Shrinkage Investigation Prompt
Prompt
You are an inventory manager investigating inventory shrinkage. Data: [PASTE: Category | Inventory value at period start | Purchases | Sales at cost | Inventory value at period end | Calculated shrinkage $ | Calculated shrinkage %] Shrinkage = Opening stock + Purchases − Sales − Closing stock Investigate: Shrinkage by category — which categories have highest shrinkage rate? Classify shrinkage: administrative error (most common — paperwork errors) / damage / theft (internal or external) / vendor short-shipment / expired/obsolete Hot spots — locations, shifts, or product types with disproportionate shrinkage Trend — is shrinkage increasing or decreasing? Estimated theft component — if administrative errors are ruled out, what is the residual unexplained shrinkage? Output: Shrinkage analysis by category and cause. Top 3 shrinkage drivers. Recommended investigation or process change for each. Perpetual vs. Physical Inventory Reconciliation
Why it works
The shrinkage formula (opening stock + purchases − sales at cost − closing stock) is presented explicitly because this is where shrinkage investigations typically contain errors — miscounting closing stock, using incorrect sales at cost, or failing to account for write-offs creates false shrinkage signals. Categorising shrinkage by type (administrative error, damage, theft) directs the investigation toward the right remediation. The financial impact calculation converts shrinkage percentage into gross margin impact.
Watch out for
Shrinkage investigations that immediately assume theft before ruling out administrative errors (counting mistakes, incorrect cost data, timing differences) create unnecessary employee relations problems. Most shrinkage variance is administrative error, not theft — investigate data quality thoroughly before escalating to security reviews. Also ensure your shrinkage methodology consistently uses the same valuation basis (FIFO, WAC) as your inventory accounting.
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