Mango's Level 3 - Shrink metric is the ultimate all-encompassing operational gauge. It's best measured when Operational Level 0 - Completion , Level 1- IRA, and Level 2 - Dollar Accuracy have been satisfied—ensuring your store's basic operations, accuracy, and inventory value are ready to tackle shrink.

• Used properly, your Level 3 - Shrink metric will carefully measure the cost (as a percentage of sales) of replacing inventory due to theft and breakage. It purposefully excludes many noisy and controlled categories such as bulk goods and closeouts. Because it uses replacement cost and excludes shrink consistently across all stores, peer comparisons and benchmarking can be used to give your store a unique and exceptional operational gauge.
  
  You will use Mango's Level 3 - Shrink process to maintain a clean and honest picture of inventory shrinkage so your store can quickly detect professional theft involving inventory shortages. You're likely doing most of the work required to achieve a great shrink metric, these best practices include:
  

  • Weekly - Shoot Outs
  • Monthly - Process Count Sheets
  • Yearly  - Backstock Purge
  Maintaining acceptable levels of shrink will involve spending a few hours each month rooting out and fixing large shrink variances. 
  • Monthly - Process Shrink Report 
  • Monthly - Review Shrink & Efficiency Trend

  Achieving Level 3 - Shrink is similar to Level 1 - IRA in that we are looking to find and fix the root causes of inventory variance, but with shrink, the focus is different: when working on IRA, you are developing people and store procedures to ensure good counting skills and good baseline accuracy; when investigating shrink, you are focusing on large dollar variances and attempting to rule out theft whether it be internal, external, vendor, or delivery.

• Inventory shrinkage caused by theft is a normal (but not fun) part of operating a retail hardware store. The typical store loses a couple of items a day due to theft and store margins are set to cover this expense. Don't get us wrong, theft is never okay and a store should work hard to reduce it, but normal theft will not bring a store to its knees.
  
  However, what a store cannot tolerate (for very long) is above normal theft. We call this "professional theft" because it goes way beyond a couple of items a day. Rather, it is an individual or small group perpetually stealing from you and significantly hurting your business, staff, and community. Unfortunately, this type of theft is commonly (but not always) performed by someone you know (a family member, employee or vendor), which makes the whole situation even worse.
  
  It is critically important to take Mango's Shrink - Level 3 metric seriously because it can help you spot and deal with professional theft before it gets out of hand.

• Shrink	IRA
  Concentrate on large Shrink/Swell variances -/+ $20 (Shrink Report).	Concentrate on RC (Random Count) variances (Shrink Report).
  Assume initial accuracy and count was good because Level 1 (IRA) has been passed.	Determine if initial accuracy was off or counter was off.
  Focus on determining variance root cause to rule out theft by talking with staff, consulting video cameras.	Focus on getting good accurate counts by training counters how to count, backstock labeled, cashiers tested, etc.
  If the cause was found and was not theft or damage then reversing the variance and correcting quantity-on-hand through Point-of-Sale or Purchasing is important.	Correcting the count in PIP is sufficient for most situations.
  Large variances have to be investigated and resolved since they have a large inventory value impact (gross profit impact) or represent theft risk.	Most random variances are not business critical and can be corrected without business impact.