Transcript LOSE LESS AND SELL MORE: Using the ECR Europe Approach …

LOSE LESS AND SELL MORE:
Using the ECR Europe Approach
to Manage Shrinkage
Adrian Beck
Reader in Criminology
University of Leicester, UK
Structure
• Defining Shrinkage
• The Scale of the Problem
• Key Principles of Effective Shrinkage
Management
• A Case Study in Success
Defining Shrinkage
Original ECR Europe
Definition Shrinkage
Shrinkage
Process
failures
Intercompany
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  Promotion Errors
 Pricing Errors
 Stock Going Out of Date
 Damage to Stock  Product Delivery/Scanning Errors
Internal
Theft
 Theft of Stock and Cash
 ‘Grazing’
 Collusion
External
Theft
 Shoplifting
 Returning Stolen Goods
 ‘Grazing’
 Till Snatches
 Burglary
New Shrinkage Typology
TOTAL LOSS
Shrinkage
Process
Variance
Product
Loss
Cash Loss
Value
Variance
Unknown Loss
Internal Theft
In Auditing
Damage
Reductions
External Theft
At Checkout
Spoilage
Pricing
Error
Product
Movement
Internal Theft
Missed
Claims
Unknown Cash
Loss
Data Errors
External Theft
Scale of the Problem
International Comparisons
Year
2002
2004
2003
2006
2006
2002
2003
2006
2003
Source
National S’market Res. Group (US)
ECR Europe
Retail Council of Canada
Food Marketing Institute (US)
NRSS (US)
ECR Australia
Otago University (New Zealand)
European Theft Barometer
Eurohandelinstituts (Germany)
Size
2.32
1.84
1.75
1.69
1.59
1.52
1.50
1.24
1.23
Shrinkage Retail Iceberg
• Lack of visibility
• Lack of awareness
– When did it happen?
49%
– Where did it happen?
– How did it happen?
– Who was responsible?
51%
• Lack of accountability
• Prioritisation of the most
visible/acceptable
Causes of Retail Stock Loss
Study
External
Internal
Process
Vendor
Otago Univ (New Zealand)
68
12
20
3
European Theft Barometer
49
31
14
6
ECR Europe
38
28
27
7
Retail Council of Canada
35
40
18
7
Food Marketing Institute (US)
35
38
18
8
ECR Australia
35
25
29
11
NRSS (US)
33
47
15
5
National S’market (US)
20
57
?
?
Location of the Problem
24%
5%
71%
Manufacturer
Distribution
Retail
Distribution
Retail
Stores
Retailer’s Missed Profit Opportunity
Average Retailer Margin
5%
4%
1.84%
1.84%
3%
Average
Retailer
Shrink
Margin
4.83%
2%
1%
Average
Retailer
Profit
Margin
2.99%
0%
Current
Potential
Shareholder Value
Net Income Shareholder Value
€1 Incremental Sales
€ 0.15
€ 3.00
€1 Inventory Reduction
€ 0.20
€ 4.00
€1 Shrinkage Reduction
€ 0.70
€ 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.
Principles of Effective
Shrinkage Management
Guiding Principles
•
Engage senior management
•
Convince them of the opportunity
•
Show the impact on the consumer
•
Persuade them that a multi functional
approach is required
•
Secure resource
Guiding Principles
•
Measure the problem
•
Data accessibility, timeliness and granularity
•
Mining the data warehouse
•
Monitor and generate transparency
Data mining...
14,836,947 products
Cashier
error?
£12,000,000 shrinkage
1.48 billion kr
Guiding Principles
• Promote inter and intra company collaboration
• Who needed 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
• Adopt a systemic and systematic approach
– The ECR Europe Road Map
ECR Shrinkage Road Map
CORPORATE POLICY
Evaluate
Implement
Develop Solutions
Plan
Map & Measure
Analyse
Crisis-Driven Shrinkage
Management
CORPORATE POLICY
Evaluate
Implement
Develop Solutions
Plan
Map & Measure
Analyse
Example Tool: 5 Whys
Problem
 There is no product on the shelf
1. Why?
Because it is in the back room
2. Why?
Replenishment team cannot find it
3. Why?
All packs seem to look the same
4. Why?
No differentiation except by barcode
5. Why?
Pack designed to suit DC operation
ECR Road Map Principles
• Collaborate and engage all stakeholders
• Focus effort on the processes:
Products/Information/Money
• Identify greatest oppportunities then target root
causes
• Remove the opportunity for loss or error
• Encourage evaluation & learning
ECR Road Map Benefits
• Ensures the right resources and people engaged
• Better and more sustainable results
• Less daunting
• More cost efficient
• Higher probability of success
• Quicker to implement
• Lessons can be reapplied to other problems
Guiding Principles
• Unlock the value of the 'hot' concept
–
–
–
–
Products
Places
People
Processes
Places
People
Products
Processes
Hot Products Example
Benefits of 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
Guiding Principles
• Focus on process failures first
– Removes opportunity
• Receipt process
• Returns
– Masks malicious activity
– Delivers
• Quick wins
• Cost effective wins
• Sustainable solutions
Process Compliance & Shrinkage
100%
96%
90%
73%
80%
70%
56%
60%
Compliance
Shrink
50%
40%
30%
20%
10%
0%
1.5%
Store 1
4.7%
Store 2
Source: Ahold Hypermarkets: Czech: 2004
13%
8.0%
4.5%
Store 3
Store 4
Guiding Principles
• 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
• Document learning and disseminate success
Guiding Principles
Disseminate
Document
Learning
Adherence to
Use the Road ECR
Road Map
Procedures
Motivate Staff
Collaborate
Measure
Innovate
Experiment
Focus on Hot Concept
Engage Senior
Management
Adopt Systemic
a Systematic
Approach
Start with Non
Malicious
Shrink
The ECR Road Map in Action:
Tesco and P&G Case Study
The Problem - 2003
• Products Locked Up
• Shelf “out of stocks”
Failing to serve the customer
and failing to support their businesses
Tesco UK Shrinkage - 2003
Unknown losses at Retail
As % of Sales
Health and Beauty
3.0%
Wines and Spirits
1.0%
Clothing
3.0%
Home Entertainment
3.5%
Total Company
1.01%
Tesco - Call to Action
• “Got the call” from the very top
• “Licence” to work across functions to reduce
shrinkage
• Permission granted to take drastic action if needed
Plan
• Hot Products
• Hot Stores
• Look for Internal Process Failures
Product
Hot Products...
Health & Beauty
Description
TWIN PACK
BRAUN ORAL B REPL HEAD
BRAUN ORAL B REPLACEMENT HEAD4'S EB17-4
JOHNSONS BABY EXTRACARE WIPES 64
TOOTHPASTE 100ML
WHITENING
COLGATE
OIL OF OLAY TOTAL EFFECTS MST REG 50ML
900G
BABY MILK
SMA GOLD
NIVEA VISAGE ANTI WRINKLE Q10REPAIR CRME 50ML
OIL OF OLAY TOTAL EFFECTS NIGHT T/MENT 50M
AQUAFRESH MULTI ACTION WHITENINGTOOTHPASTE 100ML
KIDS BOY/GIRL
SPINBRUSH
CREST
LIQUID CAPSULES 16'S
NUROFEN
OIL OF OLAY TOTAL EFFECTS MST F/F 50ML
PAMPERS BABY DRYECONOMY PACK JUNIOR 54
SMA PROGRESS FOLLOW ON MILK 900G
16S
TABLETS
NUROFEN
MACH 3 TURBO CARTIDGES 8'S
GILLETTE
HUGGIES FREEDOM LGE CONVENIENCE PACK 30
CREST SPINBRUSH YOUTH/MULTIANGLEREPLACEABLE HEAD
ACTIBRUSH KIDS <COLOURED>
COLGATE
REFILL 72
BABY WIPES
PAMPERS
PREMIUM 900G
COW & GATE
CARTRIDGES 4'S
MACH 3
GILLETTE
ANADIN EXTRA TABLETS 16'S
ORAL B 5000 PROFESSIONAL CARE 3D T/BRUSH
This Period Mismatch
Gain
(8,475)
(5,373)
(5,114)
(6,041)
(5,089)
(3,974)
(3,926)
(2,357)
(2,739)
(1,943)
(1,136)
(4,903)
(2,885)
(2,527)
(1,764)
(8,316)
(2,628)
(2,517)
(7,689)
(4,427)
(2,659)
(12,278)
(1,214)
(12,212)
Loss
41,099
20,596
18,975
18,324
12,962
11,393
11,300
8,770
9,122
8,308
7,257
10,653
8,551
7,550
6,653
12,979
7,290
6,840
11,783
8,465
6,650
16,232
5,166
16,066
Net mismatch
(Ret Value)
32,624
15,223
13,861
12,283
7,874
7,419
7,374
6,413
6,383
6,365
6,121
5,750
5,666
5,023
4,889
4,664
4,661
4,323
4,095
4,038
3,990
3,953
3,952
3,855
This Period Sales
Sales
238,160
73,067
607,965
316,867
43,564
359,183
28,276
24,774
55,449
43,751
116,935
31,654
255,960
252,922
217,533
234,109
110,833
40,952
25,428
163,495
134,089
254,737
189,994
43,406
Mismatch %
Sales
13.70%
20.83%
2.28%
3.88%
18.07%
2.07%
26.08%
25.89%
11.51%
14.55%
5.23%
18.16%
2.21%
1.99%
2.25%
1.99%
4.21%
10.56%
16.10%
2.47%
2.98%
1.55%
2.08%
8.88%
RAG
R
R
R
R
R
R
R
R
R
R
R
R
R
G
R
G
R
R
R
R
R
G
R
R
Hot Stores...
Extra
STEVENAGE EXTRA
LEICESTER EXTRA
SLOUGH EXTRA
SANDHURST EXTRA
PURLEY EXTRA
BURSLEDON TWRS EXTRA
READING EXTRA
PRESCOT EXTRA
BOREHAMWOOD EXTRA
NEW MALDEN EXTRA
ALTRINCHAM EXTRA
NEWCASTLE U/T EXTRA
YORK TADCASTER ROAD
LEEDS SEACROFT EXTRA
WHITSTABLE EXTRA
YEADING EXTRA
SWINDON EXTRA
HAYES BULLS B/DGE EXT
SOUTHPORT EXTRA
NEWBURY
WREXHAM EXTRA
M K KINGSTON EXTRA
COMPANY SUMMARY
HOT STORES BASED ON ALL HOT PRODUCT GROUPS
Superstore South
Superstore North
£ 99,989
£ 60,847 POTTERS BAR
£ 74,274 RUGBY
£ 68,492
£ 47,343 HORSHAM
£ 60,359 HULL
£ 64,113
£ 46,599 AMERSHAM
£ 56,160 SOLIHULL
£ 54,574
£ 44,347 HATFIELD
£ 46,804 CHESTERFIELD
£ 53,458
£ 43,072 OSTERLEY
£ 44,190 ELY
£ 49,377
£ 42,451 SHOREHAM
£ 42,969 HANDFORTH
£ 49,150
£ 40,151 ELMERS END
£ 42,709 CARLISLE 2
£ 47,748
£ 38,697 LITTLEHAMPTON
£ 41,498 MARTLESHAM
£ 46,974
£ 37,913 SOUTH TOTTENHAM
£ 41,450 ROCHDALE
£ 46,708
£ 37,580 SALISBURY 2
£ 40,650 KETTERING
£ 43,891
£ 36,487 RICKMANSWORTH
£ 38,362 WORKSOP
£ 43,274
£ 36,438 LUNSFORD PARK
£ 36,812 STOKE
£ 41,978
£ 35,415 EVESHAM
£ 36,400 DAVENTRY
£ 41,601
£ 35,349 WOODFORD GREEN
£ 35,154 BOSTON
£ 41,354
£ 34,435 PETERSFIELD
£ 34,725 MOLD
£ 41,048
£ 34,416 HELSTON
£ 32,606 MILTON
£ 40,898
£ 33,189 TWICKENHAM
£ 31,277 CLITHEROE
£ 32,893 SUTTON-CHEAM PK FARM £ 40,530
£ 31,042 DUDLEY
£ 40,407
£ 32,851 NEWTON ABBOT
£ 28,009 DEREHAM
£ 40,085
£ 27,826 GOOLE BOOTHFERRY ROAD £ 32,696 WINCHESTER
£ 39,604
£ 31,688 ASHFORD MIDDLESEX
£ 27,823 POLLOK
£ 31,486 HARLOW EDINBURGH WAY £ 38,575
£ 27,434 FALKIRK GRAHAMS ROAD
Tesco UK Shrinkage - 2003
Unknown losses at Retail
Health and Beauty
As % of Sales
3.0%
Wines and Spirits
1.0%
Clothing
3.0%
Home Entertainment
3.5%
Total Company
1.01%
P&G Hot Products - 2003
Unknown losses at Retail
As % of Sales
MACH3
9%
OralB Braun
15%
Duracell
20%
Map & Measure
Picking
Shelf
Analyse
• What could go wrong?
• Scored each risk
– Severity
– Occurrence
– Detection
• Assessed root causes
for key risks
Solutions Developed
• Secure Supply
Chain for top 500
hot products
Solutions Developed
• Secure storage in
top 200 stores
• This has become
“design” standard
and is rolled out in
all stores
Solutions Developed
• Modified Packaging
to enable product
protection in all
stores
Solutions Developed
• Introduced regular
counting of hot
products to
measure results
P&G Hot Products
Unknown losses at
Retail
2003
2005
Sales Growth
2003 Vs 2005
MACH3
9%
3%
+27%
OralB Braun
15%
9%
+13%
Duracell
20%
2.5%
+47%
Tesco UK Shrinkage
Unknown losses at Retail
2003
Health and Beauty
3.0%
Wines and Spirits
1.0%
Clothing
3.0%
Home Entertainment
3.5%
Total Company
1.01%
2005
Tesco UK Shrinkage
2003
2005
Health and Beauty
3.0%
1.75%
Wines and Spirits
1.0%
0.95%
Clothing
3.0%
1.75%
Home Entertainment
3.5%
1.5%
Total Company
1.01%
0.69%
Unknown losses at Retail
Hall of Fame
Organisations
Location
Results
Tesco
UK
€143 million annual savings
Tesco & P&G
Hungary
- 74% losses + 288% sales
B&Q & Plasplugs
UK
- 50% losses + 33% sales
Feira Nova & Danone
Portugal
- 45% total shrink
Ahold & sausage
suppliers
Poland
- 42% losses
Sainsbury’s spirits
category
UK
- 40% losses + 10% sales
Sonae & Colgate
Palmolive
Portugal
- 29% losses
Sainsbury’s & Menzies
UK
- 25% losses + 10% sales
Wickes & GET
UK
- 7% losses
Corporate Policy
Organisations whose corporate shrinkage policy have been
significantly influenced by ECR Europe
Organisation
Sector
Location
Adidas
Sports goods
Northern Europe
Ahold
Grocery
International
Boots the Chemist
Pharmacy
UK
DM
Pharmacy
Germany
Metro
Grocery
Belgium &
Netherlands
P&G
Consumer goods
International
Tesco
Grocery
UK & International
Concluding Thoughts
• Shrinkage offers an enormous opportunity
• Need to measure the problem accurately
• Need to adopt a systematic and systemic
approach
• Collaboration is key
• Solutions need to be ‘fit for purpose’
• Shrinkage is the last free money on the table
Thank you for listening!