Transcript Survey, Hot Concept and ECR Background
Introduction to ECR Europe and Shrinkage
Adrian Beck Reader in Criminology University of Leicester, UK ECR South Africa, February 2006
ECR Europe Shrinkage Group
Established in 1999 Made up of retailers, manufacturers and academics
The ECR Shrinkage Project Team
Purpose of ECR Shrinkage Group
Raise awareness of the problem of shrinkage Co-ordinate and sponsor cutting edge research Encourage companies to address the problem Promote a more systematic and systemic approach to dealing with the problem (the ECR Shrinkage Road Map)
Guiding Principles – Engage senior management and prioritise shrinkage: it is a consumer problem Choice and ranges restricted High margin products not listed Products get locked up – Consumers frustrated Shelves go Empty – New item impact reduced – Consumers switch stores or brands – Lower consumption
Guiding Principles Engage senior management and prioritise shrinkage Identify accountabilities, measure, monitor and motivate
Identify accountabilities, measure, monitor and motivate
End to end accountability – From store and product design to reverse logistics Data accessibility, timeliness and granularity – Mining the data warehouse Monitor and generate transparency – Stock counting – Process audits Incentivise staff – Retailers with incentive schemes had lower levels of shrinkage
Data mining...
14,836,947 products Cashier error?
£12,000,000 shrinkage
Guiding Principles Engage senior management and prioritise shrinkage Identify accountabilities, measure, monitor and motivate Promote inter and intra company collaboration
Who needs to be involved?
Manufacturer – Design team – Production – Supply Chain – Marketing – Sales Retailer – Buyer/Merchandising – Loss Prevention – Supply Chain – Store Operations Environmental agency
End to End Solutions
Before After
Guiding Principles Engage senior management and prioritise shrinkage Identify accountabilities, measure, monitor and motivate Promote inter and intra company collaboration Adopt a systemic and systematic approach
ECR Shrinkage Road Map
CORPORATE POLICY Evaluate Implement Plan Map & Measure Develop Solutions Analyse
Guiding Principles Engage senior management and prioritise shrinkage Identify accountabilities, measure, monitor and motivate Promote inter and intra company collaboration Adopt a systemic and systematic approach Unlock the value of the 'hot' concept
The Hot Concept
Hot concept • Products • Places • People • Processes
Places Products People Processes
Guiding Principles Engage senior management and prioritise shrinkage Identify accountabilities, measure, monitor and motivate Promote inter and intra company collaboration Adopt a systemic and systematic approach Unlock the value of the 'hot' concept Focus on process failures first
Focus on Process Failures First
Removes opportunity – Receipt process – Returns Masks malicious activity Delivers – Quick wins – Cost effective wins – Sustainable solutions
Guiding Principles Engage senior management and prioritise shrinkage Identify accountabilities, measure, monitor and motivate Promote inter and intra company collaboration Adopt a systemic and systematic approach Unlock the value of the 'hot' concept Focus on process failures first Encourage innovation and experimentation
Encourage innovation and experimentation
Keep ahead of the game Initiate…….
– Pilot Studies on new ideas – Road Map projects with suppliers – Benchmarking against industry surveys Experiment…..
– New solutions – New store layouts ECR survey showed that retailers who innovated and experimented most had 20% lower shrinkage
Guiding Principles Engage senior management and prioritise shrinkage Identify accountabilities, measure, monitor and motivate Promote inter and intra company collaboration Adopt a systemic and systematic approach Unlock the value of the 'hot' concept Focus on process failures first Encourage innovation and experimentation Document learning and disseminate success
The ECR Europe 2004 Shrinkage Survey
Adrian Beck Reader in Criminology University of Leicester, UK ECR South Africa, February 2006
Defining Shrinkage
Shrinkage Process failures Inter company fraud Internal theft External theft
What Does Shrinkage Mean?
Inter-Company Fraud
Deliberate Under/Over Delivery Invoice Errors Quality and Weight of Items
Process Failures
Inventory Errors Pricing Errors Damage to Stock Promotion Errors Stock Going Out of Date Product Delivery/Scanning Errors
Internal Theft
Theft of Stock and Cash ‘Grazing’ Collusion
External Theft
Shoplifting Returning Stolen Goods ‘Grazing’ Till Snatches Burglary
What Does Shrinkage Mean?
Inter Company Fraud Internal Theft
MALICIOUS Degree of Intent Probing Systems Exploiting Loopholes
External Theft Process Failures
NON MALICIOUS Mistakes Poor Planning Bad Management
Background and Methodology
Last survey in 1999 Need for a new benchmark Stock loss calculated at retail prices
Background and Methodology
26 countries surveyed (21 last survey) 250 retail companies and 44 manufacturers/suppliers contacted Total FMCG sector valued at over €1 trillion Sample represents 13.7% of retail companies with a combined turnover of €137,214,920,000
Counting the Cost
Sector Retail Manufacturer
Total
% of sales 1.84
0.57
2.41
Value ( € billions) 18.5
5.7
24.2
Total loss equates to €66 million per day
Retailer’s Missed Profit Opportunity
5 % 4 % 3 % 2 % 1 % 0% 1.84%
Average Retailer Shrink Margin Average Retailer Profit Margin
2.99% 4.83% Current Potential
Shareholder Value
€1 Incremental Sales
Net Income
€ 0.15
Shareholder Value
€ 3.00
Calculated by the Cranfield School of Management based upon the following assumptions Sales Margin = 15%; Inventory Holding Costs = 20%; Net Overhead Cost = 30%; Share Price is a Multiple of 20 on Net Income.
Shareholder Value
€1 Incremental Sales €1 Inventory Reduction
Net Income
€ 0.15
Shareholder Value
€ 3.00
€ 0.20
€ 4.00
Calculated by the Cranfield School of Management based upon the following assumptions Sales Margin = 15%; Inventory Holding Costs = 20%; Net Overhead Cost = 30%; Share Price is a Multiple of 20 on Net Income.
Shareholder Value
€1 Incremental Sales €1 Inventory Reduction
Net Income
€ 0.15
€ 0.20
€1 Shrinkage Reduction € 0.70
Shareholder Value
€ 3.00
€ 4.00
€ 14.00
Calculated by the Cranfield School of Management based upon the following assumptions Sales Margin = 15%; Inventory Holding Costs = 20%; Net Overhead Cost = 30%; Share Price is a Multiple of 20 on Net Income.
Shrinkage Retail Iceberg
49% 51%
Unknown Loss €9.5 billion
Impact of the Iceberg
Lack of visibility Lack of awareness – When did it happen?
– Where did it happen?
– How did it happen?
– Who was responsible?
Lack of accountability Prioritisation of the most visible/acceptable
Location of the Problem
24% Manufacturer Distribution €5.7 Billion + 5% Retail Distribution €1.2 Billion 71% Retail Stores + €17.3 Billion = TOTAL €24.2 Billion
Causes of Retail Stock Loss
Inter-Com pany Fraud 7% Process Failures 27% External Theft 38% Internal Theft 28%
Causes of Retail Stock Loss
Causes of Retail Stock Loss
Retail Company Co-operation
Security/Loss Prevention Store Mangt Board of Directors Auditing Supply Chain Mangt Logistics Finance Buying Human Resources IT Dept Legal Dept Planning and Design Marketing 0% 10% 20% 30% High Involved 40% 50% 60% Per cent Regularly Involved 70% 80% 90% Hardly Involved 100%
Causes and Spending on Shrinkage
60 50 40 30 20 10 0 60
38
External 27
28
Internal Spending Cause
26
9 Process 4
7
Inter Company
Other Survey Highlights
Companies with a corporate policy Companies that prioritised stock loss Companies that provided bonuses for good stock loss results Companies with higher levels on inter-company co-operation Companies that carried out a greater number of shrink reduction projects…..
… All had lower levels of stock loss
6 Steps to Successful Shrinkage Reduction
Written company policy High levels of intra-company co-operation Prioritise the problem Incentivise staff Conduct regular shrinkage reduction projects Make use of the ECR Europe Road Map
For a free copy of the final report email:
Exploring Risk: The ‘Hot’ Concept
Adrian Beck
Reader in Criminology University of Leicester
ECR South Africa, February 2006
Background
Risk is not evenly distributed. It is focussed on particular products, places, people, processes Crime hot spots 3% of locations in some cities account for 50% of recorded crime Hot products Some products much more at risk than others
Hot Products Example
What Causes Products to be Hot?
C
oncealable
R
emovable
A
vailable
V
aluable
E
njoyable
D
isposable
Background
Supply chain hot spots Risk exists at particular points, e.g. delivery to store Hot People – Marginalised, unmonitored, temporary, known offenders
Value of Understanding the ‘Hot’ Concept Avoids spreading valuable resources too thinly Focus on the vital few amongst the trivial many Rapid impact Greatest return Possible diffusion of benefits
Hot Store Mythology
Social Geography ‘Bad areas cause high shrinkage’ Management ‘Good results follow good managers’
The Hot Store Project: From Myth to Reality ECR project launched to understand the issues relating to store losses Research questions: Across Europe, what is the profile of store losses?
What makes a store ‘hot’?
Methodology
Survey: – Contacted a sample of European retailers – Gathered shrink details for all outlets Case Studies: – 4 companies: Ahold (Czech); Feira Nova (Portugal); Tesco (UK); Wickes (UK): – Collected estate-wide data – Visited 4 stores per company (2 ‘good’, 2 ‘bad’) – Interviewed key store staff
European Store Shrinkage Rate
1000 800 600 400 200 0 -3
Low Stores
-2
4.8%
-1
Average Stores 89.6%
0 1 2 3 4
Shrinkage as a % of turnover
5
Hot Stores 5.7%
6 7 7+
Estate-Wide Findings
Strong link between high staff turnover and shrinkage Older stores had higher levels of shrinkage Length of time manager had been at the store associated with low shrinkage Length of time manager had been at the store associated with lower staff turnover Company risk categorisation was not helpful
Hot Stores Attributes
Store manager and team see shrinkage as their responsibility BUT blame the environment, the staff, outsiders, the company… ‘there is only so much we can do to control the situation’ (CS 2,1) ‘the stock deliveries are never correct – we always inherit the problem’ (CS 4,2)
Hot Stores Attributes
Company doesn’t make manager accountable for losses at the store ‘when managers move store they are not held accountable for what’s left behind’ (CS 1,1)
Hot Stores Attributes
Company procedures are not followed ‘we should be doing 70 staff searches a week but we only ever manage 40’ (CS 4,1) ‘we haven’t been having the weekly team shrinkage meeting’ (CS 4,2) ‘staff don’t fill in the wastage reports properly’ (CS 4,3) ‘the backroom area always looks like a bomb site’ (CS 2,4)
Hot Stores Attributes
The manager does not provide support, leadership and control ‘I don’t trust my staff and they don’t do what I tell them to do’ (CS 2,4) ‘there is collusion between the security guards and the cashiers. The cashiers are incompetent. The head of the cashiers knows what to do she just doesn’t do it.’ (CS 4,3)
Hot Stores Attributes
Store management does not know the extent of the problem ‘I would have to say that Mach 3 is highly stolen in this store because that’s what everybody in the industry says’ (CS 1,2) ‘I can never reconcile my inventory…’ (CS 3,4) ‘we don’t keep a record of security incidents in the store – we tell head office and then throw the data away’ (CS 1,2)
The 4 ‘A’s to Preventing Stores Becoming Hot
A
ccountability
A
ction
A
ttitude
A
udit
The 4 ‘A’s to Preventing Stores Becoming Hot
Accountability
– The manager owns the problem and prioritises it all day, every day ‘keeping my eye on the ball’ (CS 4,2) – The manager is highly committed to reducing shrinkage ‘as important as sales’ (CS 4,1)
The 4 ‘A’s to Preventing Stores Becoming Hot
Action
– Store context needs to be understood and appropriate actions taken to meet the challenges ‘this is a tough store but we know it and develop plans accordingly’ (CS 4,4) – All procedures must be adhered to consistently: they must be robust, standardised and institutionalised ‘we know what we need to do – good procedures already exist’ (CS 2,3) – Backroom areas - keep them neat and tidy as a message to all staff ‘there is no reason why the backroom shouldn’t be as clean as the shopfloor’ (CS 2,3)
Good management is the solution
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 96% 1.5% Store 1 73% 4.7% Store 2 56% 4.5% Store 3 13% 8.0% Store 4 Compliance Shrink
Source: Ahold Hypermarkets: Czech: 2004
The 4 ‘A’s to Preventing Stores Becoming Hot Attitude – Build a cohesive management team ‘Vision. Mission. Obsession’ (CS 3,1) ‘You need the right people with you and for you. It’s about having a common goal and sharing it’ (CS 4,3) – Understand the staff, be consistent and recognise when staff need help ‘You have to be involved and talk to everyone in every department every day’ (CS 1,3) – Be supportive and flexible ‘XXX has his finger on the pulse. He’s a manager, you don’t get many. Some people put the badge on but that doesn’t make them managers’ (CS 1,3)
The 4 ‘A’s to Preventing Stores Becoming Hot Audit – Access and use high quality reliable data in order to understand the problems and how they change over time ‘Measure success and celebrate when good’ (CS 4,3) ‘We have a daily control routine and update the store team weekly on results’ (CS 1,2)
These Findings Suggest That...
High shrink in hot stores is mostly a function of poor management and lack of adherence to procedures The environment affects shrinkage but good management responds to the context and develops effective strategies to meet the challenge
The Hot Concept
Places Products People Processes