prices, carry safety stock, or accept lower margins, none of which help competitiveness.
Four shrinkage culprits you can actually control
Administrative errors & miscounts
Typos, unit‑of‑measure mix‑ups, forgotten transactions, are all simple data errors create phantom stock that only surfaces during counts.
Internal theft & vendor fraud
Missing parts, short shipments, or deliberate under‑delivery erode inventory accuracy and trust.
Damage, spoilage & expiration
Mishandling, inadequate storage, or environmental issues can turn perfect stock into write‑offs overnight.
Production scrap & process waste
Rejects, rework, and scrap in manufacturing consume raw materials without generating revenue.
Each cause demands a specific counter‑measure, but they all have one thing in common: they thrive where visibility is poor and accountability is weak.
How to spot shrinkage early (before it snowballs)
- Cycle counting beats annual stock‑takes. Instead of shutting down once a year, count small subsets of inventory on a rolling schedule—daily, weekly, or monthly depending on item value and velocity. Investigate any variance immediately and reconcile your system the same day.
- Leverage real‑time exception reporting. Modern ERPs and warehouse management systems (WMS) flag negative stock, rapid write‑offs, or unusual adjustments. Dashboards make it easy to see patterns—such as one SKU or one shift that consistently has issues.
- Use scanning and serialization. Barcode or RFID scanning at every touchpoint creates a digital trail. Serial numbers add another layer of traceability, helping you pinpoint when and where an item went missing.
Six proven ways to reduce shrinkage
Integrate e‑commerce with your ERP
Stop re‑keying online orders. When your web store reads and writes directly to ERP inventory, you remove timing lags and data‑entry errors, two classic shrinkage triggers.
Reserve stock in real time
Let the portal automatically allocate inventory when an order is placed, so no two customers (or reps) can claim the same parts.
Tighten receiving controls
Count and QA inbound shipments before they hit the racks. Short shipments or damages? Log them in the ERP and push back on the supplier immediately.
Enforce role‑based access & audit trails
Limit who can adjust stock and require dual approval for write‑offs. Clear accountability discourages both mistakes and misconduct.
Invest in employee training
Teach staff why accuracy matters and how to follow digital processes. Pair rules with easy‑to‑use scanning tools so compliance is the path of least resistance.
Create a quarantine flow for damaged goods
Physically and digitally separate unsellable items to prevent them from being picked, or counted as good stock.
Standalone web shops often rely on batch sync or manual uploads. That time gap—sometimes hours, sometimes days—is where shrinkage hides. Orders pour in, warehouse staff are still shipping, and someone in IT is juggling spreadsheets to keep numbers aligned. Inevitably, something slips.
Sana Commerce takes a different route: it plugs directly into your Microsoft Dynamics or SAP ERP and uses the ERP itself as the single source of truth. The moment a customer places an order online:
Inventory is reserved in the ERP (no over‑selling).
The pick list reflects the exact lot, batch, or serial number required (no guesswork).
Once shipped, stock decrements automatically (no manual posting).
The result?
Fewer administrative errors: No double data entry, no reconciliation headaches.
Instant inventory visibility: Sales, customer service, and warehouse teams see the same numbers at the same time.
Shrinkage exposed quickly: If physical counts deviate, it’s clear the issue isn’t a system mismatch, so you can zero in on process or theft.
Customers report trimming stock‑related customer service tickets by up to 60 %, freeing staff to focus on value‑added tasks, not hunting for “missing” inventory.
Conclusion: make shrinkage a continuous‑improvement KPI
Shrinkage is not a one‑time clean‑up; it’s a metric that belongs on every operations dashboard. According to the Warehouse Education & Research Council (WERC) 2024 DC Metrics Report, the median warehouse runs at 0.20 % shrinkage, while the best‑in‑class quartile operates below 0.005 %. Warehouses above 1 % fall into WERC’s “needs improvement” band and risk significant margin erosion.
Longitudinal research by MHI and Deloitte (2023) shows that companies adopting routine cycle counting and rigorous receiving audits cut unplanned inventory loss by an average of 18 % in the first 12 months. Layer in real‑time system integration and targeted staff training, and many organisations see shrinkage fall by 30 % or more within two years.
Next steps
Benchmark last quarter’s shrinkage and compare it to the 0.20 % median and <0.005 % best‑in‑class targets.
Pick two quick wins: for example, weekly cycle counts for high‑value SKUs and stricter receiving checks to kick‑start reduction.
Track results monthly and share progress across operations, finance, and IT so the whole team owns the KPI.
Shrinkage will never vanish entirely, but with consistent focus and data‑driven improvements you can keep losses trivial and margins healthy.
Want tips on how to streamline operations?
Watch our 0n-demand webinar to see how one B2B company overcame their operational challenges.
