Putting processes before technology is the answer to combating shrinkage in the supply chain

Combating loss in the supply chain is more about processes than technology, says Mike Davies, UK CEO for international IT and business services company, Enabler.

Loss prevention has become a hot topic for retailers as the scale of the problem has sunk in and as new strategies for combating it have emerged.

The latest figures from the Theft Barometer from Centre for Retail Research show that in the trading year 2004-05, the shrinkage suffered by Europes retailers has fallen dramatically from 1.34 per cent of turnover (twelve months to June 2004) to an average of 1.25 per cent (twelve months to June 2005).

However, Retail crime adds up to 21 billion in the same period. Worse, this figures translates to as much as 18 per cent of profit. There is clearly more that can be done to reduce the figure by looking at all forms of loss, through theft, process errors, wastage, damage and inefficiency.

Technologies abound for combating loss, mainly in the store, but increasingly in the supply chain, comprising the usual physical deterrents in the form of CCTV, security gates and security staff and latterly, software that can be set up to spot anomalies in business and sales transactions.

However, these solutions can be little more than paper to cover the cracks if the retailers processes and procedures are the primary cause of loss in the first place. For instance, while a retailer may be looking for instances of theft in the warehouse, it may be a bad procedure that is resulting in the loss, or an error made by a badly trained employee.

Of course, all this presupposes that the company is even aware of the loss. While loss prevention has become high profile in the store, in the supply chain it is often overlooked many instances of loss simply go unnoticed. It also depends how the company defines loss. The main focus is currently on theft, which comprises the greater part of all shrinkage, but overall loss is a much broader issue, encompassing perished or damaged goods, process errors and missed opportunities.

For instance, how much money is the business losing because loads are not optimised, or there is no strategy for back-loading, or simple tasks in the DC are not being carried out efficiently, or highly experienced staff are not being used as effectively as part-timers. And so on. With this perspective, retailers will start to see a host of areas where improvements can be made to cut losses.

It is critical to identify these areas and measure the scale of the loss first, before determining where technology can be of assistance. And of course, it may be technology that is the problem in the first place where different systems are not integrated so that inefficiency creeps in as one process finishes and kicks off another that may be managed under a different system altogether.

The first task therefore is to identify the areas where loss is greatest both financially and in terms of impact on the business as a whole. The second task is to determine the ideal solution, which may be to implement new software, but it may be as simple as redesigning an existing process or introducing new ones. It may be about additional training, or even changing HR policies to attract a new type of employee and gradually discouraging those who are set in the old way of doing things.

In this environment, where processes come first, technology plays a supporting not a leading role and therefore must be specified, deployed and road-tested accordingly. Portuguese grocery retailer, Modelo Continente, has taken just such an approach, with the result that it has already found ways to reduce shrinkage by EURO 25 million over three years.

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