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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. - PowerPoint PPT Presentation
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Introduction to ECR Europe Introduction to ECR Europe and Shrinkageand Shrinkage
Adrian BeckAdrian BeckReader in CriminologyReader in Criminology
University of LeicesterUniversity of Leicester, UK, UK
ECR South Africa, February 2006
ECR Europe Shrinkage GroupECR Europe Shrinkage Group
Established in 1999Established in 1999
Made up of retailers, manufacturers and Made up of retailers, manufacturers and academicsacademics
The ECR Shrinkage Project TeamThe ECR Shrinkage Project Team
Purpose of ECR Shrinkage GroupPurpose of ECR Shrinkage Group
Raise awareness of the problem of shrinkageRaise awareness of the problem of shrinkage
Co-ordinate and sponsor cutting edge researchCo-ordinate and sponsor cutting edge research
Encourage companies to address the problem Encourage companies to address the problem
Promote a more systematic and systemic Promote a more systematic and systemic
approach to dealing with the problem (the ECR approach to dealing with the problem (the ECR
Shrinkage Road Map)Shrinkage Road Map)
Guiding PrinciplesGuiding Principles– Engage senior management and prioritise Engage senior management and prioritise
shrinkage: it is a consumer problemshrinkage: it is a consumer problem
Choice and ranges restrictedChoice and ranges restricted
High margin products not listedHigh margin products not listed
Products get locked upProducts get locked up
– Consumers frustratedConsumers frustrated
Shelves go EmptyShelves go Empty
– New item impact reducedNew item impact reduced
– Consumers switch stores or brandsConsumers switch stores or brands
– Lower consumptionLower consumption
Guiding PrinciplesGuiding Principles
Engage senior management and prioritise Engage senior management and prioritise shrinkageshrinkage
Identify accountabilities, measure, monitor Identify accountabilities, measure, monitor and motivateand motivate
Identify accountabilities, Identify accountabilities, measure, monitor and motivatemeasure, monitor and motivate
End to end accountabilityEnd to end accountability– From store and product design to reverse logisticsFrom store and product design to reverse logistics
Data accessibility, timeliness and granularityData accessibility, timeliness and granularity– Mining the data warehouseMining the data warehouse
Monitor and generate transparencyMonitor and generate transparency– Stock countingStock counting– Process auditsProcess audits
Incentivise staffIncentivise staff– Retailers with incentive schemes had lower levels of Retailers with incentive schemes had lower levels of
shrinkageshrinkage
Data mining...Data mining...
10p report
14,836,947 products
£12,000,000 shrinkage
Cashier error?
Guiding PrinciplesGuiding Principles
Engage senior management and prioritise Engage senior management and prioritise shrinkage shrinkage
Identify accountabilities, measure, monitor Identify accountabilities, measure, monitor and motivateand motivate
Promote inter and intra company Promote inter and intra company collaborationcollaboration
Who needs to be involved?Who needs to be involved?
ManufacturerManufacturer– Design teamDesign team– ProductionProduction– Supply ChainSupply Chain– MarketingMarketing– SalesSales
RetailerRetailer– Buyer/MerchandisingBuyer/Merchandising– Loss PreventionLoss Prevention– Supply ChainSupply Chain– Store OperationsStore Operations
Environmental agencyEnvironmental agency
Before After
End to End SolutionsEnd to End Solutions
Guiding PrinciplesGuiding Principles
Engage senior management and prioritise Engage senior management and prioritise shrinkage shrinkage
Identify accountabilities, measure, monitor Identify accountabilities, measure, monitor and motivateand motivate
Promote inter and intra company Promote inter and intra company collaborationcollaboration
Adopt a systemic and systematic Adopt a systemic and systematic approachapproach
ECR Shrinkage Road MapECR Shrinkage Road Map
CORPORATE POLICY
Map & Measure
Develop Solutions
Implement
Evaluate Plan
Analyse
Wake Up
Call!
Guiding PrinciplesGuiding Principles
Engage senior management and prioritise Engage senior management and prioritise shrinkage shrinkage Identify accountabilities, measure, monitor Identify accountabilities, measure, monitor and motivateand motivatePromote inter and intra company Promote inter and intra company collaborationcollaborationAdopt a systemic and systematic Adopt a systemic and systematic approachapproachUnlock the value of the 'hot' conceptUnlock the value of the 'hot' concept
The Hot ConceptThe Hot Concept
Hot conceptHot concept• ProductsProducts
• PlacesPlaces
• PeoplePeople
• ProcessesProcesses People
Places
Products Processes
Guiding PrinciplesGuiding Principles
Engage senior management and prioritise Engage senior management and prioritise shrinkage shrinkage
Identify accountabilities, measure, monitor and Identify accountabilities, measure, monitor and motivatemotivate
Promote inter and intra company collaborationPromote inter and intra company collaboration
Adopt a systemic and systematic approachAdopt a systemic and systematic approach
Unlock the value of the 'hot' conceptUnlock the value of the 'hot' concept
Focus on process failures firstFocus on process failures first
Focus on Process Failures FirstFocus on Process Failures First
Removes opportunityRemoves opportunity– Receipt processReceipt process– ReturnsReturns
Masks malicious activityMasks malicious activity
DeliversDelivers– Quick winsQuick wins– Cost effective winsCost effective wins– Sustainable solutionsSustainable solutions
Guiding PrinciplesGuiding Principles
Engage senior management and prioritise Engage senior management and prioritise shrinkage shrinkage Identify accountabilities, measure, monitor and Identify accountabilities, measure, monitor and motivatemotivatePromote inter and intra company collaborationPromote inter and intra company collaborationAdopt a systemic and systematic approachAdopt a systemic and systematic approachUnlock the value of the 'hot' conceptUnlock the value of the 'hot' conceptFocus on process failures firstFocus on process failures firstEncourage innovation and experimentationEncourage innovation and experimentation
Encourage innovation and Encourage innovation and experimentationexperimentation
Keep ahead of the gameKeep ahead of the gameInitiate…….Initiate…….– Pilot Studies on new ideasPilot Studies on new ideas– Road Map projects with suppliersRoad Map projects with suppliers– Benchmarking against industry surveysBenchmarking against industry surveys
Experiment…..Experiment…..– New solutionsNew solutions– New store layoutsNew store layouts
ECR survey showed that retailers who innovated ECR survey showed that retailers who innovated and experimented most had 20% lower and experimented most had 20% lower shrinkageshrinkage
Guiding PrinciplesGuiding Principles
Engage senior management and prioritise shrinkage Engage senior management and prioritise shrinkage Identify accountabilities, measure, monitor and Identify accountabilities, measure, monitor and motivatemotivatePromote inter and intra company collaborationPromote inter and intra company collaborationAdopt a systemic and systematic approachAdopt a systemic and systematic approachUnlock the value of the 'hot' conceptUnlock the value of the 'hot' conceptFocus on process failures firstFocus on process failures firstEncourage innovation and experimentationEncourage innovation and experimentationDocument learning and disseminate successDocument learning and disseminate success
The ECR Europe 2004 The ECR Europe 2004 Shrinkage SurveyShrinkage Survey
Adrian BeckAdrian BeckReader in CriminologyReader in Criminology
University of LeicesterUniversity of Leicester, UK, UK
ECR South Africa, February 2006
Processfailures
Inter-company
fraud
Internaltheft
Externaltheft
Shrinkage
Defining ShrinkageDefining Shrinkage
What Does Shrinkage Mean?What Does Shrinkage Mean?
Inter-Company Fraud
Process Failures
Internal Theft
External Theft
Deliberate Under/Over Delivery Invoice Errors Quality and Weight of Items
Inventory Errors Promotion Errors Pricing Errors Stock Going Out of Date Damage to Stock Product Delivery/Scanning Errors Theft of Stock and Cash ‘Grazing’ Collusion
Shoplifting Till Snatches Returning Stolen Goods Burglary ‘Grazing’
What Does Shrinkage Mean?What Does Shrinkage Mean?
Inter Company Fraud
Process Failures
Internal Theft
External Theft
MALICIOUS NONMALICIOUS
Degree of Intent
Probing Systems
Exploiting Loopholes
Mistakes
Poor Planning
Bad Management
Background and MethodologyBackground and Methodology
Last survey in 1999Last survey in 1999Need for a new benchmarkNeed for a new benchmarkStock loss calculated at retail pricesStock loss calculated at retail prices
Background and MethodologyBackground and Methodology
26 countries surveyed (21 last survey)26 countries surveyed (21 last survey)
250 retail companies and 44 250 retail companies and 44 manufacturers/suppliers contactedmanufacturers/suppliers contacted
Total FMCG sector valued at over €1 trillionTotal FMCG sector valued at over €1 trillion
Sample represents 13.7% of retail companies Sample represents 13.7% of retail companies with a combined turnover of €137,214,920,000with a combined turnover of €137,214,920,000
Counting the CostCounting the Cost
SectorSector % of % of salessales
Value (€ billions)Value (€ billions)
RetailRetail 1.841.84 18.518.5
ManufacturerManufacturer 0.570.57 5.75.7
TotalTotal 2.412.41 24.224.2
Total loss equates to Total loss equates to €€66 million per 66 million per dayday
Retailer’s Missed Profit OpportunityRetailer’s Missed Profit Opportunity
0%
1 %
2 %
3 %
4 %
5 %
Current Potential
Ave
rag
e R
etai
ler
Mar
gin
AverageRetailer
ProfitMargin
2.99%
1.84%
AverageRetailerShrinkMargin
4.83%62% Margin Growth
Shareholder ValueShareholder Value
Net Income Shareholder Value
€1 Incremental Sales € 0.15 € 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 ValueShareholder Value
Net Income Shareholder Value
€1 Incremental Sales € 0.15 € 3.00
€1 Inventory Reduction € 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 ValueShareholder 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.
Shrinkage Retail IcebergShrinkage Retail Iceberg
51%
49%Unknown Loss
€9.5 billion
Impact of the IcebergImpact of the Iceberg
Lack of visibilityLack of visibility
Lack of awarenessLack of awareness– When did it happen?When did it happen?– Where did it happen?Where did it happen?– How did it happen?How did it happen?– Who was responsible?Who was responsible?
Lack of accountabilityLack of accountability
Prioritisation of the most visible/acceptablePrioritisation of the most visible/acceptable
Location of the ProblemLocation of the Problem
€5.7 Billion €1.2 Billion €17.3 BillionTOTAL
€24.2 Billion
24%
Manufacturer Distribution
5%
Retail Distribution
71%
Retail Stores
+ + =
Causes of Retail Stock LossCauses of Retail Stock Loss
Process Failures
27%
Internal Theft28%
External Theft38%
Inter-Company Fraud
7%
Causes of Retail Stock Causes of Retail Stock LossLoss
Causes of Retail Stock Causes of Retail Stock LossLoss
Retail Company Co-operationRetail Company Co-operation
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Per cent
Marketing
Planning and Design
Legal Dept
IT Dept
Human Resources
Buying
Finance
Logistics
Supply Chain Mangt
Auditing
Board of Directors
Store Mangt
Security/Loss Prevention
High Involved Regularly Involved Hardly Involved
Causes and Spending on ShrinkageCauses and Spending on Shrinkage
60
38
27 28
9
26
4 7
0
10
20
30
40
50
60
External Internal Process Inter Company
Spending
Cause
Other Survey HighlightsOther Survey Highlights
Companies with a corporate policyCompanies with a corporate policyCompanies that prioritised stock loss Companies that prioritised stock loss Companies that provided bonuses for good Companies that provided bonuses for good stock loss results stock loss results Companies with higher levels on inter-company Companies with higher levels on inter-company co-operation co-operation Companies that carried out a greater number of Companies that carried out a greater number of shrink reduction projects…..shrink reduction projects…..
… … All had lower levels of stock lossAll had lower levels of stock loss
6 Steps to 6 Steps to Successful Shrinkage ReductionSuccessful 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 For a free copy of the final report email:report email:
[email protected]@le.ac.uk
Exploring Risk: The ‘Hot’ Exploring Risk: The ‘Hot’ ConceptConcept
Adrian BeckAdrian BeckReader in CriminologyReader in CriminologyUniversity of LeicesterUniversity of Leicester
ECR South Africa, February 2006
BackgroundBackground
Risk is not evenly distributed. It is focussed on Risk is not evenly distributed. It is focussed on
particular products, places, people, processesparticular products, places, people, processes
Crime hot spotsCrime hot spots
3% of locations in some cities 3% of locations in some cities
account for 50% of recorded crimeaccount for 50% of recorded crime
Hot productsHot products
Some products much more at risk than othersSome products much more at risk than others
Hot Products ExampleHot Products Example
Hot
pro
duct
s in
H
ot p
rodu
cts
in
the
Net
herla
nds
the
Net
herla
nds
What Causes Products to be Hot?What Causes Products to be Hot?
CConcealableoncealable
RRemovableemovable
AAvailablevailable
VValuablealuable
EEnjoyablenjoyable
DDisposableisposable
BackgroundBackground
Supply chain hot spotsSupply chain hot spotsRisk exists at particular points, Risk exists at particular points, e.g. delivery to storee.g. delivery to store
Hot PeopleHot People– Marginalised, unmonitored, temporary, known Marginalised, unmonitored, temporary, known
offendersoffenders
Value of Understanding the ‘Hot’ ConceptValue of Understanding the ‘Hot’ Concept
Avoids spreading valuable resources too thinlyAvoids spreading valuable resources too thinly
Focus on the vital few amongst the trivial many Focus on the vital few amongst the trivial many
Rapid impact Rapid impact
Greatest returnGreatest return
Possible diffusion of benefitsPossible diffusion of benefits
Hot Store Mythology Hot Store Mythology
Social GeographySocial Geography
‘‘Bad areas cause high shrinkage’Bad areas cause high shrinkage’
ManagementManagement
‘‘Good results follow good managers’Good results follow good managers’
The Hot Store Project: From Myth to RealityThe Hot Store Project: From Myth to Reality
ECR project launched to understand the ECR project launched to understand the
issues relating to store lossesissues relating to store losses
Research questions:Research questions:
Across Europe, what is the profile of store Across Europe, what is the profile of store
losses?losses?
What makes a store ‘hot’?What makes a store ‘hot’?
MethodologyMethodology
Survey:Survey:
– Contacted a sample of European retailersContacted a sample of European retailers
– Gathered shrink details for all outletsGathered shrink details for all outlets
Case Studies:Case Studies:
– 4 companies: Ahold (Czech); Feira Nova 4 companies: Ahold (Czech); Feira Nova (Portugal); Tesco (UK); Wickes (UK):(Portugal); Tesco (UK); Wickes (UK):
– Collected estate-wide dataCollected estate-wide data
– Visited 4 stores per company (2 ‘good’, 2 ‘bad’)Visited 4 stores per company (2 ‘good’, 2 ‘bad’)
– Interviewed key store staffInterviewed key store staff
European Store Shrinkage RateEuropean Store Shrinkage Rate
0
200
400
600
800
1000
-3 -2 -1 0 1 2 3 4 5 6 7 7+
Shrinkage as a % of turnover
Num
ber
of S
tore
s
Average Stores Hot Stores
5.7%
Low Stores
4.8% 89.6%
Estate-Wide FindingsEstate-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 AttributesHot Stores Attributes
Store manager and team see shrinkage Store manager and team see shrinkage as their responsibility BUT blame the as their responsibility BUT blame the environment, the staff, outsiders, the environment, the staff, outsiders, the company…company…
‘‘there is only so much we can do to control there is only so much we can do to control
the situation’ (CS 2,1)the situation’ (CS 2,1)
‘‘the stock deliveries are never correct – we the stock deliveries are never correct – we
always inherit the problem’ (CS 4,2)always inherit the problem’ (CS 4,2)
Hot Stores AttributesHot Stores Attributes
Company doesn’t make manager Company doesn’t make manager accountable for losses at the storeaccountable for losses at the store
‘‘when managers move store they are not when managers move store they are not held accountable for what’s left behind’ held accountable for what’s left behind’ (CS 1,1)(CS 1,1)
Hot Stores AttributesHot Stores Attributes
Company procedures are not followedCompany procedures are not followed
‘‘we should be doing 70 staff searches a week but we we should be doing 70 staff searches a week but we only ever manage 40’ (CS 4,1)only ever manage 40’ (CS 4,1)
‘‘we haven’t been having the weekly we haven’t been having the weekly team shrinkage meeting’ (CS 4,2)team shrinkage meeting’ (CS 4,2)
‘‘staff don’t fill in the wastage staff don’t fill in the wastage reports properly’ (CS 4,3)reports properly’ (CS 4,3)
‘‘the backroom area always looks the backroom area always looks like a bomb site’ (CS 2,4)like a bomb site’ (CS 2,4)
Hot Stores AttributesHot Stores Attributes
The manager does not provide support, The manager does not provide support, leadership and controlleadership and control
‘‘I don’t trust my staff and they don’t do I don’t trust my staff and they don’t do
what I tell them to do’ (CS 2,4)what I tell them to do’ (CS 2,4)
‘‘there is collusion between the security guards there is collusion between the security guards
and the cashiers. The cashiers are incompetent. and the cashiers. The cashiers are incompetent.
The head of the cashiers knows what to do she The head of the cashiers knows what to do she
just doesn’t do it.’ (CS 4,3)just doesn’t do it.’ (CS 4,3)
Hot Stores AttributesHot Stores Attributes
Store management does not know the Store management does not know the extent of the problemextent of the problem‘‘I would have to say that Mach 3 is highly stolen I would have to say that Mach 3 is highly stolen
in this store because that’s what everybody in in this store because that’s what everybody in
the industry says’ (CS 1,2)the industry says’ (CS 1,2)
‘‘I can never reconcile my inventory…’ (CS 3,4)I can never reconcile my inventory…’ (CS 3,4)
‘‘we don’t keep a record of security incidents in the we don’t keep a record of security incidents in the
store – we tell head office and then throw the store – we tell head office and then throw the
data away’ (CS 1,2)data away’ (CS 1,2)
The 4 ‘A’s to Preventing Stores Becoming HotThe 4 ‘A’s to Preventing Stores Becoming Hot
AAccountability
ction
ttitude
udit
AAAAAA
AccountabilityAccountability– The manager owns the problem and The manager owns the problem and
prioritises it all day, every day prioritises it all day, every day
‘‘keeping my eye on the ball’ (CS 4,2)keeping my eye on the ball’ (CS 4,2)
– The manager is highly committed The manager is highly committed to reducing shrinkage to reducing shrinkage
‘‘as important as sales’ (CS 4,1)as important as sales’ (CS 4,1)
The 4 ‘A’s to Preventing Stores Becoming HotThe 4 ‘A’s to Preventing Stores Becoming Hot
ActionAction– Store context needs to be understood and Store context needs to be understood and
appropriate actions taken to meet the challengesappropriate actions taken to meet the challenges‘‘this is a tough store but we know it and this is a tough store but we know it and
develop plans accordingly’ (CS 4,4)develop plans accordingly’ (CS 4,4)
– All procedures must be adhered to consistently: All procedures must be adhered to consistently: they must be robust, standardised and institutionalised they must be robust, standardised and institutionalised
‘‘we know what we need to do – good procedures we know what we need to do – good procedures already exist’ (CS 2,3)already exist’ (CS 2,3)
– Backroom areas - keep them neat and tidy Backroom areas - keep them neat and tidy as a message to all staff as a message to all staff
‘‘there is no reason why the backroom shouldn’t there is no reason why the backroom shouldn’t be as clean as the shopfloor’ (CS 2,3)be as clean as the shopfloor’ (CS 2,3)
The 4 ‘A’s to Preventing Stores Becoming HotThe 4 ‘A’s to Preventing Stores Becoming Hot
Good management is the solutionGood management is the solution
96%
1.5%
73%
4.7%
56%
4.5%13%
8.0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Store 1 Store 2 Store 3 Store 4
ComplianceShrink
Source: Ahold Hypermarkets: Czech: 2004
AttitudeAttitude– Build a cohesive management teamBuild a cohesive management team
‘‘Vision. Mission. Obsession’ (CS 3,1)Vision. Mission. Obsession’ (CS 3,1)
‘‘You need the right people with you and for you. You need the right people with you and for you. It’s about having a common goal and sharing it’ (CS 4,3)It’s about having a common goal and sharing it’ (CS 4,3)
– Understand the staff, be consistent and Understand the staff, be consistent and recognise when staff need helprecognise when staff need help
‘‘You have to be involved and talk to everyone You have to be involved and talk to everyone in every department every day’ (CS 1,3)in every department every day’ (CS 1,3)
– Be supportive and flexible Be supportive and flexible ‘‘XXX has his finger on the pulse. He’s a manager, XXX has his finger on the pulse. He’s a manager,
you don’t get many. Some people put the badge you don’t get many. Some people put the badge on but that doesn’t make them managers’ (CS 1,3)on but that doesn’t make them managers’ (CS 1,3)
The 4 ‘A’s to Preventing Stores Becoming HotThe 4 ‘A’s to Preventing Stores Becoming Hot
AuditAudit– Access and use high quality reliable data in Access and use high quality reliable data in
order to understand the problems and how order to understand the problems and how they change over timethey change over time
‘‘Measure success and celebrate when good’ (CS Measure success and celebrate when good’ (CS
4,3)4,3)
‘‘We have a daily control routine and update the We have a daily control routine and update the
store team weekly on results’ (CS 1,2)store team weekly on results’ (CS 1,2)
The 4 ‘A’s to Preventing Stores Becoming HotThe 4 ‘A’s to Preventing Stores Becoming Hot
These Findings Suggest That...These Findings Suggest That...
High shrink in hot stores is mostly a High shrink in hot stores is mostly a function of poor management and lack function of poor management and lack of adherence to proceduresof adherence to procedures
The environment affects shrinkage but The environment affects shrinkage but good management responds to the good management responds to the context and develops effective context and develops effective strategies to meet the challenge strategies to meet the challenge
The Hot ConceptThe Hot Concept
People
Places
Products Processes
For a free copy of the final For a free copy of the final report email:report email:
[email protected]@le.ac.uk