I watched with mild amusement as our CEO’s heart missed a beat.

“How do you measure inventory shrinkage?”  I asked innocently.

After the palpitation subsided, his return comment was “Ah, we would fire them.”

“No, no, not with us.  How do our customers measure their shrink.  When they provide us with a shrink percentage, is there an industry standard for how this is measured?  For example, is it measured as a percentage of cost of goods, revenue, or average inventory value?”

One thing I have learned in my years of work is that there are different ways to calculate just about any performance metric.  Maintaining consistency is a noble goal, but very hard to achieve.  In fact, many companies are unable to pull this off within their own four walls.  How could we expect consistency to improve across an entire industry?

I have now heard the “shrink” percentages of several potential customers.  It struck me that they seemed to be very different, even though the general product mix was comparable.  This is why I started asking my questions this morning. 

Understanding what is important to your customers is paramount.  Understanding what they measure, and precisely how they do it, goes a long way to developing this understanding.

By the way, our CEO is fine.  But you should try this with your boss sometime.  Try this double-shot:  ”So who did I see sleeping in your car this morning?  Are your in-laws in town?”