How is 'Inventory Shrinkage' defined?

Inventory Shrinkage is defined as the loss of inventory due to factors such as theft, damage, or mismanagement. This concept is crucial in material management, as it directly impacts the accuracy of inventory records and the overall efficiency of inventory control. Shrinkage can occur in various ways, including shoplifting, employee theft, administrative errors, or the deterioration of goods, leading to a discrepancy between recorded inventory and actual stock on hand. By understanding that shrinkage refers specifically to losses resulting from these issues, management can implement strategies to minimize such losses and improve inventory accuracy and profitability.