Inventory Shrinkage Rate is a measure of inventory control. It measures the percentage of inventory that is lost between the initial production and the point it is sold. Reasons for shrinkage can include breakages, spillages, misplacements, perished goods, as well as internal and external theft.
Inventory Shrinkage Rate = (IV1 – IV2) / IV1
IV1 is the inventory you should have according to your records
IV2 is the actual inventory you have
This indicator is included in the book: Key Performance Indicators – the 75+ measures every manager needs to know, which contains an in-depth description of this KPI, as well as practical advice on data collection, calculations, target setting, and actual usage.