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!

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  1. #1 by SLAYD on November 30, 2010 - 11:14 am

    GOOD POINTS ALL, I HAVE ENCOUNTERED PROBLEMS WITH NEWSPAPER RETURNS WHERE THE RETURNS NOTED WERE 52 YET IN FACT WE RETURNED OVER 100 PAPERS(COULD NOT HAVE BEEN MISTAKE) AND IN THE BUNDLE A HUSTLER WAS HIDDEN. I OPENED A CRIMINAL CASE AGAINST THE PERSON. I ALSO FOUND THAT WITH NESTLE ICE CREAMS I WAS SHORT DELIVERED UP TO 5 ICE CREAMS IN EVERY BOX BUT BOXES WERE SEALED WITH NESTLE TAPE- MORAL OF THE STORY: TRUST NO ONE BUT YOURSELF AND DO SPOT CHECKS

  2. #2 by Jocelyn on November 30, 2010 - 11:29 am

    You are absolutely right! Newspapers, magazines, ice creams, chips, Coke – all seem to have their own perculiar challenges. In my case I personally checked each box delivered by Simba at one site – with the box sealed with tape. Not one box was correct! Not one!

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