What is the widly accepted practice of “Penalty clause” for Inventory shrinkage with 3PL?
This was selected as Best Answer Every contract I have been involved with has had a “Shrink Allowance” This was an amount agreed upon in the contract for for all shrink. The 3pl is not responsible for shrink up to the shrink allowance. This is normaly stated as a percentage of total annual thru-put. This number is normaly monitored monthy but penalties can be assessed annually or quarterly, depending on the contract.Annual reconciliation is most common because inventory that has been lost can be found during an annual inventory. If the 3rd party is shipping to retal stores that inventory may show up at the retail location. There are many factors that contribute to shrink. Damages can often be handled separately. One inovative way I have seen the 3pl incented to keep damages down it for the client company to provide a damage allowance. Last years damages totaled $1MM. At contract time it is agreed that there needs to be a reduction in damages. The client company establishes a fund of $7
