Have you ever had to deal with your refrigerator breaking down? Trying to salvage as much food as possible by transporting it into a cooler or a secondary fridge (if you’re lucky to have one), can be a stressful situation. And, in most cases if it happens, you’ll have to throw away some spoiled goods.
Though it doesn’t happen often, it’s a situation anyone might have to deal with. When running an ecommerce business, it’s not uncommon to have a similar experience, which can cause a significant loss in inventory.
Normal spoilage, when manufacturing and handling perishable items, is inevitable. But how do you decipher if your business is dealing with an abnormal amount of spoilage?
If you’re selling something that has the potential to spoil, it’s important to have a plan of action to identify it, so you can take action to prevent and reduce inventory shrinkage.
In this article, we take a closer look at what abnormal spoilage is, what causes it, and how to prevent it.
What is abnormal spoilage?
As the name suggests, abnormal spoilage refers to the amount of inventory wastage that occurs as a result of changes in operating conditions.
Abnormal spoilage can occur due to a number of factors, ranging from machinery failure to substandard materials, to fluctuating warehouse temperatures.
This type of spoilage is considered to be preventable by taking the necessary steps to anticipate and avoid potential issues.
Abnormal vs. normal spoilage
Normal spoilage is the type of inventory loss that occurs during the regular production process and under normal operating conditions, such as aging, natural contamination, or evaporation.
Depending on the product, some spoilage can be expected, and it is often outside of the manufacturer or retailer’s control. For example, vegetables may get spoiled while transporting from the farmer to the importer.
Abnormal spoilage is a loss of inventory that happens outside of the regular production process. It’s the type of spoilage that’s often unexpected and unusually high. Fortunately, you can reduce the risk of abnormal spoilage with efficient monitoring.
Example of abnormal spoilage
Let’s say a restaurant stocks frozen meat in a deep freezer. The freezer suddenly stops working one day, so the restaurant must take out all the meat and store it in an extra fridge.
However, some of the meat couldn’t fit into the fridge, which meant that it had to sit outside at room temperature for a prolonged period of time. As a result, the meat gets spoiled and is no longer usable.
In ecommerce, this could happen in a temperature-controlled warehouse that utilizes refrigeration.
Why abnormal spoilage happens
There are a variety of factors that could result in abnormal spoilage. Some of the main causes include improper storage, machinery breakdowns, accidents and human error, and poor planning.
Improper storage conditions
When goods are stored under less-than-ideal conditions, they can easily lead to abnormal spoilage.
For example, storing goods in a damp environment or where there’s some water leakage could result in mold or other types of water damage. Similarly, if you don’t store perishables in temperature-controlled environments, it could result in spoilage.
If your equipment unexpectedly breaks down, it could result in abnormal spoilage as it leaves you unprepared to look for alternative options.
This may be in the middle of production or during inventory storage. For example, your freezer breaking down suddenly could lead to the abnormal spoilage of items that need to be stored in colder temperatures.
From minor accidents to major ones that involve serious injuries, accidents can also result in abnormal spoilage.
When an accident occurs, it often requires facilities to put a pause on their operations, which can delay the production process and lead to spoilage.
Some types of accidents may directly impact the goods being produced or stored. For example, a worker may drop the package they’re transporting, which would result in the contents breaking.
Improper planning is another major factor that can lead to abnormal spoilage. This may be in terms of how goods are stored, as well as improper shipping and handling.
It may also be in terms of how raw materials are used in the production process or how the facility operates overall.
Regardless, when there’s faulty planning, it significantly increases the risk of ending up with abnormal spoilage.
Other unforeseen events
Additionally, there are many other unforeseen events that could lead to abnormal spoilage if the business is unprepared to handle them.
For example, a supplier suddenly being unable to operate may force a business to switch to a different supplier that offers lower quality materials. The poor quality of those materials could lead to excessive production scrap, resulting in abnormal spoilage.
How to calculate abnormal spoilage
Since abnormal spoilage can cause discrepancies in inventory reporting, it’s important to know how to account for them. To calculate abnormal spoilage, you first need to calculate what is considered “normal spoilage” based on the type of product you sell and how it’s manufactured.
This is done using the following formula:
Normal Spoilage = (Total No. of Units Spoiled/Total No. of Units Produced) x 100
Any spoilage beyond what is calculated above can be considered ” abnormal spoilage,” prompting your operations to audit the situation.
Accounting for abnormal spoilage
In inventory accounting, abnormal spoilage must be posted as a separate entry. It should be treated as an expense since it is incurred and cannot be recovered.
Normal spoilage is recorded as cost of goods sold, since it is considered part of the natural production process.
Tips for preventing abnormal spoilage and reducing its cost
While abnormal spoilage can cause significant losses for a business, the good news is that they are very much preventable.
With the right precautions in place, you can reduce and even prevent abnormal spoilage, which will in turn lead to reduced costs and higher profits.
Here are a few tips to help you avoid abnormal spoilage for your business.
Tip 1: Invest in proper storage
Are your shelves sturdy enough to hold your goods safely? Do you have proper temperature control to store products that are sensitive to cold or heat?
These are important factors to consider when storing raw materials and finished inventory. Keep in mind that improper storage can result in significant losses due to abnormal spoilage.
Planning for and investing in proper warehousing will help you cut down the risk of abnormal spoilage.
Tip 2: Scenario planning and strategic forecasting
Since unforeseen events are a major cause of abnormal spoilage, it’s important for businesses to plan ahead for such scenarios.
Consider situations that could potentially occur and put a pause on your production, such as machinery breakdown, raw materials shortage, shipping damage, or spillage. Then come up with a plan of action to appropriately deal with possible scenarios, so you can quickly respond when the event does unfold.
Similarly, you should consider creating a buffer in inventory forecasting plans to make sure you still can meet demand in case some inventory becomes unsellable.
Tip 3: Review product quality
Be sure to consistently review the quality of your products and check if raw materials are up to par and that you’re following the correct production procedures.
This not only improves quality and consistency, but it also enables you to immediately detect a low-quality batch. You can then pause your production to get to the root of the problem before you end up producing too many low-quality products that you’re then unable to sell.
Tip 4: Make sure your team is up to date with manufacturing processes
Abnormal spoilage can easily occur due to human error.
For example, using the incorrect amount of ingredients can result in unsellable products. So make sure that your team is up to date with your manufacturing processes (if it’s a process that you manage, and if not, be sure to have an understanding of how your supplier or manufacturer produces your goods).
Every team member should be well-trained about what they need to do, so everyone can effectively fulfill their role in the production process.
Tip 5: Consider using warehouse management and inventory management software
Getting full visibility into what goes on in your warehouse and how your inventory is handled is crucial in preventing abnormal spoilage.
This can be done through implementing smart warehousing technology or simply improving your warehouse management and inventory processes. Another option is to integrate inventory management software to improve inventory visibility.
“We have easy ways to manage subscription orders as well as expiration dates and lot numbers, so inventory goes in First In, First Out (FIFO).”Leonie Lynch, Founder & CEO of Juspy
Better processes and technology can help to delegate tasks, allocate your resources as needed, and ensure that inventory is properly handled throughout the ecommerce supply chain.
Prevent wastage through better inventory management
One of the most effective ways to prevent abnormal spoilage is by gaining visibility into your inventory and managing it effectively.
ShipBob’s built-in inventory management systems lets you do just that by giving you real-time visibility into your inventory levels and movement. You’ll be able to know exactly where your inventory is at all times, making it easier to manage how it’s stored and handled.
In addition to tracking inventory, ShipBob’s fulfillment software comes with inventory forecasting capabilities, which makes it easier to predict how much inventory you’ll need to reorder based on historical demand, as well as create a buffer in case a batch of inventory becomes unsellable.
With more visibility, you can better monitor inventory discrepancies, such as spoiled product, and pull inventory data from the ShipBob analytics dashboard when it’s time to report.
Along with inventory management support, ShipBob’s network of global fulfillment centers are safe and secure, so you can rest assure your inventory is in good hands.
“ShipBob provides the storage conditions we need to ensure our highest-quality food products are stored and delivered to our customers in a safe and effective manner. Some of the reports that ShipBob provides show their dedication to transparency — things like actual transit times and whether they’re hitting their service-level agreements. They are really committed to their customers and keeping themselves accountable.”
Pablo Gabatto, Business Operations Manager at Ample Foods
When you outsource fulfillment to ShipBob, you can leave inventory management up to the experts. That way, you can prevent the risk of abnormal spoilage due to improper handling, plus save time and money with comprehensive logistics support.
Abnormal spoilage FAQs
Below are answers to common questions asked about abnormal spoilage.
How do you find abnormal spoilage?
Abnormal spoilage can be identified as any spoilage that occurs beyond what is considered as the normal amount. You can calculate for normal wastage/spoilage amount using the following formula: the total number of spoiled units, divided by the total units produced, multiplied by 100.
What is abnormal wastage?
Abnormal wastage or spoilage refers to the amount of inventory waste that occurs as a result of factors beyond normal operating conditions. It’s important to track abnormal wastage for accounting and product quality purposes.
Is abnormal spoilage a period cost?
Yes. Abnormal spoilage is considered a category of period cost.
Can abnormal spoilage be capitalized?
No. Abnormal spoilage cannot be capitalized into inventory.
What are some causes of abnormal spoilage?
Some of the common causes of abnormal spoilage include machinery breakdown, improper storage, accidents, and poor-quality materials.
How can ShipBob help prevent abnormal spoilage?
ShipBob can help prevent abnormal spoilage with proper warehouse management. ShipBob also makes it easy to track inventory providing real-time visibility at all times. ShipBob’s fulfillment software and built-in inventory management tools allow you to optimize and streamline your operations, so you can easily track inventory loss or shrinkage that might be caused by abnormal spoilage.