Shrinkage: The Last Free Money on the Table Breakout 4-1 Stockholm 31 May 2006

Shrinkage:The Last Free Money on the

Table

Breakout 4-1Stockholm 31 May 2006

Shrinkage: the last free money on the table

Welcome!

The ECR Europe Shrinkage Project Team 2005-6

Shrinkage: the last free money on the table

• Session Objectives

– Illustrate the value in getting shrink right

– Highlight new insights to guide thinking

– Demonstrate the benefits of the ECR Approach

Overview

• The Last Free Money on the Table – Kenneth Bengtsson, CEO ICA

• ECR Principles and Understanding Shrinkage– Adrian Beck, University of Leicester

• Delivering Improvement– Paul Chapman, Cranfield School of Management– Stuart Hughes, Adidas– Lars-Boye Halvorsen and Johan de Vries, ICA Norway

• Interactive Session: Thinking Like a Thief – Adrian Beck, University of Leicester

• Close and Q&A

Overview





• Close and Q&A

Viewpoint by Kenneth Bengtsson - CEO, ICA

• The last free money on the table– Many external forces affect retail profitability.– Shrink is one line in the P&L and thus within the control of the Board. – Shrink reduction is a key financial opportunity to deliver extra profit and

shareholders value.

• Strategy for shrink management– Corporate policy.– Systematic approach are making shrink management part of business

process.

• Collaboration– Role of suppliers, retailers to co-operate along the supply chain. – Need for internal collaboration within retail organizations.

• Leadership– Board/Management/CEO has a vital role to set corporate policy.– Motivate people that work for suppliers and retailers to meet and sustain the

challenge to start the war on shrink.

Overview





• Close and Q&A

Measure

Collaborate

Focus on Hot Concept

Innovate

Experiment

Adopt Systemic a

Systematic Approach

Motivate Staff

Start with Non Malicious

Shrink

Disseminate DocumentLearning

Use the Road ECR Road Map

Adherence to

Procedures

Engage SeniorManagement

ECR Europe Shrinkage Philosophy

Processfailures

Inter-company

fraud

Internaltheft

Externaltheft

Shrinkage

MaliciousNon-

Malicious

Existing ECR Europe Definition of Shrinkage

Shrinkage Typology, 2006

Total Loss

Shrinkage Unknown

Process Variance

Physical Loss

Value Variance

In auditing

At Checkout

Product Movement

Data errors

Damage

Wastage/Spoilage

Internal Theft

External Theft

Reductions

Pricing

Missed claims

Cash Loss

Internal Theft

External Theft

Error

Two Approaches to Considering Shrinkage

Benefits Concerns

Existing Definition - Simple and easy to understand

- Well established

- Over emphasis on malicious loss

- Misses the complexity of the problem

- Benchmarking is problematic

New Typology - Acceptance by practitioners (Tesco; Ahold; Carrefour; Metro)

- Balanced across a range of causes

- Distinguishes between known and unknown

- Provides a basis for benchmarking

- A change from the accepted convention

- Requires a different way of thinking about shrinkage

- Requires new skills- Added complexity:

more causes to think about and measure

Overview





• Close and Q&A

New Learning from ECR

Session led by:Dr Paul ChapmanSenior Research FellowCranfield School of Management

• Store Improvement Road Map– ECR Road Map SWOT– In-store approach– Results

Project Results

Organisations Location Results

Tesco UK €143million annual savings

Tesco & Gillette Hungary - 74% losses + 288% sales

B&Q & Plasplugs UK - 50% losses + 33% sales

Feira Nova & Danone Portugal - 45% total shrink

Ahold & sausage suppliers Poland - 42% losses

Sainsbury’s spirits category

UK - 40% losses + 10% sales

Sonae & Colgate Palmolive Portugal - 29% losses

Sainsbury’s & Menzies UK - 25% losses + 10% sales

Wickes & GET UK - 7% losses

Project Results

Corporate Policy

Organisations whose corporate shrinkage policy have been significantly influenced by ECR Europe

Organisation Sector Location

Adidas Sports goods Northern Europe

Ahold Grocery International

Boots the Chemist Pharmacy UK

DM Pharmacy Germany

Metro Grocery Belgium & Netherlands

P&G Consumer goods International

Tesco Grocery UK & International

Corporate Policy

ECR Road Map SWOT

Strengths- Proven, robust method- Case studies- Leverages internal knowledge

Weaknesses- Typically applied at head office

- Time to implement solutions

Opportunities- Free brain with every pair of hands in-store

- ‘Extreme makeover’ of hot stores

Threats - Competing priorities in the store

- Apathy

Store Improvement Road Map

• Targeted at Hot Stores• Take a ‘learning-centred’ approach with store team

– Focus on individuals – Engage interest by focussing on delivering results– Aim to develop capability to further improve

Focus onobjectives

Transparentapproach

Engagepeople

Principles

adidas RETAIL - ECR ROAD MAP AND CORPORATE POLICY

Stuart HughesSenior Profit Protection ManagerRegion EMEA

THE JOURNEY………..

Over 350 own retail stores - EMEA

Transition to a centralised retail model

Previously no Profit Protection/Security/LossPrevention function

Largely unknown losses

Weak processes

STORE IMPROVEMENT ROAD MAP…………….

Hot Stores…………………

Back to the Floor…………

One Best Way………”A Picture of What Good Looks Like”

Store Managers have Zero Discretion on Process

Raise Profile of Shrink Reduction Across the Business

Driven Corporate Policy

TANGIBLE SOLUTIONS…………….

Robust Stock Takes

Movement Of Stock

Retail Risk Assessment

HR Pre-Employment Screening

STORE IMPROVEMENT ROAD MAP...............

Adapted from Beck, Chapman and Peacock, 2001

2. Map & Measure5. Implement

1. Plan6. Evaluate

3. Analyse4. Develop Solutions

Corporate Policy

Score Board……

Across 2 Areas (9 countries)

Worst store result fell from 9% of net sales to under 1% in the last 18 months

66% reduction in shrink across 2 areas

10% - 15% improvement in profit margin in these 2 areas

Conclusion………..

You can’t “Arrest” your way out of Shrink

Focus on Robust Efficient Processes

Be Commercial and Holistic

Building the shrinkage program in ICA Norway

ECR presentationStockholm, 31st May 2006

&

Lars-Boye Halvorsen ICA Norway

Johan de Vries Ahold

Content

Ahold shrinkage program

ICA Norway shrinkage program

Results

http://handmade-by-patricia.de/pics/home/hand-sand2.jpg

Ahold Shrinkage Approach

Ahold has created a shrinkage approach, based on the ECR road map

Goal of the approach is to develop a ‘tailor made’ shrinkage approach for the operating company based on the maturity level of the organisation

Objective is to identify the ‘root causes’ for shrinkage, not only fighting the symptoms

Best practice

Carry out interest analysis in the organisation and create a collaborative approach

Shrinkage Approach

STEP 1

Definition of shrinkage

STEP 2 (method)

Plan

Analyse

Develop solutions

Implement

Evaluate

STEP 3 (analysis)

Ordering strategy

Assortment strategy

Mark down strategy

Registration strategy

Loss prevention and security strategy

Shrinkage ApproachSTEP 4 (analysis)

Flow of goods

Flow of money

STEP 5 (analysis)

Basic conditions Communication Commitment Training Control Organisation

STEP 6: Low hanging fruit

Hot article approach

Hot store approach

Example Ahold hot stores approach

1. Increase of stock takes

Objective: Minimum of 2 stock takes per year, bad performing stores up to 4 stock takes per year.

2. Hot store approach

Objective:Intensive care for worst performing stores

0%

2%

4%

6%

Stock take result 6% 4,60% 0,60% 1,20%

1st 2nd 3th 4th

Source: P&L account. Definition: Unknown shrinkage results (stock takes)

0%

1%

2%

3%

4%

Cataluna Centro Occ. Cadiz Occ.Seville Oriental

Before After

Source: Data warehouse. Definition: Unknown shrinkage (stock takes)

Support plan Norway

Efficient store operations

It pay`s off !


It pay`s off !

Facts about ICA Norge – 2005 – pr. 31.12.05

• 7359 employees (including franchise)

• 20,1 bill NOK sales (app. 2,5 bill Euro)

• 20,6% marked share

• 747 stores (+147 associated)

.

Neighborhood store, ”The best store where you live/are”, locally adapted, credible prices, experience of broad assortment, service, personal, meeting place, modern

Food market, food enjoyment, baker, fresh food, large assortment fruit and vegetables, delicatessen, experience of broad assortment, credible prices

Large market, volume, rational, low prices, fresh food, non food, variety

Fixed low prices, simple, every day shopping

Our stores


It pay`s off !


It pay`s off !Shrinkage issue in Norway• Preliminary analysis showed a savings potential in in-store

logistic-related topics, including shrinkage

• Detailed analysis was needed to decide “where to start”

• The analysis was carried as an “ Assessment week”

• Consisting of interviews, store and DC visits

• The analysis report was the ground basis for the Shrink Program

Best practice:

The shrinkage reduction approach must be based on concrete facts, perform a thorough assessment before you decide on the actions


It pay`s off !


It pay`s off !

“Vinn Mot Svinn” workstreams

• Definition and accounting of shrinkage

• Monitoring and measurement

• Mark down procedure

• Fresh departments*

• Awareness programme

• Ordering

• Stock level control


It pay`s off !


It pay`s off !Example :Fresh-departments sub-streams

• Delivery frequency

• Receiving procedures

• Cold storage capacity

• Plano grams

• Assortment

• Ordering

• Expire date checks

• Quality control

• Theft

• Markdown procedures

• Waste handling

• Food safety

• Internal use

• Temperature

Fresh department has the highest share ofshrinkage in the stores. Make sure you use this investment wise


It pay`s off !


It pay`s off !

Adding value to the business

• The reduced cost of products is only one part of the total savings of shrink reduction :

– Less out of stock

– Less labor costs

– Less stock

– Higher customer satisfaction

– Higher sales

– Higher result

• Many companies base their shrinkage programme on identifying the sources and fighting the symptoms.

• By standardising the way of working you can focus on the execution of actions


It pay`s off !


It pay`s off !

– 35 of the worst performing stores based on stock take results– Special training sessions

• focus on procedures

• training on communication skills

• system knowledge

– Intensive care action plan• store specific

• store manager is the owner

– Weekly shrink update reports

Hot store approach


It pay`s off !


It pay`s off !

Results of hot store approach


It pay`s off !


It pay`s off !

Results total programme

– Sales + 20,34 %– Average sales per customer + 1,32 %– Shrinkage – 0,5 % – Gross margin + 0,17 %– Labour cost – 1,44 %– Productivity + 83

These numbers are in comparison with the average development

for similar stores

Tack!

Overview





• Close and Q&A

Exploiting Opportunities: The Offender Perspective

• Background

– Rationale

• Opportunity makes the thief

• Opportunity created by poor/absent procedures or

lack of adherence to them

– Methodology

• Interviews with offenders

• Analysing company reports

• Interviewing security staff

Thinking Like a Thief – Exploiting Opportunities

• Role Playing the Offender– You are a till operator

Think of 5-10 ways in which you or a friend could steal cash or goods at the checkout

Opportunities for Internal Theft

Opportunities for Dishonesty

• Poor processes• Reduced checking• Less oversight• Lack of data• Reduced accountability

Reformers beware! Streamlining business processes can have an impact upon shrinkage – delicate

balance between selling and stock loss

Opportunities for Internal Theft

Overview





• Close and Q&A

• Session Objectives

– Illustrate the value in getting shrink right

– Highlight new insights to guide thinking

– Demonstrate the benefits of the ECR Approach

Did we meet our Objectives?

Questions and Answer session

• Questions from the audience to the various presenters

• An invitation:– Participate in future research – Join the ECR Europe Shrinkage Working Group

Documents

Shrinkage: The Last Free Money on the Table Breakout 4-1 Stockholm 31 May 2006