Do you have the controls to reduce shrinkage in your store? (Part 2)

Goodness me it seems that this has been a very long and arduous year! Anyway this is our last blog for 2010 and completes the previous one! Feedback welcome.

So, how do you improve stock control in your store?
The amount of shrinkage in your store will be in direct proportion to the controls you have in place. The more controls, checks and balances you have over your stock – the lower your shrinkage will be.
There are many areas of our business in which we can “lose” stock. These include:

1. Ordering
2. Receiving
3. Return of goods
4. Pricing
5. Price changes
6. Displays
7. Food preparation
8. In-store use
9. Point of sale

In our last blog we covered points 1-5, now we review points 6-9 and state some of the concerns for these points – and then offer one or two suggestions on how to deal with it.

Displays:
As with all the points listed above once again in this area there are so many ways we lose stock in our displays. I will only raise one or two for now.
Firstly there is the old adage of FIFO – first in first out. We have to bring “older” stock to the front of the display before we merchandise the new stock. Ever watched a house wife shopping for milk in the local supermarket? Guess which milk she puts in her trolley – the milk right at the back of the fridge. She knows that the freshest milk is to be found at the back of the fridge.
How do we lose money if we do not implement this rule? Out of sell by date – if it is out of date we have to write it off which is a loss. On some perishable items we are able to claim back from our supplier. But with sweets and chocolates for example – you have to write it off. It is a direct loss to the business. And don’t tell me your staff rotate stock – do a check yourself.
Take any of the count lines.
Start at the front – are the sell by dates earlier than the ones at the bottom or back of the pile?
It is time consuming for your shelf packer to pick up the existing stock and then merchandise the new stock underneath on the shelves. If there are no checks – your staff will take short cuts.

Another area for concern on the displays is our price labels. I have no idea why a Kwik Spar with many more line items than us – can get this right on their shelves – and we can’t? I am doing some store visits tomorrow in the Sandton area with new dealers – and this is one of the checks that they will be asked to do.

• How many products had no price labels?
• How many had incorrect price labels?
• Do this check yourself in your own store today!

This costs your business each and every day.
Firstly where there are no price labels, customers will be less likely to buy the product. They do not want to buy something that has no price attached to it. So it’s a lost sale.
If the price is incorrect when the customer gets to the till point – they pay the price that has been displayed. You lose again – your margin has just been eroded.
It gets even more scary if the product and price have not been entered on the system! The cashier will make a decision on what to charge based on other like products – which may be way out of line!
Our displays are our business in many more ways that one! – We need to get each detail of this piece right in order to ensure we do not lose any monies or sales from this vital point.

Food Preparation:
Not all of us prepare food on our premises but those of us that do will know just how hard it is to keep track of our food items. At best most of us prepare pies. So I will stick to this simple example for the most part.
The challenge here is firstly to accept that there is going to be some wastage when preparing food. How much are you prepared to lose daily? And then keep track of this as wastage! You are still losing money – but you have it under control.
Measure what is going in (how many pies are baked) and then cross check with what goes out…..How many are sold! At best – there should be no shortages at all!
Take stock per shift and cross correlate these with sales per shift. Work out what is OK to be lost to wastage and work within that rule for you. I buy in and prepare 20 pies per shift – then you need to ensure that you sell 20 pies per shift!
It gets harder when we prepare from raw product. How many slices do you get out of an average tomato? At the end of the day how many products did you sell with tomato’s – and how many are left whole in the store at the end of the day? The rest is wastage at best – but if the staff are nibbling – it is shrinkage. Both are a loss to the business.
From bitter experience – bacon is a big one for losses! Check it out on a per shift basis.

In-store use

Most of you will take one look at this heading and say – yes I know we use products off the shelves for our own in-store use. But it is small and does not warrant too much energy on our part checking it.
The fact remains – you bought 10 bundles of 2 ply toilet paper each containing 48 rolls. You receive this as stock onto your system.
You need to take it into stock on two fronts.

1. In-store usage
2. For resale to the customer
3. Allocate this based on actual sales and usage – which you can only get if you account for it appropriately.

Now you run out of toilet paper in the public toilets. If you take one from the shelf – do you ring it through on the point of sale as a sale item? If not – it leads to shrinkage.
There is a great concern if you are taking stock items off the shelf for store use and NOT ringing these up as a sales item. Your staff see that – and know that if they take one or two rolls home – nobody would be any the wiser.
Another example: If you sell fresh fruit for example in your store. You need to replenish your fruit salad offering – so your staff take another 2 banana’s, 2-3 apples etc – all for use to replenish that fruit salad for resale to your customers. It is not rung up as a sale – nor is it transferred to the food offering for resale!
You are under on the resale – and over on the fresh food offering. But having no controls in place allows your staff to move stock at will – and then the accounting thereof gets out of control – and it all leads to further losses! On the system anyway…

Point of Sale (Till Point)

Books have been written on just this area of our business and – yet it remains a porous area of our trading environment.
Not all of our losses in this area can be attributed to theft and fraud (a subject that we have a few articles on up on our website, such as “Point of Sale Fraud”, “Inventory Record Frauds” etc;  see www.cstores.co.za )

Most are just plain carelessness.
Scenario one: a customer comes to the till point puts his goods on the counter and takes a sip of Coke while doing so. The cashier rings up the goods on the counter and omits to ask to scan in the Coke. The result: One Coke lost.
Scenario two: a customer comes to the counter, places their goods on the counter and these get rung up. The cashier does not see that their child is busy eating a chocolate – their head height is too low for the cashier to see this.
Another scenario: Our cashiers are often responsible in the mornings for the returns of newspapers and milk. It is often their busiest part of the morning rush hour – so the rep does the count of what is being returned – and she just signs it on your behalf. Customer comes first – and they must not be kept waiting after all. There was no check done at all – and in particular newspapers and returns remain a key concern as invariably sales to purchases never match!

Simple scenarios but all too common. In each case – the amount lost is not big monies. But if you add them up across all these areas in their totality over a month – you have a shrinkage problem.
My suggestion is to keep your eyes peeled and demonstrate to your cashiers what to be on the look out for each and every day. Easier said than done, I know!

Almost 2011! To those of you that are travelling over this festive season – my wish for you and your family is that are you arrive home safely having had a wonderful break. To those of you trading in perhaps your busiest period of the year – I hope the tills keep ringing merrily along out there! Happy trading..

Speak to you in 2011
Jocelyn Daly
http://www.cstores.co.za

Do you have the controls to reduce shrinkage in your store?

The amount of shrinkage in your store will be in direct proportion to the controls you have in place. The more controls, checks and balances you have over your stock – the lower your shrinkage will be.

Sounds simple I know! And it is – if you put the effort into ensuring that strict procedures are in place. And that they are maintained at all times!

There are many areas of our business in which we can “lose” stock. These include :

1. Ordering

2. Receiving

3. Return of goods

4. Pricing

5. Price changes

6. Displays

7. Food preparation

8. In-store use

9. Point of sale

In this article we deal with points 1-5. In the next issue of Wholesale Business we cover the others

For each point we explain the area of major concern – and then give one or two suggestions to help you manage them.

Managing stock is a huge subject. Many books have been written on it. Most are very technical and serve to confuse rather than assist in resolving the question – “How do I improve stock control in my store?”

So our aim here is to keep it simple and practical and to demystify something which is often made overly complicated.

Ordering

Orders go wrong when we do not count stock on hand before placing the order. In particular – not checking for “hidden” stock in the store room.

Over-stock on a line item results in shrinkage when we have to write it off because it has passed its Sell By date or it has become damaged from being on the shelves too long.

Make sure that your ordering procedure ensures that stock on hand – both on the sales floor and in the store room is counted before the order is placed

Orders also go wrong – when the person placing the order does not have access to the previous sales figures. Without them they cannot order accurately. It is important that they have the sales figures of each line item variant or sku (stock keeping unit) they order.

In this scenario – we often end up with variants on our shelves that are not the variant of choice of our customers. (Variants include for example the different flavours and the pack sizes that a product comes in).

When you have a new person doing the orders work with them to help them place an informed order that reflects your customer base’s choices.

It’s especially important in our retail environment when buying stock from van sales operators to make sure that you get the top selling sku’s – and not just what’s left on the truck.

Where possible move to a pre-order situation where you place your order with the supplier ahead of the delivery. This should ensure that the stock you order is at least put on the truck. It does not, however, mean that you will get what you order. Too often, part of the stock you’ve ordered goes ‘missing’ – to some other store – earlier in the delivery route.

There’s a way of dealing with this problem as we will see under receiving

Receiving

Receiving is where most shrinkage takes place in stores. And, it does not require dishonesty on the part of our staff for that to happen – although to often that’s a major cause.

For starters we often receipt goods that are just not there. Counting boxes delivered is not enough. In a previous article I discussed how I had personally receipted a delivery from Simba – the well known supplier of chips only to find out afterward that not one – and I repeat – not one box had the correct number of packets in them! One box of supposedly 48 packets had less than 30 in it!

So make sure your staff check each and every box they receive – that means opening all of them – for the correct pack quantity. Now I know the reps delivering stock hate this and complain that they have to get to the next store. All this puts pressure on receiving staff to take short cuts.

There’s one way to enforce this. Personally re-check a delivery from different suppliers each and every day . Once your staff know you are going to check their work – they will make sure that they do it right the next time around.

The next challenge in receiving – is checking the quality of goods. The first quality check is for expiry dates. Too often expired or close to expired stock is receipted. Quality control also includes checking that the packs are properly filled – you’ll be surprised at how often this happens – and that they are not damaged in any way. Again, our staff will be pressured by delivery people to take short cuts.

If you check expiry dates as you do the quantity of packs in each carton – your staff and the supplier reps will soon learn not to take a chance when delivering to your store. Let them short deliver and deliver poor quality to your opposition down the road instead! At the same time these random spot checks will discourage dishonesty and collusion on the part of your receiving staff with delivery people.

A major cause of having the wrong stock, especially the wrong product variants, in stores is the habit of checking stock against the delivery note rather than against the order. It enables van sales people to load a store with all the unwanted stock in their vehicle. So the first thing that receiving staff should do is to strike off items on the delivery note that were not ordered and refuse to receive them.

Case quantity also needs to be checked . Suppliers often change the number of packs in the box – so we may count a case in as a six pack – but the quantity has been changed to four packs to the case. I have yet to come across a supplier van sales person that points out this fact when counting in stock at receiving. They are always just in a hurry and often fluster your staff into just signing the delivery note.

Price checks are part of one of the headings – but the lack of any price checks at receiving – accounts for stock “loss” on the system. ???

Return of goods to suppliers/credit notes

Many suppliers will take back stock not sold due to damage or because it has passed its expiry or Sell By date.

However our controls on return of stock are generally very poor. Who controls the return of goods? Where are they kept while waiting for the rep to come and uplift them? Who produces the credit note and counts that all the stock being returned is on that credit note? Any stock item not reflected on the credit note is another loss.

Newspapers and magazines are major culprits in this for most stores. Who counts the returns – your staff or the rep that uplifts them? How do you record that credit note? How do you check that the supplier has passed that credit note in your favour?

Do you have a system in place that “ties up” stock returns – the stock itself, the credit note – and the recording thereof on the system?

Are you aware of each suppliers policy on returns? I have been in countless stores over the years where the owners were unaware that they could have returned the stock instead of writing it off. Again its money lost.

Do you and your staff know about supplier policies about the packaging of the returns? Some suppliers will only take it back if it is in its original packaging? Do your staff know that? They should of course know about it – you don’t want them opening packages that they can see have a week to go before they expire.

The best way of handling returns is first to have a specific place for returns in the deep freeze room, the chiller and dry stockroom. The products should be stored by supplier name. The credit note needs to be written up before the supplier representative, delivery truck driver or van sales person arrives. Usually the receiving manager is the best person for the job and needs access to the cost prices paid. The signed credit notes then need to be passed to the creditor accounts person and entered into the accounts system.

Pricing

In most stores the person doing the pricing – is not the same person that does the receiving. This should be a huge area of concern. Not only does this increase the potential for incorrect pricing – but as they are mostly administrators and do not think like retailers, it increases the potential for wrong pricing.

For example; you manage to source cigarette lighters cheaply at the local cash and carry. The receipt gets to the administrator – and they just add the normal mark up or gross margin that you have set for that product category. Now, your mark-up on lighters is 100%. This normally gives you a R7.50 selling price, but as you only paid R1.50 per unit – what price will they now be sold at per the system? Not the normal R7.50 I can assure you! This is loss of profits – not necessarily loss of stock I know – but it highlights the disconnect between the different functions in our stores.

The person on the system will also not be able to pick up any changes to pack sizes or bar codes – unless they are brought to their attention and they physically see the goods. Roughly 20 – 15% of all suppliers make changes to their products each month that range from pack size to flavour variant or even pack design. Each of these changes occasions a new barcode number.

So, you need to introduce an easy to use system in which a sample of every product in every delivery is brought to the back office administrator and scanned. This will check if the barcodes are on the system. There’s a danger that if a product does not scan the cashier will guess at the price and those guesses are almost invariably in favour of the customer. The administrator also needs to compare the cost prices on the system with the cost price on the delivery note to ensure they have not gone up. And if they have, to change the selling price if required.

In an ideal world no products should be put on the sales floor – until you are certain that they have been captured and costed correctly. The world is not ideal, so put a system in place that ensures that deliveries are processed quickly but are held off the sales floor till this has been done.

Price changes

Checking price changes on most of computer software today has been made easier…but this functionality is often not used in our day to day operations. We just want to ensure that all our delivery notes have been captured on a daily basis – what we don’t check is the quality of that data capture.

The person putting or capturing the stock onto the system is the best person to identify price changes in those lines. Those of us that make use of cash and carry’s to supplement our stock on a weekly basis have an enormous challenge in managing pricing of these products. They often change on a weekly basis – up and down. How do you decide on when to implement a new price change?

And then our range of products also creates a problem on the shop floor. For example, we want to keep a tooth paste on shelf. Last week we bought brand A at price X. This week we buy Brand B at price Y. Now we have two competing brands on shelf taking up more space than we budgeted. – and they are priced differently. So we land up with an overstock of one brand because the other brand is cheaper…..

Golden rule: No stock should be on the sales floor unless it has been captured correctly on the system. You need to have a procedure in place to ensure that this is adhered to – and one that checks the quality of the information captured.

Stock is money! We often forget that our money is tied up on those shelves and it might very well have yielded a better return if you had just put the money in a market link account! Each lost item – is a loss to you personally.

Guard it well!

Matching Sales to Purchases is it really working for you?

Last blog I spoke about our cashiers, our face to the customer, and I was going to continue on the same subject, except that since then, I have uncovered two scenarios in two different networks – but essentially covering the same thing: That is not matching purchases to sales outside of the system.

Those of you that have been in retail for a long time (in other words before we got such sophisticated hardware and software) will be doing this anyway as a matter of course. My personal thinking on this is that in today’s world we have become too reliant on our back office systems and have forgotten about the retailing basics. Yes we get marvelous reports regarding our performance on a daily basis – but what happens if the system has wrong information inputted into it?

I buy 144 burgers- I need to have sold 144 burgers. Yes some might have gone to wastage and some were damaged. But these would be noted and I can add back to my 144. But what happens if my stock counter is taking 2 burgers a day and adds these back on his weekly stock count? My stock will always balance unless I personally go and check.

Yes, some of you will tell me, but I have two or three counters and surely they can’t all be working together on this. And therein lies the problem – the only way it does work is for a number of staff to be in it together. Just like the receiver of say Simba chips – it is after all a saleable commodity. How many of your staff actually count the stock in the box? There are supposed to be 48 packets in the box and you receive 48 onto the system.

But what happens if there are only 30 packets in the box? The receiver has received short, the merchandiser must of necessity see that there are less than normal – and they all get a box or two – each week to sell at will. And if you think I am kidding, just do yourself the favour and receive stock from time to time. I personally received a Simba box of 48 – only to find 25 in the box – and it was sealed! And that was last week in the Johannesburg area.

So I get back to my basic question – I bought 48 packets of Simba chips – I should sell 48? Right. It is nowhere to be seen. All I have to do at the back end is not GRV (goods received voucher) one invoice and my stock will balance. In other words I do not input an invoice. Or if your system drives purchases and payments, your staff will load the item with a quantity of 48 packets. And then add back what was missing – so stock always balances.

One of the scenarios involved forensic auditiors – and the paper trail all works. So the site was given a clean bill of health. What it does not take into account is the factoring of invoices (adding quantity or rand value to an invoice) or the adding back of stock in the back office.

So let’s take fuel. I put the pump on stand alone and bypass the POS (point of sale). The pump tells the back office that fuel is being dispensed so my stock balances. But my money in the bank does not add up. If I check sales by litres on the POS there will be a variance between what was dispensed and sold, ie, money in the bank.

So here is my tip for this week. Know how to check the system! Go back to the basics. Go manual! The systems today are really great –but it all depends on what is being inputted onto the system. Build some checks for yourself that you can use to check that the system is working for you!

Take care out there!

Jocelyn Daly
PS Go to this link and print out the system checklist. I will be focusing on this aspect of our business for a while.