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Shrinkage Survey

by msecadm4921

How do you know how well you are dealing with stock loss, without benchmarks?

Shrinkage is a big cost to the European FMCG (fast moving consumer goods) sector – but it’s also an opportunity, it is claimed.

The loss is reckoned at 24 billion euros a year, or for retailers, 1.84 per cent of turnover. With the average profit margin in Europe being about three per cent, tackling stock loss effectively could enable some companies to grow their profit margin by over 50 per cent, the 2004 ECR Shrinkage Survey claims, written by University of Leicester lecturer Adrian Beck. The report adds: “There can be few elements of the business that could potentially deliver such remarkable returns. The survey also highlighted the continuing problem with a lack of transparency in the data on stock loss. While retailers are now better able to measure the problem, more than one half of loss remains unknown. This is an area that needs to be prioritised if organisations are to have the necessary foundations upon which to build an effective and efficient stock loss strategy. Moreover, it was found that those companies that had good levels of intra-company co-operation on stock loss, had a written company policy, prioritised the problem, incentivised their staff through bonuses for good stock loss results, and were prepared to experiment with shrinkage reduction projects, were far more likely to have lower overall levels of stock loss. The message would seem clear, high levels of co-operation, prioritisation, incentivisation, experimentation and the
embedding of shrinkage control within corporate policy enable companies to reduce the cost of stock loss.”

The data from the retail supply chain survey was also revealing, researchers claim, in that it highlighted the degree of error and ‘noise’ that is generated by this part of retail businesses. The data would seem to support the view that many of the problems of shrinkage that are found in retail stores could have been ‘washed down’ from the supply chain – perhaps as much as one quarter, the report claims. The report also suggested companies tend to over-prioritise the problem of external theft (particularly in terms of deciding on how to allocate the stock loss reduction budget) and under-prioritise process failures and internal theft. When considering all losses retailers perceived the main threat to be from external theft (38pc), followed by process failures (27pc), internal theft (28pc) and supplier fraud (7pc).

The report said: “Retailers would seem to have an abiding obsession with seeking to apportion blame for the problem of stock loss to those outside the company, despite their own evidence and perceptions telling them otherwise. It may be time for companies to begin to critically scrutinise those that work for them and the extent to which staff are able to exploit the chaos generated by the noise from supply chain inefficiency and the lack of adherence to processes and procedures. If not, then the opportunity to increase profits by as much as 50 per cent will remain unachievable.”

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