The Replacement Value of Inventory

While reading a great article on the value of lost material it really clarified the true value of lost, stolen, or damaged material to an organization. Jon Schrebfeder gives a great example of how the folly of one employee can decrease profitability substantially.

As you daily walk through the distribution center or manufacturing plant, do you or the employees notice inventory that is out of place? What about items that are stolen or broken by employees just by working in their daily routine; never considering the reproductions of their actions. The example given demonstrates how the value of an object is not merely the cost of that item, but is actually based on a formula, which takes into consideration additional sales needed to make-up for inventory loss. For instance, consider that the item that has been broken or misplaced has a value of $30 and your organization has a net profit margin of 3% before taxes, it would take $1000 of additional sales to make up the difference in profit loss (1000 x 3% = 30).
Unfortunately, the loss does not stop there. Other intrinsic expenses also come into play such as the further administrative cost that is incurred just in additional marketing, labor costs, and administrative costs incurred.

It would behoove you to enlighten your employees that the value of lost, stolen, or damaged material directly impacts the company and indirectly affects their bottom line.