shrinkage: introducing a collaborative approach to ... europe...collaborative approach to reducing...

Shrinkage: Introducing aCollaborative Approach to Reducing Stock Loss

in the Supply Chain

S T O C K L O S S I N E U R O P E

AcknowledgementsThe European shrinkage project was launched inSeptember 1999 and since this time many retailersand manufacturers have contributed towards thedevelopment of this report. The time and workgiven freely by these companies has ensured thatthe findings are representative of the European FastMoving Consumer Goods sector (FMCG) and thusthey provide the reader with an insight to theproblems of stock loss we face as an industry. Moreimportantly though, the work of this group hasgenerated a ‘road map’ for delivering acollaborative, systematic and systemic approach tofinding new solutions to today’s problems of stockloss. We would therefore like to thank the followingorganisations and people for their contribution.

Retailers

El Corte Ingles (E) – Ana Garcia SanchezTesco (EU) – Geoff KingICA (S) – Thord HörbergInterspar (A) – Gerhard AusserlechnerSafeway Stores (UK) – Jim WestAuchan (F) – Feridun Akpinar

Manufacturers

Procter & Gamble (EU) – Robert VerhulstGillette (EU) – Colin PeacockColgate Palmolive (EU) – Phil ScordellisAllied Domecq (EU) – Alistair McArthurBacardi Martini (D) – Peer SchmidtL’Oréal (E) – Pablo Plaza SevillanoManor Bakeries (UK) – David KinnairdEnergizer (F) – Francois Saintyves

Organisations/Consultancies

AIM (EU) – Katrin ReckeAECOC (E) – Jordi QuerolRetail Consultant (UK) – Andrew CornishEHI (D) – Frank Horst

In addition we would like to thank the academicswho together provided the methodology, carriedout the research and wrote this report. This projectcould not have been completed without their helpand experience.

Academics

University of Leicester – Adrian BeckUniversity of Leicester – Charlotte BilbyCranfield School of Management – Paul ChapmanCranfield School of Management – Alan Harrison

Finally, we would like to record our specialappreciation for the contribution of Katrin Recke, ofthe European Brands Association (AIM) who hasprovided the project secretariat and ensured theproject’s smooth management.

Colin Peacock, Co-Chair, ECR Europe Shrinkage Project Group


To contact ECR Europe:Postal address:

ECR Europe, 9 Avenue des Gaulois, B-1040 Brussels, BelgiumTelephone: +32 2 736 0305 · Email: [email protected] · Website: www.ecrnet.org

All rights reserved.

Elements of this publication may be copied with proper acknowledgment of the source.

Copyright ® by ECR Europe, May 2001. Facilitated by the University of Leicester and the Cranfield School of Management.

Indicative recommended sales price: €35.

ContentsIntroduction .........................................................................................1

Shrinkage: Counting the Cost .............................................................5

The Shrinkage Iceberg ...................................................................5

Causes of Shrinkage.......................................................................6

Lack of Co-operation.....................................................................6

Taking the Problem Seriously .........................................................7

Time to Take Action ......................................................................7

Conquering Stock Loss: A Vision of the Benefits ............................11

Stock Loss Reduction Guide .............................................................15

Recognise that Stock Loss Shrinks Sales and Profit .......................17

Develop a Strategic Plan..............................................................19

Map Key Processes and Measure Problem...................................21

Analyse Risk, Identify Causes and Prioritise Actions .....................24

Develop Solutions and Prioritise Actions......................................26

Implement Solutions....................................................................28

Evaluate Implementation .............................................................29

Conclusions........................................................................................33

Recognising the Need for Change................................................33

Improved Stock Loss Reduction Practices ....................................33

Techniques and Tools to Reduce Stock Loss.................................34

The Need to Take Immediate Action ...........................................34

Glossary of Terms .............................................................................37

Appendices

Appendix 1: Research Methodology............................................41

Appendix 2: Solutions to Reduce Stock Loss ...............................43

Appendix 3: Related Shrinkage Reports Order Form ...................49



1

IntroductionThe aim of the ECR Europe shrinkage project wasto identify the scale and extent of stock loss in theFMCG sector, and develop a joint vision on howretailers, manufacturers and distributors could worktogether to reduce the problem of shrinkage.

In recognition of the complex nature of the stockloss problem, two academic organisations wereselected to manage the research programme. TheUniversity of Leicester was chosen for theirexpertise in the area of security and retail crimewhile the Cranfield School of Management waschosen for their specialism in the field of supplychain management and logistics. Working togetherthese two groups of experts have combined theirknowledge to bring fresh thinking to the FMCGsector in an effort to achieve a coherent andcomprehensive approach to tackling stock loss. Thisstudy breaks much new ground and can claim tobe the first ever pan-European study of stock loss inthe FMCG supply chain.

This report is intended to be a concise document,focused on convincing the industry of the need fora more collaborative, systematic and systemicapproach to reducing stock loss. It makes use oftwo earlier reports; the first dealing with the sizeand nature of the stock loss problem within theFMCG sector, and based upon a pan-Europeansurvey of retailers and manufacturers. The second,a rigorous review of 12 complete supply chains(from point of manufacture through to point of sale)analysing process problems and failures thatexacerbate stock loss. The full findings from thesetwo studies, which have been summarised for thisreport, have been produced by the University ofLeicester and the Cranfield School of Management,and are available for purchase (an order form canbe found on page 47 of this report).

If collaborative efforts are increased, the industry could start to reduce

its losses significantly

Looking forward there is good reason to believethat if collaborative efforts are increased andsolutions found which contribute to total systemsefficiency throughout the supply chain, then theindustry could start to reduce its losses significantly.

While the evidence shows that there areopportunities for increased internal collaboration inall areas of the supply chain, it is the collaborativeefforts between retailers, distributors andmanufacturers, working at reducing losses withinretail stores, where the most impact on the headline stock loss number can be made. Togetherthey need to identify improvements in a wide rangeof areas including: product design, packaging,administration, logistics, stock control,replenishment planning, stock room management,store layout, shelf design and people management.Getting it right will require teamwork, a structuredapproach and hard data on the extent and natureof the stock loss throughout the entire supply chain:a paradigm shift away from where the industry istoday. But if this is done, then it will benefit allparties, not least the shopper, who will see greateravailability and choice on the shelf. This in turn willincrease sales and profits for both the retailer andmanufacturer.

Getting it right will require teamwork, a structured approach and hard data on the extent and nature of the stockloss throughout the entire supply chain

Shrinkage: Counting the Cost


5

Shrinkage: Counting the CostThe Fast Moving Consumer Goods Sector (FMCG)in Europe is big business with a combined marketvalue of over €820 billion. The groundbreakingresearch carried out on behalf of ECR Europeshows that shrinkage is a major threat to theefficiency and effectiveness of the sector. In 2000,retailers lost €13.4 billion due to shrinkage,equating to 1.75% turnover or €258 million aweek. Manufacturers are not immune from thisproblem and lost €4.6 billion, accounting for 0.56%of turnover or €89 million a week. Taken together,the FMCG sector is haemorrhaging €18 billion ayear due to stock loss. In addition, retailers aloneare spending €2.14 billion trying to tackle thisproblem. The impact on profitability is dramaticand retail profits could be 29% higher if companiesreduced losses due to shrinkage by 50%1.

The FMCG sector is losing €50million a day due to shrinkage

Table 1 Stock Loss in Europe

The FMCG sector is highly complex with manymanufacturers having logistical webs covering all ofEurope, while some retailers have product ranges in

excess of 20,000 SKUs. Research shows that allpoints of the logistical chain are vulnerable to lossnot just the retail store. In 2000, €6.1 billion ofstock was lost even before it made it to stores.

The Shrinkage IcebergInformation on stock loss is shrouded in ignoranceand hearsay. At best company information on thisproblem is partial and incomplete and at worstnon-existent. Research carried out for ECR Europefound that most retail companies do not knowwhere, how or when the majority of their lossesoccurred. Manufacturers can only boast a slightlybetter record although even they cannot accountfor over 40% of their losses. In 2000, retailers wereunable to explain how €7.9 billion of stock was

1. Based upon data provided by ECR Europe on the avaerage profit margin forretailers operating in the FMCG sector.

Sector Loss as percentage Valueof sales (€ billions)

Retailers 1.75 13.4Manufacturers 0.56 4.6Total 2.31 18.0

Figure 2 Shrinkage in the European Fast Moving Consumer Goods Sector

26%Manufacturer Distribution

€12 Billion

8% Retail Distribution

66% Retail Stores

€4.6 Billion €1.5 Billion

TOTAL€18 Billion

Retail

KNOWN

UNKNOWN

41%

41%

59%

59%

Manufacturers

Figure 1 The Shrinkage Iceberg: Known and Unknown Loss

=

lost, while manufacturers were unable to pinpointhow €1.9 billion of their products ‘disappeared’.Taken together, the FMCG sector cannot accountfor nearly €10 billion of stock.

Gathering high quality data that is reliable, timelyand complete needs to be a priority for any futurestock loss reduction strategy. At the moment, whilea number of companies regularly collectcomputerised information on process failures, veryfew keep track of all the shrinkage threats, inparticular theft. If a problem is not recorded andanalysed, it is highly unlikely that it will beunderstood or tackled effectively.

Retailers and manufacturers do notknow where, how or when they

lose €192 million a week

Causes of Shrinkage

Highlighting how stock is lost is a vital part of anyeffective stock loss reduction strategy – it canidentify priorities and enable responses to betailored to specific needs. The research showed

that for retailers, the biggest perceived threat camefrom theft – over €8 billion or over 60% of all stockloss was thought to be due to staff and ‘customers’thieving from their organisations. Process failureswere seen as the next major cause of shrinkage –€3.6 billion lost due to products being ‘misplaced’in the supply chain, getting damaged or going outof date. For manufacturers, the biggest culprit wasprocess failures with over three-quarters of all lossesbeing seen as a consequence of this. For them theftwas less of an issue although it still accounted forover €1 billion of loss in 2000.

Theft is thought to account for over €9 billion of loss in the FMCG sector

Lack of Co-operationShrinkage is a problem that transcendsdepartmental and company boundaries – it is acommon problem requiring shared solutions. TheECR Europe research showed a lack of co-operation not only within companies, but alsobetween companies who are involved in the supplychain. For the most part retailers see stock loss asthe exclusive responsibility of the security/lossprevention and audit departments, and storemanagement, while manufacturers tend to put theonus upon the logistics team to deal with thisproblem. Few other departments are highlyinvolved, with retailers rarely involving buyers,marketing, the IT department or indeed the Boardof Directors. Similarly, manufacturers rarely makeuse of the research and development team, salesand marketing or human resources.

The picture is even gloomier when inter-companyco-operation is considered. For retailers, thecurrent climate is characterised by an emphasis onreactive collaboration with security providers andthe police. Relatively few pointed to work withindividual manufacturers or their representativeorganisations. Manufacturers were even moreisolated with less than 1 in 3 working withindividual retailers on issues of stock loss and mostfocusing their co-operative efforts on third partylogistics service providers.

Few retailers and manufacturers are currently working together to deal

with issues of shrinkage


6

Supplier Fraud 12% Process Failures 27%

Internal Theft 24%External Theft 37%

Internal Theft 11% Process Failures 78%

External Theft 11%

Figure 3 Causes of Stock Loss in the Retail Sector

Figure 4 Causes of Stock Loss in theManufacturing Sector

Figure 5 Intra company co-operation for bothretailers and manufacturers

Taking the Problem SeriouslyMore positively, the survey found that companiesemploying dedicated security/loss preventiondepartments and audit departments suffered muchlower losses due to shrinkage. For those retailerswith a security/loss prevention department, thelevel of stock loss was 27% lower. Similarly,manufacturers with such a specialist departmentalso benefited from significantly lower levels of loss.The impact of dedicated audit departments waseven more dramatic – retailers with such a functionhad losses 39% lower than those companieswithout such a department. Once again, thispicture was mirrored in the data from

manufacturers. It was also found that having theopportunity to report directly to the Board ofDirectors significantly improved the performance ofthese specialist teams.

Having specialist teams that report directly to the Board of Directors

can significantly reduce losses from shrinkage

Time to Take ActionThe research carried out for ECR Europe clearlyshows that to date the FMCG sector has neglectedthe problem of shrinkage. It is a sector sufferingenormous losses, lacking any detailedunderstanding of the extent and nature of theproblem, with existing approaches tending to be adhoc, piecemeal, partial and portrayed by poorlevels of intra and inter company co-operation. It istime for the FMCG sector to take action to begin totackle this problem through a systematic and co-ordinated approach. The consequence of not doingthis is an ever-increasing bill for shrinkage, whichcurrently stands at €18 billion per year.


7

0 20 40 60 80 100

0 20 40 60 80 100

Store Mangt

Human Resources

Supply Chain Mangt

Finance & Auditing

New Store Planning

Logistics

Board of Directors

Buying/Trading

IT Department

Marketing

Legal Department

Finance & Auditing

Factory/DC Mangt

Factory & DC Planning

Security Department

Board of Directors

Product Design

Sales

Marketing

Legal Department

Research & Development

IT Department

Human Resources

Highly Involved Regularly Involved Hardly Involved

Retailers

Manufacturers

Two additional reports are available givingmore detailed findings from the research

phase of this project. Please see Appendix 3for further details and an order form.


9

Conquering Stock Loss: A Vision of the Benefits


11

Conquering Stock Loss: A Visionof the BenefitsThe future is bright for those companies able tosolve their stock loss problem. By grasping theopportunity, they will develop considerablecompetitive advantage.

Europe’s €18 billion stock loss problem presents asubstantial opportunity for performanceimprovement. Adopting available best practice hasthe potential to eliminate losses caused by bothcrime and poor process integrity. Theseimprovements provide significant benefits for all theretail sector’s stakeholders including the consumer,retailers and manufacturers.

Companies will drive the delivery of these benefitson two fronts:

• Throughout their organisation

• Across the supply chain

Collaboration within a company provides themeans to resolve problems beyond the scope ofindividual functions to solve. Likewise,collaboration between companies resolvescommunal problems beyond the scope of theseparate companies to solve. The results of thiswork will be to:

• Design loss prevention solutions into the fabric ofprocesses and facilities

• Ensure that these solutions effectively contributeto total supply chain efficiency, instead of solvinga problem at one end of the chain only

• Implement simpler and cheaper controls tominimise loss

Using a structured approach to stock loss reductionwill enable manufacturers, distributors and retailersto design efficient and effective replenishmentprocesses. Central to this approach will be theanalysis of losses based on facts and data on itsextent and causes, instead of on uninformedperception. By focussing on understanding the rootcause of the problem, cost effective choices will bemade on the selection of appropriate solutions. Theeffectiveness of solutions will be analysed to ensureproblems are resolved and to inform future effortsto further reduce loss. The choice of solutions willalso be informed by a good appreciation of bestpractice adopted across Europe’s FMCG sector.

Maintaining ongoing control over stock loss will beassured by linking the loss reduction strategy to thetactical business level through a performancemeasurement system. Key Performance Indicators(KPI) will be used to assess the effectiveness ofpreventative efforts.

Reducing stock loss presents asubstantial opportunity for performance improvement

throughout the supply chain

Consumer Benefits

• Lower out of stocks• More open merchandising• Greater choiceLeading to:

- Higher consumer satisfaction- More convenience

Figure 6 The Benefits of Reducing Stock Loss

Retailer Benefits

• Lower cost• Higher store loyalty• More efficient replenishmentLeading to:

- Increased sales- Increased profit

Manufacturer Benefits

• Lower cost• Higher brand loyalty• Better planningLeading to:

- Increased sales- Increased profit


13

Stock Loss Reduction Guide


15

Stock Loss Reduction GuideThe FMCG sector is a highly complex competitivebusiness, with retailers often stocking in excess of20,000 SKUs and manufacturers managing pan-European supply networks that handle multi-millionnumbers of cases of product each year. In addition,companies have a plethora of systems, procedures,policies and practices in place to move productsfrom the point of manufacture to the point of sale.Throughout this process there is a multitude ofopportunities for products to be either lost, broken,stolen, eaten, under priced or go out of date. Thechallenge is minimising these risks. In theory, theconcept of stock loss reduction is simple. It can bedescribed in terms of the three following steps:

• Make stock highly visible so that loss isimmediately noticed

• Quickly identify the cause of the loss

• Implement preventative solutions to resolve thecause of the loss and prevent reoccurrence

In practice, whilst this concept is simple todescribe, its implementation is not. Difficulties inimplementation arise for a wide number of reasons.Not least is the complexity of the sector, theabsence of reliable data on the extent and natureof the problem, and a lack of co-operation bothwithin companies and between companies in thesupply chain to develop shared solutions. But thedifficulties also stem from the lack of a ‘road map’for undertaking stock loss reduction projects. Forthis reason, the key output from the ECR EuropeShrinkage project is the Stock Loss Reduction Guidepresented here.

The guide acts like a manual, describing the overallactivities that need to be undertaken in order toreduce stock loss. This guide consists of a generalapproach made up of the steps a company needsto follow, together with techniques and tools tohelp undertake each phase and to deal withproblems that may be encountered. The generalapproach that forms the heart of the guide is shownin Figure 7.

This structure is systematic and provides the meansfor planning and undertaking stock loss reductionprojects while guiding users towards continuousimprovement through the cycle.

0: Recognise StockLoss Shrinks Sales

and Profit

1: Develop aStrategic Plan

4: Develop Solutions & Prioritise Actions

6: EvaluateImplementation

2: Map Key Processes & Measure Problem

3: Analyse Risk,Identify Causes

5: Implement Solutions

Figure 7 A Systematic Approach to Reducing Stock Loss

Stock loss reduction involves problem diagnosis andsolution implementation. The essence of the guideis that through well-planned investigation, pressingneeds are identified. These are followed by small-scale experiments that explore the stock lossproblem, identify likely causes and developappropriate solutions. Undertaking trials can thenassess the effectiveness of solutions. Where asolution is found to be successful it can beimplemented widely and practices standardisedaround it.

Given the uniqueness of each businessenvironment where stock loss occurs, a single,‘right’ strategy for reducing stock loss does not exist.Whilst this guide provides a basic structure forpractitioners, the approach needs to be tailored tomatch prevailing circumstances in order for it to beeffective. Knowing the scope for variation, whatdoes and does not work and the reasons why,comes with learning through experience. It istherefore important to recognise that reducing stockloss is a long-term and on-going learning process.Therefore, success comes from using the systematicapproach to building the capability to identify andunderstand the causes of shrinkage and reinforcepractices that reduce loss.

The approach described in this guide provides ameans for involving all company employees instock loss reduction. Widespread involvementprovides knowledge of current practices, such asstock control, and helps build commitment thatallow changes to be implemented. Thisinvolvement stretches from the creation of radicalvisions for the supply process, analysis of thecurrent process and its performance through toprocess redesign, implementation and review.

To help undertake the steps of the generalapproach, a number of techniques and tools arerecommended. These have been chosen to aidcommunication and understanding. This list is notcomprehensive and practitioners should introducetheir own tools where they find them to be moreuseful.


16


17

Step 0:Recognise that Stock LossShrinks Profit and SalesObjective: • Recognise need to change

• Evaluate approach to tackling stock loss

Recognise the Need to ChangeThe FMCG sector suffers significant losses each yearthrough shrinkage (€18 billion). These losses occurall along the supply chain: from point ofmanufacture, throughout the distribution process,to the point of sale. While €10 billion of this losscannot be accounted for, the effects of shrinkageare clear: the shopper suffers through added costand poorer service.

The outlook for retailers, manufacturers andconsumers concerning shrinkage is bleak unlessaction is taken quickly. Against a background ofsignificant losses today, future levels are likely toincrease. Food retailers continue to expand thenumber of non-food items they carry, such as CDs,

clothes and electrical items, which are productsperceived by them to be at greatest risk of theft.

Evaluate Approach to Tackling Stock LossIn general, current attempts to address shrinkageare unfocused and unstructured. Despite itsdramatic impact on the shopper, there is littlecollaboration either within companies or betweencompanies to tackle the problem. Current practices

Wake Up

Plan

Develop Solutions

Evaluate Map & Measure

AnalyseImplement

Table 2 Conceptual Approaches to Stock Loss Reduction

Ad hoc

Shrinkage is not an identified issue.

Nobody is accountable forshrinkage.

Shrinkage not seen as apriority therefore nobodytakes responsibility for it.

Staff not used.

First Steps

Reactive firefighting withemphasis on detection.

Accountability liesprimarily with the storemanager.

Board sees stock loss as a‘cost of doing business’.Responsibility for stock loss is not taken centrally,but by local operatives.

Some effort made to usestaff through raisingawareness andencouraging honesty.

Systematic Practices

Emphasis on detection andprevention.

Specialist security/lossprevention and auditdepartments.

Specialist security/lossprevention and auditdepartments but notresponsible to the Board.

Staff receive on-goingtraining to tackle shrinkage.Methods adopted toscreen new staff.

Strategic Policy Deployment

Strategically led systemicapproach.

All departments have stockloss accountability and are measured against their targets as frequently as sales.

Board reviews stock lossquarterly. Head of stock loss reports to Board. All departments haveresponsibility for stock loss and producingquarterly reports on it.

All staff carefully screenedand then seen as the maindefence against crime. Staffused as the main resourcefor better prevention.

RatingCategory

Philosophy

Accountability

Responsibility

Culture


18

are characterised by a heavy reliance upon reactivestrategies that are only triggered when a particularproblems become intolerable.

Such knee jerk and insular reactions not only fail toresolve the causes of loss, but they can also have adetrimental effect upon the profitability of acompany. For instance, adopting ‘defensivemerchandising’ can cause problems withreplenishment and availability. Hence, the need towake up to a different approach.

To help companies review their current stock lossreduction strategy, Tables 2 and 3 can be used as abenchmarking tool, both in terms of gauging theconceptual approach adopted and the practicespresently employed. This ‘look in the mirror’ is animportant step in recognising how a companycompares against best practice, as well asidentifying the gap between what is presently doneand what needs to be achieved in the future.

Table 3 Company-wide Practices Employed to Control Stock Loss

Ad hoc

None.

None.

Annual inventory countsundertaken, with stock lossdata recorded atstore/department level onlyand not availableelectronically.

No analysis performed onstock loss.

Not done – considered fartoo hard.

First Steps

Some co-operationbetween security/lossprevention and auditdepartments, and storestaff. Occasional pilotprojects.

Pilot projects with isolatedsuppliers/customers basedupon ad hocarrangements.

Annual inventory countsundertaken andcomputerised centraliseddata available for somestock loss problems(process failures).

Emphasis on summarisinginventory counts andprocess failure data.

Occasional or one-offreviews.

Systematic Practices

Security/loss preventionand audit departmentsliase with other parts oforganisation occasionally,but only on specificproblems.

Occasional projects toresolve specific problemswith suppliers/customersand trade bodies.

Annual inventory countswith supplementary checkson ‘at risk products’.Computerised records ofmost types of stock losscollated centrally.

Regular analysis of mosttypes of stock lossincluding company-wideand store-specific profilesover time.

Regular internal reviews.

Strategic Policy Deployment

Regular cross-functionaldialogue to design outstock loss throughout thesupply chain.

Regular inter-organisationalprocess evaluation and co-ordinated action on jointprojects. Externalcollaboration with othergroups such as retailers,trade bodies, suppliers,police.

Annual inventory countstopped up with morefrequent counts for hotproducts, with all datarecorded in electronicformat. Reports on stockloss performance issued asfrequently as sales reports.

Regular data mining.Analysis tools used toidentify patterns,adjustments data used toget to line level losses.

On-going evaluation withall supply chain partners.

RatingCategory

Intra-organisationcollaboration

Inter-organisationcollaboration

Dataavailability

Data analysis

Evaluation ofeffectivenessof efforts

Step 1:Develop a Strategic PlanObjective: • Set goals

Current efforts to contain stock loss are at bestpiece-meal, with few companies even operating anorganisation-wide approach to resolving theproblem. Companies need to recognise thattraditional approaches, that is only tasking security,audit or health and safety departments with thechallenge, are not effectual in tackling stock loss.Instead, companies need to change their approachto resolving stock loss and make use of a widerrange of people. In changing their approach,companies need to choose one that is bothsystematic and systemic. A systemic approachrequires information from stakeholders across acompany and throughout the supply chain.Collaboration is therefore necessary not onlybetween company functions, such as buying,logistics, marketing and IT, security and auditdepartments, but also between companies:manufacturers, distributors and retailers. Onlythrough such a degree of collaboration can aneffective strategy be developed for tacklingshrinkage.

The Systematic ApproachIn general, stock loss is not currently approached ina systematic manner. Most companies do not planand they do not know if they are making theslightest difference in reducing loss. Few of theorganisations studied during this research have eventhe simplest structure to guide their approach toreducing stock loss, nor were they able todetermine the effectiveness of any of the solutionsthey currently use to reduce it. Instead, mostcompanies rely on a mixture of security folklore –security guards are a good thing – and a fixationwith the ‘latest’ technological solutions. Whilsttechnological advancements may lead to newsolutions that make inherent sense, the problemsthey solve are rarely quantified so the effectivenessof new equipment is often only justified anecdotallyand over short periods of time.

In order to break away from the culture of half-truths and anecdotes, a systematic approachprovides the way for a company to quantify andprioritise its problems, to analyse the causes ofthese problems and to direct its available resources

to the most cost effective solutions. Finally, the trueeffectiveness of these solutions needs to bedetermined after their implementation and thisinformation then used to guide future investment.

The first step in the systematic approach to stockloss reduction is planning. Planning is based uponclear, realistic, attainable objectives with criteria forknowing when these objectives are met. Thisrequires the project team responsible for deliveringreductions to have answers to the followingquestions:

• What is the supply chain process to beimproved?

• When does the supply process to be improvedstart and finish?

• What are the goals of the stock loss reductionactivity?

• When is the date by which some benefits mustbe felt?

• What are the attributes of the ideal supplyprocess?

• What are the constraints to improvement?

• What are the stock loss threats faced by thecompany?

The answers to these questions guide the projectteam’s activities towards achieving their goals.Starting the project in this way is especiallyimportant in cross-functional projects where theeffectiveness and efficiency with which projectresources are used dramatically improves with up-front investment in planning.

An organisation undertaking a stock loss reductionproject will benefit from knowing how its approach


19

Wake Up

Plan

Develop Solutions


AnalyseImplement


20

to shrinkage stands in comparison to best practice.This can be determined by making an assessmentagainst the conceptual approach that a companyapplies to its stock loss efforts and the practicesused to control loss (see Tables 2 and 3 in theprevious step).

The Systemic Approach Effective stock loss reduction requires companies tobe systemic by identifying, for the supply chain as awhole, where problems occur and can best beresolved. Such work requires collaboration alongsupply chains between suppliers, distributors andretailers as well as across the FMCG sector as awhole. Only when internal and external problemsare considered together can comprehensive analysisbe undertaken to deliver early, tangible results.Research demonstrates that efforts to reduce stockloss today are not systemic. Companies are simplynot taking advantage of the opportunities to shareexpertise with either their competitors or suppliers,or indeed internally. The first phase of this ECREurope shrinkage project found that whilst 70% ofretailers are working individually with otherretailers, only one-half of them are working inrepresentative groups of retailers to ensure thatsector-wide solutions are investigated and shared.The picture is different in the manufacturing sector,where only 15% of companies are working withother manufacturers to reduce stock loss and lessthan two-fifths of companies are working in jointgroups looking at issues of shrinkage. Whilst thispaints a picture of low cross-sector collaboration,co-operation between retailers and manufacturersis even more concerning. Only one-half of allretailers and manufacturers are working together totackle stock loss. This graphically demonstrates thatproblems affecting the whole of the supply chainare not being addressed in a systemic manner.

Step 2:Map Key Processes & Measure ProblemObjectives: • Process Map

• Performance Measure

Reducing stock loss begins with a rigorous diagnosisof the problem. This diagnosis starts byunderstanding the nature of the losses and thenidentifying their causes. Understanding the currentoperational system and processes is also the firststep in gaining widespread recognition of theproblem and establishing the need to changewithin an organisation. The act of creating abusiness process model that identifies the source ofstock loss can develop the critical momentumrequired to change existing behaviour.

Security-led approaches to reduce stock loss tendto be based upon better detection of theft. Aprocess-led approach applies process analysis to thestock loss problem and emphasises prevention.Traditional security strategies can therefore besupplemented by better understanding of thereplenishment supply process. Process mappingand measurement provide the mechanisms to dothis. Preventing system and procedural losses alsoreduces loss from theft by removing the opportunityto abuse deficient systems.

Process MappingDocumenting an existing process helps individualsview their work from a process perspective. Often,existing ways of working have never been describedor even viewed as processes. Without the ability tocommunicate the need for improvement from thisperspective, those who do not view their currentactivities in process terms are not likely to readilyadopt revolutionary solutions.

Process mapping is a technique used to detailbusiness processes that focuses on the importantelements that influence behaviour, allowing thebusiness to be viewed at a glance. Mapping andmeasuring a process establishes the performancebase line that enables the effectiveness of solutionsto be measured. An example of a top-level supplychain is depicted in Figure 8. This diagram showstwo supply chains from Gillette in the UK to two oftheir customers, ICA in Sweden and Tesco inHungary.

Figure 8 Gillette Supply Chains to ICA, Sweden and Tesco, Hungary

Whilst Figure 8 gives an understanding of the totalsupply chain, it provides few details. In order toshow more in depth information, a more rigorousprocess map is required.

Simple flow charting techniques are often the mostappropriate technique to use when processmapping for the first time. Process maps aredeveloped by physically following products as theypass along the supply chain. This involves visitingeach site that the products pass through anddocumenting the steps involved in receiving, storingand dispatching them.

Figure 9 is an example of a process map showingthe flow of products through a distribution centre.This gives an overview of the steps involved inreceiving, storing and dispatching goods; thereforeit provides a higher level of detail.


21

Wake Up

Plan

Develop Solutions


AnalyseImplement

Distribution NodeStore

ICA store, Sweden

ICA DC, Sweden Gillette Pack Centre, UKGillette DC, Denmark

Gillette DC, HungaryTesco DC, Hungary

Tesco store, Hungary

Even when the flow chart does not provide acomplete or totally accurate model of a process it isstill able to promote a process-orientated approachto improvements and to communicateunderstanding.

Figure 9 Distribution Centre Product Flow Chart

Hot Products2

Processes and systems usually contain a wide rangeof product items. Rather than map all the variousroutes taken by all the different items it isappropriate in the initial cycle of analysis to focuson ‘hot products’. Following the path of theseproducts through the supply chain illustratesgeneral features of the process and exposes majorproblems inherent within it.

‘Hot products’ is a concept that many retailers andmanufacturers are familiar with, and generallyrefers to those products most attractive to thieves. Ifretailers and manufacturers were to gain a betteridea of what makes a product ‘hot’, then thiscould, by reducing the levels of the theft elementwithin stock loss, help dramatically reduce levels ofshrinkage within the whole supply chain. Crimeprevention specialists are beginning to acknowledgethat preventative methods must not be spread toothinly and should be directed towards areas thatwill produce the greatest benefit. In the FMCGsector, this means concentrating activities on theproducts that are most at risk of theft. The hotproducts concept offers a framework of factors thataffect the likelihood of a product being taken byshop thieves or members of staff.

Hot products are those that are ‘CRAVED’ bythieves, and possess the following characteristics:

• Concealable • Valuable• Removable • Enjoyable• Available • Disposable

At the moment, the list of hot products a retailermay stock or a manufacturer produces are usuallybased upon perceptions of the security department,as methods are not always in place to analyse thetrue nature of stock loss. As shown earlier, retailerscan only identify 41% of their losses andmanufacturers are aware of 59% of the losses theysuffer. However, evidence from the ECR Europesurvey finds that non-food products are perceivedto be most at risk of theft, particularly; tobaccogoods, videos, CDs, DVDs, beers, wines and spirits,health and beauty products and electrical goods.These items increasingly feature within FMCGstores, so the need to control their loss may be thetrigger for retailers and their suppliers to workcollaboratively to deal with this problem. While theconcept of hot products refers mainly to items thatare stolen, lessons learnt from closely monitoringtheir progress throughout the entire supply chainmay have more generalised benefits for improvingthe processes used to move these, and all otherproducts.

Measuring the ProblemIt was found that currently within the FMCG sector,most retailers keep records of supplier fraud andprocess failures, but few kept computerised recordsof internal and external theft, either at a companyor store level. Manufacturers were found to keepcomputerised records of process failures, but fewrecorded any form of theft on a computerisedsystem. The majority kept either no recordwhatsoever or only paper files. It is only throughthe use of computerised databases that trends canbe identified and a more information-led strategicapproach can be adopted to deal with all theelements that account for shrinkage.

There are a number of fundamental measures ofstock loss that are required in order to determinethe What? How? and When? for each stock loss


22

Check

Holding

Pick

Dispatch

Inbound holding

Receive goods

Warehouse

Check

Pack

2 Clarke, R.V. (1999), Hot products: understanding, anticipating and reducing demandfor stolen goods, Home Office Police Research Series paper 112, HMSO, London.


23

incident. From a supply chain perspective, thefollowing basic measures need to be collected:

• The level of loss in deliveries to a site

• The level of loss from a site

• The level of stock loss in deliveries from a site

These measures allow a ‘top-level’ assessment ofthe extent and location of stock loss across a supplychain. In addition, it is necessary to collect data onthe following factors:

• The type of incident

• How the incident occurred

• When it happened

This allows the nature of the type of stock lossessuffered to be better understood.

The points in the supply chain where thesemeasures should be taken are shown in Figure 10.

In addition to where the loss has taken place,companies need to develop systems that track howand when particular incidents occur, and they needto do this for all types of stock loss. Companiesneed to develop an approach that is systematic andpart of an on-going process for collecting andcollating timely and useful information thatdescribes patterns, trends and information on stockloss throughout the supply chain – from firstdelivery to final check out.

RetailerStore

RetailerDistribution

Centre

SupplierDistribution

Centre

12

3 12

3 12

WHAT? HOW? WHEN?

Figure 10 Points of Measurement across the FMCG Supply Chain

1 The level of loss in deliveries to a site 2 The level of loss from a site

3 The level of stock loss in deliveries from a site

Step 3:Analyse Risk, Identify Causesand Prioritise ActionsObjectives: • Understand process

structure and flow

• Identify most significant causes of loss

Having mapped and measured the currentoperation, this data should be analysed tounderstand and describe exactly what is wrong.Having understood this, the causes of problems canbe identified.

Cause and Effect AnalysisCause and effect analysis can be applied to identifythe causes of stock loss. This technique benefitsfrom a long and successful history of application inthe investigation of quality problems and is fairlysimple to understand and use.

Having identified specific symptoms of poorperformance the cause and effect diagram, shownbelow, is an effective way of capturing possiblecontributing causes to it. This diagram is mostuseful in brainstorming sessions where the projectteam can contribute their findings, experience andunderstanding. Brainstorming is an effective way ofbringing out contributions.

The main spines of the diagram are given broadheadings around which causes to the symptom of aproblem are grouped. The choice of these headingsis fairly arbitrary.

To focus effort, the major causes of problems needto be identified from amongst the trivial many. Thiscould be achieved statistically through thecollection of data from the process using check

sheets to determine the number of incidentsassociated with each of the causes that have beensuggested. However, it is possible to get the projectgroup members to identify many of the mostsignificant problems from their experience.

In Figure 12, three causes of stock loss have beenhighlighted as being the most significant ones forthis particular site. These are the causes that will beinvestigated further. This approach follows thePareto Principle that the ‘vital few’ causes areresponsible for the bulk of problems.

Five WhysInitial ideas about the causes of problems areunlikely to identify underlying root causes. Havingtidied the initial ideas and focused upon thesignificant ones, deeper cause and effect structuresneed to be identified. A technique to explorecauses beyond those first perceived is the ‘5 whys’technique. This involves understanding the causeand effect relationship as fully as possible byrepeating the question, ‘why does that cause stockloss?’ This technique is illustrated in Figure 13.


24

StockLoss

InformationProcess Failure

Damage Theft

Order wrong product

Rain

Invoice for too few items

Squashed by handling eqpt.

Load movement in transit

Dropped

Hit by fork-lift

Faulty packaging

EatingPush out

Opportunist shoplift

Planned shoplift

Staff collusion with customers

Over delivery

Mis-pick

Pick wrong product

Pick too many itemsStow in wrong

location

Physical ProcessFailure

Figure 12 Stock Loss Cause and Effect Diagramwith Three Significant Causes Highlighted

Wake Up

Plan

Develop Solutions


AnalyseImplement

Symptom/Effect

Causes

Figure 11 A Cause and Effect Diagram

Identification and understanding of root causesconcludes the diagnosis of the causes of stock lossand starts the ‘remedial journey’, where solutions tothese problems are sought. It is important to stresshowever, that the problem of stock loss is dynamic,particularly when considering the threat frominternal and external thieves. Companies need tocontinually analyse the threat in order to reactpromptly to new approaches adopted by offenders.


25

Figure 13 A ‘Five Whys’ Diagram used toInvestigate the Root Causes of Effects

Effect

Cause

WHY?

Loss due to damage

Pallet corners get crushed when loaded into lorries

Only 5cm clearance when loading 3rd pallet tier

Fork-lift truck drivers not accurate enough

Full utilisation of vehicle volume

Vehicledesign

Low product density

Need forefficiency

In a hurry Little

experience

Poortraining

WHY?

WHY?

WHY?

WHY?


26

Step 4:Develop Solutions andPrioritise ActionsObjectives: • Design technical solutions

• Define skills/staffing needs

• Specify organisational structure

Organisations traditionally start their stock lossreduction efforts at this, the solution stage. It is notuncommon to find a great solution and then searchfor a problem to apply it to. The problem with thisapproach to resolving stock loss is that it is verytempting given the large number of seductivesolutions currently available. However, this is totallyat odds to the systematic approach advocated here.

Having been through the systematic process ofinvestigation described in Steps 0 – 3 of this guide,where a stock loss problem has been investigatedand its causes identified, the development ofsolutions that resolve this cause and reduce loss isusually extremely context-specific. However, it ispossible to associate particular solutions withparticular problems. A series of options arepresented in Appendix 2: Stock Loss ReductionSolutions, which provide guidance in this matter,and a summary is presented in Table 4, offering a‘quick-check’ guide.

Designing particular solutions into the practices andprocedures of an organisation can be undertakenthrough one of two general approaches:

• Clean sheet

• Renovate existing operations

The clean sheet approach sets existing systems toone side and starts afresh. This recognises thatcurrent practices are beyond salvage and have nofurther use. Renovating existing processes buildsupon the capabilities that have underpinned thehistorical success of the organisation. This requiresthose capabilities to have retained some value,which may not be the case.

New processes and systems should beaccompanied by newly designed performancemeasurement systems. In the same way thatprocesses are redesigned to deliver their objectives,so the performance measurement systems alsoneed to be redesigned to monitor and control the

new processes. Such a system requires a suite ofmeasures. These reflect the range of factorsimportant to the organisation that the improvementproject needs to enhance. Considering them inharmony, for instance by using a ‘BalancedScorecard’3, promotes improvements across a broadfront or at least ensures performance is maintainedfor the basket of measures whilst driving progress ina key one. Using a balanced scorecard can showpeople how their efforts affect strategicallyimportant measures.

Where performance levels essential to futuresuccess have been identified, but the processdesign that delivers them is not understood,benchmarking4 can be a useful technique to helpover come this. A benchmarking exercise helpsidentify the processes used in other organisationsthat enable them to achieve superior performance,for example by benchmarking against other hotproducts or items from other categories.

Wake Up

Plan

Develop Solutions


AnalyseImplement

3 Kaplan, R. S. (1996) The Balanced Scorecard: Translating Strategy into Action,Harvard Business School Press, Boston, Mass: USA.

4 Camp, R. C. (1989) Benchmarking: the search for industry best practices that leadto superior performance, Quality Press: New York, USA.


27

PROCEDURES AND ROUTINESAnnual Stock Loss Awareness Campaign Company-Wide Stock Loss Refresher TrainingCustomer Returns & Refund Controls (Operator &

Customer Database)Damaged Goods Resale ControlsEmployees Exit SearchesHot Product IdentificationHot Product Management Hot Products Routine Counting Security Newsletter Internal Key Control Patrol Routes for Employees (Red Routes)Point of Sale Information or Data Checks Random Till Cash ChecksRigorous Delivery Checking Procedures Shelf Replenishment Techniques Induction Training for New EmployeesUnique Till Operator PIN Numbers‘Watertight’ Product Monitoring Procedures

Table 4 Solutions to Reducing Stock Loss

The 67 solutions listed above have been grouped into four different types: procedures and routines;design and layout; equipment and technology; and people and processes. It is in no way an exhaustivelist of possible stock loss reduction options, but merely examples of the different approaches currentlyavailable. They are listed in alphabetical order and no attempt has been made to ‘rate’ theireffectiveness. A more detailed description of these solutions can be found in Appendix 2.

PEOPLE AND PROCESSES

Anonymous Phone LineCivil RecoveryCovert Surveillance of Customers or EmployeesEmployee Awareness and Training Employee Stock Loss Training and EducationEmployee Incentives – Discount Purchase SchemesEmployee Incentives – Stock Loss Bonus Schemes Employee Integrity ChecksExternal Compliance Monitoring External Security/Loss Prevention FunctionExternal Stock Audit FunctionInternal Compliance MonitoringInternal Security/Loss Prevention FunctionInternal Stock Audit FunctionRandom Checks On Distribution Centre Picking

AccuracyStore DetectivesTest Purchasing (mystery shopper)Uniformed Security Guards

EQUIPMENT AND TECHNOLOGY

Active CCTV

Automated Ordering Processes

Cash Protection Tactics and Equipment (both cashoffices and tills)

Company-Wide Stock Loss Awareness Posters

Dummy Display Cards in Place of High-RiskProducts

E.A.S. Hard Tagging (recycled)

E.A.S. Soft Tagging (disposable)

E.A.S. Source Tagging (either disposable or recycled)

Employee Purchasing Arrangements

Employee Panic Alarms

Employee Uniforms without Pockets

Intruder Alarm Systems

Non-Active CCTV

Point-of-Sale Camera Monitoring

Protector Display Cases Applied By Retail Outlets

R.F.I.D. Intelligent Tags on Pallets, Cases or Items(Radio Frequency)

Replenishment Equipment to Support Techniques

Secure Lockers for Employees

Security-Sealed Containers/Shippers

Shoplifting and Theft Policy Posters for Customersand Staff

Specialist Anti-Theft Display Equipment

DESIGN AND LAYOUTAppropriate Product Location StrategiesDesigning-Out Blind SpotsDesigning-Out Crime Programme Distribution Centre Secure Storage Employees Entry/Exit Access Control External Security – Fences, Anti-Ram Raid, Roll

ShuttersRisk-Based Design and LayoutsRobust Anti-Theft Packaging Single Direction Product Flow Supply Chain and Logistics Network Design


28

Step 5:Implement SolutionsObjectives: • Develop implementation

plans

• Pilot implementation

• Monitor progress and refinefull rollout

In a similar manner to the approach used to planthe project investigation, the implementation of thesolution that will reduce stock loss requires projectplanning. Successful projects require a sponsor tobe responsible for delivering the benefits of theproject. To achieve success the sponsor, usually asenior manager, needs to ensure that the projectteam constructs a clear and robust business case.This business case defines what is to be delivered,the benefits this will bring and the resourcesrequired.

A project plan is used to map the best use ofresources to achieve the desired objectives withintime and cost limitations. Here the tools of projectmanagement will prove useful. These can beapplied on both small and large-scale projects.Where a project team undertakes planned changefor the first time, the plan should consider not justthe task but also the learning necessary to deliver it.

At a top level, a project plan is constructed byfollowing a sequence of steps. The followingprovides an overview of such a process:

• Identify the overview tasks needed to completethe project

• Show the interrelationships between tasks andthe sequence in which they can be undertakenon a network diagram

• Estimate the types and amount of effort neededto complete these tasks

• Calculate the resource profile over time tocomplete the project

• Identify potential risks to successful projectdelivery

• Mitigate risks or plan contingency

• Iterate the plan to match it against resourceavailability

• Secure resource

• Put in place procedures for evaluation

Evaluating the effectiveness of the stock lossreduction effort provides information that guidesthe direction of the next cycle of reduction. Stockloss reduction needs to be ongoing to ensure lossreduction efforts are compatible with developmentsacross the supply chain and to counter theresourcefulness of criminals.

Wake Up

Plan

Develop Solutions


AnalyseImplement


29

Step 6: Evaluate Implementation Objectives: • Determine solution

effectiveness

• Identify further steps toreduce stock loss

The stock loss reduction project ends with aneffective solution in place. However, this is not theend of stock loss reduction as a whole. From theorganisation’s perspective, evaluation of one projectis important in order to:

• Determine the success of the solution

• Guide future projects

The review is therefore the last step of one projectand the first step of the next. The ability to sustainsignificant improvements in stock loss over longperiods of time rests on the capability to learn fromexperience and to ensure that companies accessthe wide range of developing tools at their disposal.

A review of the implementation must be objective.All too often reviews are undertaken with the aimof justifying the work that has been done and fail toprovide an honest appraisal of what solutionworked and why. Therefore, the evaluation shouldbe rigorous, robust and led by somebody who canprovide an objective review, independent ofequipment providers and those who may havecommissioned the project in the first instance. Theyneed a clear mandate to assess the performance ofthe implemented solution and compare this againstthe level of performance originally planned.

This assessment should consider how theimplementation of solutions was justified, forexample by the use of a cost/benefit analysis. In thisexample, the actual cost of the solutions and theirimplementation should be determined. Thesefigures should then be contrasted in the followingways:

• Actual cost against planned cost

• Actual benefit against planned benefit

• Actual cost/benefit against planned cost/benefit

• Performance over time

This information provides the feedback that allowsthe stock loss reduction team to objectivelyconsider the effectiveness of the:

• Approach the project team took to reducingstock loss

• Specific solutions they implemented

The aim of this feedback is to identify whether anyfurther action is required before the current projectcan be signed off, and to gain a better appreciationof successful approaches and solutions that mightbe applied during future projects. It should benoted, however, that the evaluation process mayneed to be ongoing – the performance of aninitiative can change as its ‘environment’ alters. Forinstance criminals may gradually find ways ofdefeating the newly adopted approach or changesin product range or levels of staffing might reduceits effectiveness. Therefore, periodic reviews ofnewly adopted measures may need to be carriedout in order to gauge their effectiveness over timeand to evaluate whether any corrective measuresneed to be taken.

Wake Up

Plan

Develop Solutions


AnalyseImplement


30


31

Conclusions


33

ConclusionsThe purpose of this project was to betterunderstand the extent, nature and control ofshrinkage within the entire European FMCG sector.Having analysed both the survey of the FMCGsector and 12 complete supply chains, it has beenpossible to provide conclusions concerning thefollowing issues:

• Recognising the need to change

• Improved stock loss reduction practices

• Techniques and tools to reduce stock loss

• The need to take immediate action

Recognising the Need to ChangeThe cost of shrinkage is enormous, with an annualprice tag of €18 billion, excluding expenditure ontrying to respond to the problem, which would adda further €2.14 billion to the bill5. Taken together,this is equivalent to €50 million a day and accountsfor 2.31% of market turnover. Measuring the cost ofshrinkage was an important part of the project.Having established this figure, it should be used tofocus attention on a topic that has, for the mostpart, been largely ignored.

Shrinkage needs to be addressed at all points of the supply chain and

not simply in the retail store

Significant losses occur at each point in the supplychain process, although the retail stores are seen tobe the place where nearly two-thirds of allshrinkage takes place. In many respects this is notsurprising – it is the point at which ‘customers’enter the stock loss equation; mainly to browse andbuy, but sometimes also to steal, eat and damagestock. It is also the point at which perishable goodsusually meet their ‘sell by dates’; at best triggeringprice reductions, and at worse causing stock to bedestroyed. But other stages in the ‘chain’ areresponsible for significant losses as well andcritically affect the efficiency and effectiveness ofthe sector. The data presented in this reportgraphically depict the importance of seeingshrinkage as something that needs to be addressedat all points of the supply chain and not simply as aretail store problem.

Deciding how stock is lost is a perennial questionfor those trying to manage and monitor shrinkage –is it the staff, the customers, the suppliers or simplya consequence of company processes? Becausemost retailers do not know where and how two-thirds of their stock loss occurs (manufacturersare only marginally better), answering this questionaccurately is always going to be difficult if notimpossible. Certainly theft is bound to be more of aproblem for retailers than manufacturers due to thenature of their business, but there is a danger thattoo much emphasis is placed on a singleexplanatory factor when all companies arevulnerable to a range of stock loss problems.

Improved Stock Loss Reduction Practices Having established the scale of the problem andthe nature of current stock loss techniques, it ispossible to identify three major areas wherecompanies can improve their behaviour. These are:

• Collaboration• Information management• The use of security and audit personnel

Collaboration

Shrinkage is a problem that transcendsdepartmental and company boundaries – it issomething that requires genuine partnership andco-operation if it is to be managed efficiently andeffectively. For many retailers stock loss is theexclusive responsibility of the security/lossprevention and audit department and formanufacturers, very often the logistics team.However, virtually all parts of an organisation canplay a role in reducing stock loss; from the buyers,IT department, the distribution management team,right through to the legal department and buildingsplanners. Indeed, the role of departments likesecurity should be as much about co-ordinatinginter-departmental efforts to reduce shrinkage as itis about installing CCTV and employing securityguards. In addition, co-operation betweencompanies operating within the supply chain isequally important. Without cross-companycollaboration, any shrinkage solutions will bepartial, piecemeal and problematic, and will notcontribute to overall supply chain efficiency.

All parts of an organisation can play a role in reducing stock loss

5 This excludes the cost of shrinkage control for manufacturers, as it was not possibleto calculate this figure.


34

Information ManagementMost retailers cannot tell where or how most of thisloss takes place; only 41% is known. Manufacturersclaim to be slightly more knowledgeable, but eventhey can account for only 59% of their loss. Muchof the shrinkage iceberg is submerged beneath thechoppy waters of accountability.

Without good quality data that is up-to-date andtimely, loss prevention strategies will always bebased upon the shifting sands of hearsay, guesswork and perception. The surveys found thatreporting procedures varied considerably not onlybetween manufacturers and retailers but alsobetween the different types of stock loss. Asignificant proportion of respondents identifiedprocess failures as an area that was reasonably wellrecorded, but internal and external theft were notseen as a priority for computerised databasesystems, with most either not recording incidents atall or simply keeping a paper record. This wasparticularly the case for manufacturers. This raisestwo points. First, ‘data reinforcement’ can takeplace whereby only those problems that arerecorded are seen as a problem and hence littleeffort is then made to record other data. In effect aproblem becomes self-selecting and self-prioritisingand a perpetual loop of justification is produced.Secondly, paper-based systems offer little more thanan auditable record of events and are bereft ofvirtually any analytical capabilities. It is onlythrough the use of computerised databases thattrends can be identified and a more information-led strategic approach can be adopted to deal withall the elements that account for shrinkage.

The Use of Security and Audit PersonnelSignificant data was found on the potential impactsecurity and audit departments can have ontackling shrinkage problems. In both the retail andmanufacturer surveys, companies with suchspecialist teams had significantly lower levels ofstock loss. For retailers this amounted to adifference of 26% for those with a securitydepartment and 39% lower for those with an auditdepartment. In addition, having access to thehigher levels of decision-making also improved theperformance of these teams, with those able toreport directly to the Board of Directors havingmore of an impact on stock loss.

Techniques and Tools to Reduce Stock LossThe investigations undertaken throughout FMCGsupply chains identified that a major impediment tothe good intentions of companies was the lack of a‘road map’, both to guide their stock loss reductionefforts and to offer the techniques and toolsneeded to solve problems. In response to this need,the comprehensive guide to stock loss reductionpresented earlier in this report has beenconstructed. This guide is systematic, wellstructured and systemic, emphasising the need for acollaborative approach to be taken. The techniquesand tools associated with this have been chosenbecause of their simplicity and effectiveness. It istherefore possible to use this guide to delivertargeted and effective solutions to resolve majorstock loss problems over a relatively short timescale.

The Need to Take Immediate ActionTo date very little has been done to try and co-ordinate the different aspects of the entire supplychain process that requires manufacturers andretailers to work together to seek common solutionsto shared problems. Some work is underway andorganisations such as ECR are trying to positivelyencourage co-operation that will benefit thosetaking part and ultimately, the consumer. Thisreport has shown that much more could be doneboth by retailers and manufacturers to collaborateon problems of shrinkage. There is plenty ofevidence that points to a significant amount ofcommonality in problems suffered, particularly withrespect to process failures. It is difficult to see thedisadvantages of improving the scale and extent oflinks between those who produce and those whosell. But it is plain to see the possible impact of self-interest and a lack of sector-wide co-operation – abill for stock loss of €18 billion a year.

Much more can be done both byretailers and manufacturers to

collaborate on tackling the problemsof shrinkage


35

Glossary of Terms


36

Glossary of TermsBalanced Scorecard: A technique for structuringperformance measurement that considers theperspectives of shareholders, customers, internalprocesses and the creation of future value.

Business Process: A sequence of interlinked stepsthat provide the mechanism for delivering value tocustomers. A business process can transfer bothphysical products and information. It may extendbeyond a single business and include activities inother companies, across the supply chain.

Cause and Effect Analysis: A tool used to helpidentify causes of a particular stock loss problem.

Distribution Centres, DC: Supply centres that areused and/or managed (but not necessarily owned)by manufacturers and constitute an integral part oftheir distribution network.

ECR Europe: An organisation representing bothretailers and manufacturers that aims to encouragecompanies to work together to integrate theiroperations and eliminate barriers that reduce theirefficiency and effectiveness, and impact on theirability to satisfy consumers. Details of how to joinECR Europe can be found in theacknowledgements at the front of this report.

Europe: The term ‘Europe’ used in the reportrefers to the area covered by ECR Europe activitiesand includes Austria, Belgium, the Czech Republic,Denmark, Finland, France, Germany, Greece,Hungary, Irish Republic, Italy, Luxembourg,Norway, Poland, Portugal, Slovakia, Spain, Sweden,Switzerland, The Netherlands and UK.

External Theft: The unauthorised taking of goodsor cash from a store at any time of the day or nightby customers or other non-company employees.This includes incidents of shoplifting, fraudulentreturn of goods, till snatches and burglary (breakingand entering a store whilst it is closed).

Five ‘Whys’ Analysis: A tool used to identify theroot causes of particular stock loss problems.

Flow Chart: A tool used to represent the activitiesinvolved in a process. The simplest form of flowchart uses a notation of boxes to represent activitiesand arrows to represent relationships betweenactivities.

FMCG: The Fast Moving Consumer Goods Sector.Retailers and their suppliers who provide a range ofgoods sold primarily through supermarkets,hypermarkets and smaller retail stores. The core oftheir business is providing ‘essentials’ such asvarious fresh and processed foodstuffs, but theyalso stock a wide selection of other goods as wellincluding health and beauty products, tobacco,alcohol, clothing, some electrical items, babyproducts and more general household items. Someretailers may stock more than 20,000 differentproduct lines.

Hot Products: Particular items or types of productthat have been identified by retailers to beespecially at risk from theft. Such products areeasily concealed and often have special proceduresand security policies associated with them toprovide additional protection and reduce losses.

Internal Theft: The unauthorised taking of goodsor cash from a store at any time of the day or nightby staff employed by the company (includingcontract staff, for instance third party security staffor maintenance workers). This includes staff theft,collusion between customers and staff, employeeseating stock, till shortages and the deliberatemanipulation of prices.

Known Stock Loss: A calculable total where thereis some form of record of the loss, for instance,paper or computerised records of incidents such astheft or the disposal of goods that are out of date.

Percentage of Stock Loss: Total value of stock lossat retail value (including taxes) as a percentage oftotal sales. For manufacturers, this excluded lossesincurred as part of the manufacturing process.

Process Failures: Losses due to operatingprocedures within the organisation includingproducts which have become out of date, or havebeen reduced in price; incorrect pricing; productidentification errors; incorrect stock counting;products which have been damaged; scanningerrors; and errors in deliveries to the stores (e.g.short deliveries due to errors in picking anddispatch from distribution centres).

Process Mapping: A technique used to describebusiness processes. This is usually visualised throughthe use of flow charts. See also Business Processand Flow Chart.


37

Retail Distribution Centres, RDC: Supply centreswhich are used and or managed (but notnecessarily owned) by retailers and constitute anintegral part of their logistical network.

Shrinkage: Losses due to a combination of supplierfraud, process failures, internal theft and externaltheft. See also Percentage of Stock Loss.

Stock Keeping Units, SKUs: Industry-wide termused to describe individual product lines.

Stock Loss: see Shrinkage.

Supplier Fraud: Losses due to suppliers or theiragents deliberately delivering less goods than whatyou are eventually charged for by them. Thisincludes vendor and contractor fraud but does notinclude discrepancies in the goods supplied fromcompany DCs.

Supply Chain: A network of connected andinterdependent organisations mutually and co-operatively working together to control, manageand improve the flow of materials and informationfrom suppliers to end users.6

Systematic: A methodical, deliberate approachthat proceeds according to the system.

Systemic: An approach that considers the wholebody.

Unknown Stock Loss: A calculable total but wherethere is no record of how, where or when thelosses occurred within an organisation.


38

6 Aitken, J. (1998) Supply Chain Integration within the Context of a SupplierAssociation, Cranfield University, Ph.D. Thesis.


39

Appendices


40

Appendices

Appendix 1: Research MethodologyOver the last decade a number of writers andorganisations have studied stock loss in retailsettings. These studies, which have mainly beencarried out in the US and Europe, have focussed ontrying to measure the extent and nature ofshrinkage, together with identifying the methodsused to try and prevent loss. They might beregarded as an inventory of prevention techniquesthat are in place, with few studies seeking tochallenge recording methods or question the role ofsecurity and audit departments withinorganisations. The work commissioned by the ECREurope Shrinkage team differs from theseapproaches in a number of important ways,because the survey:

• Investigates the problem of shrinkage solelywithin the FMCG sector

• Is pan-European

• Examines the nature and extent of stock lossfrom the point of manufacture right through tothe point of sale

• Is an independent piece of research, which hasnot been sponsored by a loss preventionconsultancy firm or a security hardware company

This study is the first of its kind to try and gatherdetailed information on the extent of shrinkageacross Europe and the approaches adopted byretailers and their suppliers to deal with theproblem, and both phases offer unique pieces ofresearch. Phase I concentrated on the scale andextent of the problem by conducting a detailedsurvey of retailers and manufacturers. Phase II useda qualitative case-study approach, reviewing themovement of goods through the entire supply chainprocess (delivery of finished goods to point of sale).

Phase I Quantifying Stock Loss inEurope’s FMCG SectorThe first phase of the project measured the scaleand nature of the stock loss problem within Europeand investigated the phenomenon within retailersand manufacturers. The project made use of two

questionnaires: one for retailers and one for FMCGmanufacturers. The questionnaires asked forinformation on 5 areas:

• Company information

• Extent, nature and impact of stock loss withinthe company

• Methods for recording stock loss

• Company responses to stock loss

• Nature of collaborative efforts to tackle stock loss

The retailer questionnaires were sent to almost 200companies in 20 European countries. The samplewas selected based upon targeting companies thathad the largest share of the market within their owncountry, with the aim being to maximise therepresentation of the entire market within thesurvey. On average, for those countries selected tobe included in the analysis the market share of therespondents equates to 30%, with some as high as97% coverage. In total, the study received 38responses from retailers, with a total turnover of€121.9 billion or 14.78% of the total Europeanmarket share. The rate of response variedconsiderably between countries and by the end ofthe data collection phase the research team hadsufficient information to enable meaningful analysisto take place on companies from 15 differentcountries.

The sample of manufacturers was based oncompanies that have a ‘pan-European’ presenceand provide a wide range of products to retailers.This included alcoholic beverages, cleaningproducts, cosmetics, cooked foods, toys, andelectrical goods. In total, 29 companies were sent acopy of the questionnaire. Responses were receivedfrom 14 companies, a response rate of 48%, whohad a combined turnover of €61.7 billion.

Few companies, either retailer or manufacturer,were able to provide data for every question in thesurveys and some of the questions askedrespondents to comment on known and unknownloss. This clearly relied upon them using theirknowledge and experience to estimate what therequested breakdown might be. However, despitethe complexity of the project and the difficulty ofcollecting data on the sensitive and often hiddentopic of shrinkage, sufficient data was collected toallow the first robust assessment of the problem ofstock loss in a European setting and provided asound basis upon which the second phase could be built.


41


42

Phase II Understanding the Causes of Stock LossThe work undertaken in Phase II sought to identifyand analyse stock loss problems throughout FMCGsupply chains. Supply chains consist of a largenumber of diverse activities, each concerned withdifferent aspects of the handling of products andexchange of information. These various activitiescombine to form processes. The processes that existwithin and between organisations provide a meansto analyse firms and their supply chains. Becauseprocesses consist of diverse, interlinked tasks,analysing them can open up the ‘black box’ of thesupply chain: taking a process perspective of theinvestigation of both individual activities and wholeorganisations allows both the trees and the forest tobe analysed. It also ensures the realities of workpractices are considered in parallel with the supplychain’s overall function.

The second phase of the project was based on theexploration of 12 complete supply chains. Theanalysis of these supply chains required theinvestigation of 17 companies, includingmanufacturers, distributors and retailers, on 41 sitesin 10 countries. Undertaking the analysis of thesesupply chains required a systematic approach.Following the flow of products through FMCGsupply chains in a structured manner provided botha systematic and systemic approach. Beingsystematic, this research was methodically arrangedand undertaken according to plan. The systemicnature of this work referred to the focus on wholeprocesses and the integration of researchundertaken at the individual sites along the supplychains.

Each site visit, whether at a manufacturingcompany, distributor or a retailer, consisted of atleast two structured interviews; one with membersof the senior management team and one with themanagers responsible for security, logistics andstock loss. These interviews sought to collate thefollowing information and data:

• Stock loss statistics

• Company methods to identify stock loss

• Extent of staff and external theft

• Company methods to reduce stock loss

• Justification for the methods of reducing stock loss

• Impact of loss prevention methods on sales

Goods were physically followed through sites inorder to document the supply chain process, and toidentify the practices and procedures used tofacilitate this process and to control losses. Theinvestigation made use of Failure Modes and EffectAnalysis (FMEA) to examine the various ways that aprocess may fail and to determine the effect of thedifferent failure modes. Through focussing attentionupon stock loss, and by using the FMEA technique,it was possible understand the:

• Ways in which a process can fail and allow stockto be lost

• Severity of the loss should a failure happen

• Likelihood of a failure occurring

• Ability to detect that a failure has occurred

The data collated from the process analysis andinterviews allowed a composite model of thesupply chains to be constructed. This provided thebasis from which the performance of the supplychains was analysed and the conclusions drawn.

Appendix 2: Stock LossReduction SolutionsDetailed below are 67 solutions grouped into fourdifferent types: procedures and routines; designand layout; equipment and technology; and peopleand processes. It is in no way an exhaustive list ofpossible stock loss reduction options, but merelysome examples of the different approachescurrently available. They are listed in alphabeticalorder and no attempt has been made to ‘rate’ theireffectiveness.

Procedures and Routines Annual Stock Loss Awareness Campaign: Createthemes, activities and performance measures toengage every part of the organisation. This couldinclude awareness of current performance, risksand prevention procedures. Often supported bydepartmental action teams to gain feedback.

Company-Wide Stock Loss Refresher Training:Scheduled training that covers every employeewithin a reasonable time frame. It uses the mostrelevant materials based upon recent stock lossperformance, responsibilities, industry ‘bestpractices’ and specialist loss prevention techniques.

Customer Returns & Refund Controls (Operator& Customer Database): Sets maximum values forrefunds without supervision, develops over-riderfacilities procedures, management ‘halos’ to ensurethat high value, hot product or high abuse items aretracked e.g. clothes, videos, CDs etc.

Damaged Goods Resale Controls: Proceduresthat make it less attractive for employees todeliberately damage ‘premium goods’ to enablethem to be bought later at a reduced price or get itfree of charge.

Employees Exit Searches: Using a precise recordof shift patterns allowing management or securityteams to carry out employees searches either by arandom, arbitrary or targeted schedule.

Hot Product Identification: Hot products vary byoutlet, location, time of year and demographics.Once identified, various approaches can beconsidered to reduce their loss e.g. deliverychecking, shelf replenishment techniques, use ofspecial storage, display location and equipment andregular counting routines.

Hot Product Management: A unique set ofprocedures and guidelines, which aim to controlthe risks associated with these groups of products.Because varying degrees of risk occur throughoutthe replenishment cycle, checkpoints should beinvoked at all key stages of the supply chainprocess.

Hot Products Routine Counting: Used to identifylevels of loss, timing of loss and if possible whetherthe loss occurred on the sales floors, in thestoreroom or in transit. Frequency of count shouldbe weekly minimum and hourly maximum.Counting may deter theft as the products receivemore regular attention and therefore thieves will beprone to more surveillance.

Induction Training for New Employees: Use thecaptive and influential opportunity during inductionto enlighten new employees to issues of stock lossprevention, including areas and products at risk,common theft techniques and the organisation’spolicy on prosecutions. Should also be supportedby brochures, videos and aide memoirs.

Internal Key Control: Logging systems todetermine whom, when and why particular areassuch as ‘hot product’ secure lock ups are openedand secured after each activity.

Patrol Routes for Employees (Red Routes):Standard or set routes through storage and salesfloors areas that all employees are required to use.Enables vulnerable stock areas to be more carefullymonitored.

Point of Sale Information or Data Checks: Pointof sale audits against targeted personnel basedupon suspicion, anecdote or concerns about anindividual’s honesty. Could also cover internal andor external collusion.

Random Till Cash Checks: Random, arbitrary ortargeted cash checks to detect mid-shift or end ofshift under-ringing and cash abuse/theft.

Rigorous Delivery Checking Procedures: Clearand detailed procedures covering all types ofdelivery checks for internal and external suppliersof stock. This should include detailed levels ofclaims for shortages, timescales and validationprocesses for claims. This can include specialprocedure for high-risk products.


43

Security Newsletter: Regular communicationalerting employees at all levels about lossprevention techniques and up-to-date informationon fraud and theft trends and cash and stockcontrols. Depending on sensitivities and civil rights,examples of external and or internal theft andvigilance awards for employees can be highlighted.

Shelf Replenishment Techniques: A range oftechniques to reduce the risk of internal or externaltheft by regulating the flow of goods on to theshelves. Examples include a maximum of one day’ssales on shelf, loose stock secured betweenreplenishment cycles, stock secured between cyclesand replenishment cycles increased for high-risk lines.

Unique Till Operator PIN Numbers: A uniqueelectronic operator number that enables transactionmonitoring and an audit trail at operator level to bedetermined. It can also enable other electronictracking devices such as CCTV to be used toinvestigate individual operators.

‘Watertight’ Product Monitoring Procedures:Used to identify skilled theft of high-risk products.CCTV cameras monitor the shelf stock of high-riskproducts. The quantity of shelf stock is checkedtwice a day, morning and afternoon, by a handcount. The number of items taken from the shelf iscompared against EPOS data. If a loss is found tohave occurred then the CCTV tape is reviewed toidentify likely culprits. Files are kept on thesepeople and evidence collected over time on theirbehaviour patterns until enough is known to act tostop them.

Design and Layout Appropriate Product Location Strategies: Thisapproach locates high-risk products in an area ofhigh visibility and control during storage and thesales area.

Designing-Out Blind Spots: This involvesimproving the physical layout of a facility, forexample through better lighting, improving thepositioning of CCTV cameras and giving better lineof sight visibility to members of staff from theirwork location.

Designing-Out Crime Programme: Using up-to-date techniques to ensure that thieves cannot loiterundetected, cannot steal large quantities of high-risk products easily, and cannot conceal themselvesinternally or externally in any part of the building.

A range of equipment e.g. one-way entrance/exitgates, low-level fixtures, CCTV, anti-theft displayequipment and robust packaging should supportthis approach.

Distribution Centre Secure Storage: Thesesolutions consist of isolated distribution centres orsections within a distribution centre designed tohandle high risk product groups with uniquelyrigorous receiving, picking, access control anddespatch processes.

Employee Entry/Exit Access Control: A uniqueentrance and exit facility for employees to ensurethat arrivals and departures can always bemonitored. This area will include a place whereeither management or security employees canperform searches discreetly.

External Security – Fences, Anti-Ram Raid, RollShutters: A range of defensive approachesdesigned to ensure that exterior and out of businesshours breaches are made more difficult and do notgo undetected.

Risk-Based Design and Layouts: In place of a ‘onesize fits all’ approach to store design, this approachconsiders risk profiling or modelling of each unitbased upon their specific levels of risk of stock loss.This method makes use of records of internal andexternal theft, insurance risk (industry data),historical stock loss performance, local demographicdata, rates of staff turnover, trading hours and cashlosses to develop an accurate ‘picture’ of the risksassociated with a particular site.

Robust Anti-Theft Packaging: The use bymanufacturers of extra strong and robust packaging.Includes design concepts such as ‘too large to fit inthe average pocket’ packaging.

Single Direction Product Flow: A one-wayprocess that does not have any ability to reverse themovement of stock for any reason. Quantities aredesigned to always fit into the despatch, deliveryand replenishment requirement of a recipient,without fail.

Supply Chain and Logistics Network Design:Consideration of a range of specific secure deliverymethods that could include, cross docking, uniquehot product delivery processes, third partyconsolidation and delivery service for hot products,central distribution high risk product routine checkpoints throughout the network and unit itempicking in a controlled environment.


44

Equipment and Technology Active CCTV: Either black and white or preferablycolour systems that operate during working ortrading hours and record incidents throughout thekey areas of the building.

Automated Ordering Processes: Computer basedordering processes usually either sale based or salestrend based. May include manual interventioncapability to adjust final order quantities.

Cash Protection Tactics and Equipment: (bothcash offices and tills): A wide range of equipmentand approaches are available including cash drawercovers to prevent till snatches, cumbersome metaltill cash pick up units, maximum values between tillpick ups, heavily supervised/guarded pick ups andtimed ‘dead locks’ on safes.

Company-Wide Stock Loss Awareness Posters:Use the most appropriate and relevant themes.Position in key employees areas, changing rooms,main corridors/stairways, employee restaurants,department notice boards, to capture the attentionof full-time and part-time employees. It is importantto be creative and rotate themes in order tostimulate interest and sustain attention.

Dummy Display Cards in Place of High-RiskProducts: Professional replicas of product withsignage explaining clearly to customers how andwhere this product can be obtained and paid for.

E.A.S. Hard Tagging (recycled): Radio Frequency,Acosta Magnetic or Electro Magnetic tags placed onhigh-risk products by employees to raise alarm ifproducts are removed and not purchased. Usuallydisarmed or identified at point of sale and usedextensively on clothing.

E.A.S. Soft Tagging (disposable): RadioFrequency, Acosta Magnetic or Electro Magnetictags placed on high-risk products by employees toraise alarm if products are removed and notpurchased. Usually disarmed or identified at pointof sale. Can sometimes cause problems withsystems in other locations if ‘deactivated’ productsare taken there.

E.A.S. Source Tagging (either disposable orrecycled): Radio Frequency, Acosta Magnetic orElectro Magnetic tags placed on high-risk productsby manufacturers, to raise alarm if products areremoved and not purchased. Usually disarmed oridentified at point of sale.

Employee Purchasing Arrangements: Facilitiesthat make monitoring of staff purchases andbenefits easier to track. It often requires heavyinvestment to create an exclusive or unique facilityfor staff.

Employee Panic Alarms: Alarm buttonsstrategically placed and often connected to thelocal police station to reduce the risk of personalinjury, armed robbery as well as the theft of cashand goods.

Employee Uniforms without Pockets: Reducesthe opportunity for staff to conceal either cash orstock while at work.

Intruder Alarm Systems: Make use of passivebeams, infrared or wire-based anti-breach burglaryalarms. Can be used to control stock security eitherduring operating hours or secure buildings whenclosed to the public.

Non-Active CCTV: Dummy cameras that look as ifthey are real but have no facilities for enablingmonitoring or recording of incidents.

Point-of-Sale Camera Monitoring: Camerastargeted on till operators and used in conjunctionwith a computerised till monitoring system thattracks ‘unusual’ incidents such as till drawer openfor more than an acceptable amount of time,consistently low transaction values etc.

Protector Display Cases Applied by RetailOutlets: Robust product containers that areapplied in the retail outlet to protect products suchas CDs, music tapes and videos. Usually removedat the point of sale with special equipment.

R.F.I.D. Intelligent Tags on Pallets, Cases orItems (Radio Frequency): Tags that can track thecorrect stock despatch to the right outlet. Usuallyfocussed on high-risk product groups but couldextend to all products over time.

Replenishment Equipment to SupportTechniques: Specialist equipment for high-riskproducts, which allows secure storage for loose hotproducts before, during and betweenreplenishment cycles and operator shifts.

Secure Lockers for Employees: An employeefacility to ensure that personal possessions ormoney are not accessible during business hours foremployees; always maintaining a managementprerogative to search if suspicion exists.


45

Security-Sealed Containers/Shippers: Speciallydesigned secure containers for hot products movingfrom supplier to distribution centres, and betweendistribution centres to outlets. These range from hotsealed opaque bags to lockable/sealed boxes orcontainers.

Shoplifting and Theft Policy Posters forCustomers and Staff: Signs distributed around anystock areas, both for employees and customers,clearly stating the policy to arrest, prosecute ordetain anyone suspected or caught in possession ofunpaid goods.

Specialist Anti-Theft Display Equipment:Restrictors on the level of fill and/or restrictors toreduce removal of more than a single product percustomer. Also includes lockable display units,dummy display units and customer servicedispensing only systems.

People and Processes Anonymous Phone Line: Constantly manned oranswer phone-based hot line, which enablesemployees to report any known internal theft orincidents of collusion that they are aware of, butwould prefer not to be identified for fear ofreprisals. This could also extend to external eventsthat are known about and reported by customers inhigh-risk locations.

Civil Recovery: A process that takes theft-relatedoffences beyond standard police prosecution andutilises civil law to recover the costs of stolenproperty from the offender (both customers andemployees).

Covert Surveillance of Customers or Employees:Use of CCTV or trained personal to observesuspected employees without them knowing it istaking place.

Employee Awareness and Training: A wide-ranging programme, which can help to changeorganisational culture if sponsored by seniormanagement. Makes use of internal and externalspecialists to enlighten, facilitate and help create achange within the organisation. It is important toidentify the intended outcomes and to measurethem accordingly.

Employee Incentives – Discount PurchaseSchemes: These are schemes which incentiviseemployees to buy products from the company atdiscounted prices, and act as an alternative tostealing product during working hours. Someschemes are only valid after a certain minimumnumber of months of employment.

Employee Incentives – Stock Loss BonusSchemes: A range of schemes to incentiviseemployees to improve stock loss performance.Industry examples range from percentage of annualsavings shared with employees to developing andrewarding key performance indicators such asdegree of compliance with procedures, costcontrols and sales performance.

Employee Integrity Checks: Pre-employmentscreening to ensure that no relevant previouscriminal record exists.

Employee Stock Loss Training and Education:Continuous structured programmes facilitated by arange of internal and external specialists, whichmay include, security, loss prevention, stockmanagement, customer service, manufacturers,police and consultants.

External Compliance Monitoring: External staffcontracted to measure key process adherence toexisting stock loss prevention procedures. They canalso provide industry standards, best practice andup to date thinking on new procedures.

External Security/Loss Prevention Function:External staff contracted to measure securityprocedure adherence on cash, stock, alarms, keyholder controls, and perform risk assessments. Theycan also provide industry standards, best practiceand up to date thinking on security issues.

External Stock Audit Function: External staffcontracted to count stock on a regular basis eitherthrough entire inventories across all processes oralternatively more focussed counting on high-riskproducts in high-risk outlets. Used to produceperformance results in a consistent format enablingcomparisons over time to be made.

Internal Compliance Monitoring: Staff employedto measure key process adherence to existing stockloss prevention procedures. Unless they arespecialists it is unlikely that they can provide orcompare results with industry standards. Theirperformance can be enhanced if they are able toreport directly to senior management.


46

Internal Security/Loss Prevention Function: Staffemployed to measure security procedureadherence on cash, stock, alarms, key holdercontrols, asset risk assessment. Unless they arespecialists, it is unlikely that they can provideindustry standards. Research shows that such afunction has a greater impact if it reports directly tosenior management.

Internal Stock Audit Function: Staff used to countstock on a regular basis either through entireinventories across all processes or alternativelymore focussed counting on high-risk products inhigh-risk outlets. Used to produce performanceresults in a consistent format enabling comparisonsover time to be made.

Random Checks on Distribution Centre PickingAccuracy: Internal or external agencies who carryout load checks prior to despatch to identifypicking errors. Usually focussed on high riskproduct groups.

Store Detectives: Plain clothed security operativesemployed to detect or deter would-be shopthieves.

Test Purchasing ‘Mystery Shopper’: Customerdecoys who take a normal or targeted shoppingload through suspected or regular employee tocheck accuracy of transaction, cash handling andobservational skills of checkout operators.

Uniformed Security Guards: Either contractedfrom a specialist company or trained as a memberof the organisation. Used as a visible deterrent towould-be offenders and often positioned near ‘atrisk’ products. Also employed to reassure staff whomay feel vulnerable to crime, especially violentcrime.


47


48


49

Appendix 3 ORDER FORM FOR RELATED SHRINKAGE REPORTS

FAX

To send your order either fax this form back to: +44 [0]116 252 5934

Or post to:Adrian Beck, Scarman Centre, University of Leicester,

154 Upper New Walk, Leicester LE1 7QA, UK

Your Contact Details: (Please write clearly in blackink and using capital letters)

Name:

Position:

Company Name:

Address (where report[s] should be sent):

Country:

Postcode:

Telephone:

Fax:

Email:

Please invoice me for the sum of Euros

Where appropriate, please state your order number:

To: Adrian Beck, Scarman Centre, University of Leicester

Date:

From:

Please send me the following reports: State number required

Shrinkage in Europe: A Survey of Stock Loss in the Fast Moving Consumer Goods Sector

Shrinkage in Europe: Understanding the Causes

Each report costs €182 including postage and packing


50

shrinkage: introducing a collaborative approach to ... europe...collaborative approach to reducing...

Documents