Stock Shrinkage is a big retail issue. For most retailers their shrinkage number is approximately equal to their net profits – a staggering fact.
Staff related shrinkage is always present. However, the type and size of the retailer is an important factor in determining the type of losses sustained. There are plenty of tools to deal with these issues but from a company perspective, the retailers often like to deal with this internally. The attitude of the organisation is often very telling. From a purely subjective point of view, losses are lower in organisations that take a zero tolerance approach to theft.
The biggest and easiest wins however are in the supply chain. The attitude of the organisation is always important. Logistics as a function is concerned with getting goods onto the shelves. Many logistics managers will say that if they were not highly efficient, they would not be in the job. Experience has shown that they may be hitting all the KPIs but the KPIs are probably not in the right place. Turning over a rock and finding an issue is fine, so long as the management are in a frame of mind to get it fixed.
The easiest way to spot that there is an issue for a large retailer is to look at the number of cages and pallets being hired or purchased. Then compare this to the business logic which is defines the length of loop that should be taking place, the number of items in circulation and the mismatch is the scale of the problem. For a large retailer the issue is in the millions.
The disconnect in the thinking is that the need to throw goods forward makes a necessity out of the need to fill in the holes, which then become the norm. In other words, once a budget line has been established for re-purchasing missing items, the KPI becomes keep within the budget, not why does that budget even have to exist?
The easiest way to address this is to add a number of tracked items to the loop. The sample rate is important. For any loop the sample rate needs to be around the 1 in 10 mark to provide a good level of visibility. Following the 80/20 law, this can be dropped to 1 in 5, which provides an improvement and gets close to 1:1 for only 20% of the cost.
Once all the pieces are visible, the improvements that need to be made are usually obvious. The shift in performance can be dramatic. Better visibility brings better management.
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