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Understanding Product Loss: Utilising the ECR Loss Prevention Road Map

August 26, 2022
By 
Adrian Beck

Background

One of the most significant challenges associated with managing retail ‘shrinkage’ is that for the most part, the root cause of why the loss has occurred remains largely unknown. Most of the data that comprises the shrinkage number in retail companies is derived from infrequent and periodic stock takes – counting or valuing the stock present within a business and comparing that against what it thought it had, based upon historical stock deliveries and sales. The difference is the shrinkage number, typically expressed as a percentage of retail sales.

The difficulty for those tasked with keeping this number under control is knowing what to do to achieve this goal, not least because the data gives little or no indication as to when the loss might have happened (beyond sometime since the last stock count), where the loss might have occurred (it cannot be assumed that the loss occurred where the stock count took place), who was responsible for the loss (customers, staff, vendors?), how the loss happened (was it stolen, was it ever delivered, was it not recorded as wastage?), or why the loss took place (malicious theft, process failure?). With little or no insight on how to answer the when, where, who, how and why questions, it makes the task of preventing future losses extremely difficult; as the adage sort of goes: it is very hard to manage what you cannot measure.

This ‘black hole’ of unknown loss has inevitably led to loss prevention leaders having to decide, mainly through intuition and experience-driven guesswork, and to be fair, a degree of personal prejudice and ‘solution provider’ hyperbole, where they should focus their attention and, inevitably, their limited resources. Are the losses primarily due to external thieves stealing from retail stores? To what extent are store staff helping themselves to stock and cash? Are organisational processes and practices being followed correctly? Are stock deliveries from vendors accurate?

Understanding the Risk Context

We are all familiar with the fact that risk is not evenly distributed – when we think about crime for instance, some locations are riskier than others, equally, particular retail products are more prone to theft than others, such as high value electronics compared with carrots. But it is not just about crime that risk is unevenly distributed, it is also the case for other forms of retail loss – some products are more prone to damage than others – eggs more so than say potatoes. In addition, risk in retail supply chains can change depending upon time and place – for instance, eggs may be more vulnerable to breakage as they are being unloaded at the back of the store compared with being moved to the shelf; high value electronic goods may be more vulnerable to theft in the back of the store than in a distribution centre. Defining the risk profile of products and how it changes as they move through a retail supply chain can be an invaluable tool in not only understanding the likelihood of loss, but also what can be done to prevent it.

The ECR Loss Prevention Road Map

The ECR Retail Loss Group developed a simple tool to help retailers begin to understand this issue more effectively. It is a step-by-step approach to map out the actual lifecycle of any given retail product, overlaying the risks that it is likely to incur at any given location, scoring their seriousness, and pinpointing how those risks may be reduced. A key part of the approach is to physically follow and record the movements of a product, talk to the employees involved about what actually happens (as opposed to what the ‘manual’ states should happen!), and, critically, what can and does go wrong.

Using a risk scoring tool. this exercise of spending ‘a day in the life of’ a specific product enables a much clearer picture to emerge as to where, when, how, why and by whom losses are most likely to occur – it is a predictive approach based upon the realities of a given retail environment rather than assumptions about what ‘should’ happen. The tool also enables these risks to be ranked in terms of severity, frequency and how likely they are to be detectable.

In addition, and perhaps most critically, the ECR Loss Prevention Road Map emphasises the importance of identifying the root causes of why a loss may be occurring, offering the best opportunities to develop and implement interventions that are most likely to have a lasting impact upon the problem. Above all, the 6-step model ensures that any ‘solutions’ are based upon a data-driven understanding and analysis of the problem before they are considered for implementation. It also recognises the importance of carrying out an evaluation after implementation to ensure that intended outcomes are being delivered over time.

Take a Spin Around the Road Map!

Retailing is a busy and pressured environment – time is often short, and priorities constantly shift. It was important, therefore, when designing the Road Map to make sure it was something that could be both understood and utilised quickly. Having carried out dozens of Road Map sessions with retailers, I can confirm that, with the right people engaged in the business who are committed to the idea, concrete results have always been delivered within 1-2 days. Why not take it for a spin and find out what is really happening to the products that are causing the greatest losses in your business!

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