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The next time you receive an order from one of your suppliers, be sure to confirm that what you receive is exactly what you purchased. This could involve more than a simple count. It may also require an analysis of weight, volume and overall quality.

Skip this step and you could be a victim of shrinkflation.

Many small and medium-sized businesses are affected as some suppliers or manufacturers stealthily short orders or reduce product size to minimize weight for transport or cut corners—literally, in one case I’m aware of—to save on materials to reduce costs.

Just recently we learned of yet another example of a client whose business had been affected by product-shorting deception. In this case the client’s lumber company had been purchasing wood veneers from offshore suppliers for years, but noticed in recent months that workers’ belt sanders were grinding straight through the wood materials. Turns out the CEO was paying the same price for veneers that were gradually being reduced in thickness—literally shaving his profits in the process—which came as a surprise to managers on the shop floor and those in charge of procurement.

MORE DECEPTION: Who’s Stealing Your Stuff? »

The client was forced to confront management of the offshore firm before eventually switching suppliers altogether. Another option would have been to negotiate a lower price for the lumber products, but not all suppliers will be willing to budge—this one wasn’t. In these instances, hard business decisions might have to be made.

While shrinkflation is more common in the consumer products business, examples such as this one illustrate how it can happen to any SME. So, what’s a business owner to do?

To fight shrinkflation, start by setting up comprehensive quality control systems. Again, that means carefully examining orders as they arrive at your facility, or even benchmarking and evaluating the services your organization is being provided to ensure that what you paid for is, in fact, what’s being delivered. This could simply involve greater scrutiny on the part of managers, or even hiring a quality control manager if your organization is large enough to justify that dedicated salary.

Also, be sure to carefully vet any new supplier, ask for references and, if using an offshore provider, be prepared to travel overseas on occasion to spot-check the supplier’s operations and ensure product or service quality. One or two short orders can happen from time to time, but watch for patterns. If a few months pass and you simply aren’t receiving the amount of product or the level of service you expect as outlined in your contractual agreement, then it’s time to find a new supplier.

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This is where it pays to think proactively and ensure that all contracts with suppliers are properly drafted by an experienced lawyer. That way, if (or when) the time comes to part ways with a supplier, you can do so without incurring penalties or risking a lawsuit. Because there are few scenarios more damaging for a small to medium-sized business’s bottom line than protracted litigation, particularly if it involves court action in another country.

Last point: You may need to simply accept a hike in prices if a key supplier is facing challenges, then pass that increase along to your own customers. There are instances when a supplier can no longer provide a product or service for the same price without slashing their own profit margins to unsustainable levels. While we should never condone the behaviour, it’s important to remember that shrinkflation isn’t always a product of greed. Sometimes it’s a survival tactic deployed by organizations struggling to stay afloat in a highly competitive industry.

Worried about blowback from your customers when a price increase becomes a necessity? Don’t be. Most will be experiencing the same pressures across their businesses and will understand your decision to raise prices. Just be sure to communicate the change transparently to avoid having to fend off your own allegations of unethical behaviour.

So, take it from an accountant: In the face of shrinkflation, sometimes it pays to be a bean counter.

Armando Iannuzzi is a tax partner at Kestenberg Rabinowicz Partners LLP, a Markham, Ont.-based firm that provides strategic tax, accounting and finance services to entrepreneurs.


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