Acceptance of Unacceptable Losses

A shrinkage allowance adjusts a product’s pricing strategy to accommodate a specified normal acceptable percentage of transportation losses. I recently spoke with a vice-president of a major food company who mentioned that losses within the company’s shrinkage allowance were considered as “no losses,” since the price structure incorporated this allowable level and adequately compensated the company for the acceptable shrinkage. To borrow an expression from a colleague, Paul Clipp, who provides g…