Much of Europe has been to the polls in general or presidential elections since January 2015, and the stakes have never been higher in terms of the continent’s sluggish economic recovery and, further east, the thorny issue of sovereignty as the crisis in Ukraine has demonstrated.
Finland, one of Europe’s bellwether or barometer nations, elected a nationalist-led coalition in 2011 but hoped for change in the April 2015 parliamentary election. It has a keen eye on its immediate neighbors in Russia at the same time as it struggles to shake off the image of the “sick man of Europe” and to pull the country out of a deep-dive recession—one that has impacted the entire Baltic region. With a higher cost of living, domestic criminality (much of it exacerbated by economic hardship), and the growing threat of organized gangs from the Balkans and Poland launching targeted attacks on its stores, S Group, the nation’s biggest retailer, has become its own United Nations force against losses by making loss prevention everybody’s responsibility, from the board to the shop floor.
A Project Approach
S Group consists of twenty regional cooperatives with 1.9 million members and the SOK Corporation, which has everything from hypermarkets to convenience stores. It is part of a far-reaching movement that deals in everything from food to fuel forecourts and cars. With a turnover of €6.4 billion (~ $7.2 billion) in 2015, 1,600 outlets across Finland, and more than 41,000 employees, it rather surprisingly has only one dedicated loss prevention manager.
However, this is not the true picture. To be more accurate, there may be only one person in this large organization with the title of LP manager, Anna-Liisa Flink, but she is far from alone. She sits in a larger risk team that coordinates what it describes as a “project approach” to LP and reports directly into the financial director and the board. In turn, the management is, as one body, focused upon the concept of “total loss,” those known and unknown, malicious and non-malicious discrepancies that impact profitability and performance.
Flink said that the cross-functional buy-in was necessary to deliver results: “It is important that the definition of loss is clear to all parties. Successful loss management requires a horizontal development approach and cooperation between the different parties of the supply chain. In my opinion, the development of loss management requires knowledge of the business—it is important to know, at least on a general level, the central processes and the systems used. We originally started loss management work by creating loss risk analyses for the store processes of the different chains. At the same time, “quick wins” and actions requiring long-term development were identified.
This, it can be argued, is because at a time when the country is looking for economic salvation, tackling shrink or loss becomes a goal in itself to protect and even grow margin, a low-hanging fruit because sales are slow.
Flink continued, “Due to the general economic situation, many retail companies are currently seeking cost savings and at the same time aiming to improve profitability. Loss management has a direct link to the gross margin and the share of profit. S Group is increasingly seeking a balance between availability and loss; we are no longer focusing on availability alone. Loss management has been included on the management’s agenda, and at the moment I feel that we also have the management’s support for our actions. Loss management and availability are not mutually exclusive, quite the contrary, and this is the message that must be brought up when having discussions with management.
“We are in a situation where the poor economic situation of the Finnish state and local municipalities sets pressure to raise taxes. From the retail point of view, this meant poor purchasing power of people and affects the overall situation of the Finnish home market. The level of consumer confidence has become weak, and this directly affects the retail business.
How the Business Implemented Change
So how does this single loss prevention manager—supported by the risk team and the management board—go about her day job? Education, it would seem, is high on the daily agenda and priority list.
“We do not have teams, as such, but we do have project groups, and my job is to work with the risk management project group and the rest of the business to make sure that LP is implemented according to the objectives the business has set,” she said.
“Because there is no one else working in this function at SOK, my task is to see that S Group has the best tools and operating methods in use to ensure that loss management is implemented according to the objectives. I also constantly monitor loss risks and respond to them, as well as communicate this information to other parties at S Group.
“In this respect, LP is very much ‘business as usual’ as it is part of our management culture with loss prevention forming an integral part of our processes and responsibilities. Every member of staff and every department has something to do with preventing loss—it touches everyone.”
“The big project for us is introducing a dashboard approach across the supermarkets to familiarize the stores with the concept of total loss. We are also introducing an LP auditing tool to introduce best practice and benchmarking across the stores.
“Our challenges are very similar to those of other retail operators. External theft and challenging customer service situations occur daily at all our stores. From the point of view of loss management, there are differences between chains and stores because of the systems and operating models used, amongst other things. Challenges of balance management and practices of loss recording are examples of these.”
But compliance is only one issue for her and the project managers. Travelling organized crime—the kind spreading through much of Europe—has also reared its head in Finland, although not to the same extent as other western European countries.
“Although we do have problems with gangs, Finland is very safe, peaceful, and people live stable and prosperous lives, on average, compared to many western countries. We have been left aside from the larger scale of problems related to immigration and criminal gangs from Baltics and East Europe who have perhaps focused on countries with larger populations and local minorities, like Sweden.
“But it would be also true to add that professional crime has increased during the past few years in Finland as well. At S Group, it has become more visible, in particular, in the increased theft of cosmetics, hardware, and entertainment products. Typical of these thefts is the fact it is planned—prepared in advance by trying to find out the activities of the store staff and the operation of the security systems. Additional special characteristics are swift and efficient action, and when the crime takes place during opening hours, deceiving sales colleagues is common. Criminal gangs enter Finland from the Baltic countries and Poland in particular. We therefore engage in close cooperation with all retail businesses operating in Finland and the authorities to see what information we can share.”
The variety of different store formats and locations provides different challenges for the risk team, but the larger urban centers provide the largest headache, according to Flink.
“The regional cooperatives operate in different parts of Finland, meaning that we have stores in different kinds of areas: large cities, small towns, and in the countryside. From the point of view of loss management, the problems at different stores are of a very similar type. Simply put, it can be said that large cities have more problems with theft, whereas in the countryside, there are other challenges.”
In the larger stores, security staff are becoming the norm, so much so that they are looking to integrate other tasks into their daily roles, so they are more integrated into the team and not seen as external “muscle” on the door.
“We have full-time security guards in use at all our large units. In practice, this means our hypermarket and department store units. Lately, we have been developing our cooperation with security companies in the area of theft prevention. In addition, we are currently working on solutions for combining the work of a salesperson and a security guard in order to use guarding more efficiently.”
Crime and economic sharp practice, often generated by challenging fiscal measures, it could be argued, have encouraged greater opportunism, including increases in malicious slips and trips as Finland follows much of the rest of Europe and the US in creating a compensation culture, often built upon dishonesty.
“Yes, customer complaints concerning products and services have increased. All complaints are processed, and many of them are justified and lead to action. However, in some of the customer claims, it is apparent that gains are sought without real justification for the claim. Investigating these cases often takes time. Increasingly, attempts are being made to return stolen goods to us.”
And where do the Finnish Police sit in all of this uncertainty? SOK has developed a strong working relationship with law enforcement, but it is not without its own challenges, as Flink identifies.
“Our relationship with law enforcement is an issue. Greater collaboration is being developed in Finland, and at the general level, there is good cooperation. As a retail business, we are suffering from the savings and operational efficiency measures of both the Police and judicial system. But, as we all know, in daily cooperation, this brings special challenges in questions related to crime investigation and penalties.”
Although S Group has most of its retail exposure in the physical space, there is a growing online market for its hypermarket and department stores.
“The online trading is still rather new, so it is difficult to generalize about it in terms of loss. But for online trade, the challenge is orders that are made with false identities or payment information.”
Being able to monitor payment variations, especially in the online business, is critical for this growing area of the SOK’s business via the Internet.
“We are using a centralized receipt data deviation analysis system from IntelliQ in our Baltic countries and Russia. We constantly evaluate and develop the utilization of security technology both in the stores and for online trade; the important thing is to maintain optimal payment detail verification,” she said.
“In 2015, we began introducing the LP dashboard at our supermarket trade chains, which enables stores to quickly find out the loss situation in their own unit and, if necessary, investigate the loss in each product area. With the dashboard, we aim to familiarize the stores with the concept of total loss, which includes both the identified and unidentified loss. We also have a loss prevention auditing tool for stores to use to benchmark best practice against.”
More conventional technology is also on offer in Finland, including EAS tagging, although, like many other European countries, this is not without its challenges.
“The constant challenge in product protection is the focusing of alarm systems (EAS) correctly and cost-efficiently. This challenge is highlighted by seasonal stock as most of our consumer goods trade products come to the stores from our own logistics center where EAS tags are attached to products, in addition to other types of preparation or pre-retailing ahead of putting them on display for sale. Our ultimate goal is to ease the work related to alarm devices at the stores for large product quantities. For the logistics center, we are talking about centralized alarm device installation. In addition, stores carry out additional alarm work as required, especially for entertainment products.
“In addition, we are testing EAS-based product protection on internal locating technology with a business partner. In practice, this means that through special alarm devices attached to products and the system connected to them, we would receive information of attempts to remove or cover the EAS tags or take them away from a specified area. This is an interesting pilot project, and we have high hopes for it,” she said.
For now, source tagging is off the menu for SOKS, but the company is keeping a watching brief on RFID.
“Over the years, we have had some RFID tests and pilots. As I see it, the benefits are best used in companies or chains that are responsible for the entire supply chain from product design and manufacture to logistics centers and stores. We are monitoring developments in this area with interest.”
What about the non-malicious shrinkage in SOK’s total loss strategy? The company is striving to create greater transparency around this issue by using analysis technology to create a greater impact and understanding of which products give them more cause for concern.
“The management is ultimately about recognizing products that cause wastage and the appropriate focusing of actions. We are in the process of deploying the loss prevention dashboard in our stores with the aim of making the analysis of the stores’ loss easier and faster. Through analysis, we can better deal with those products. Our objective is also to highlight those products that do not sell or have a poor margin. We also aim to operate in a responsible manner and, for instance, donate edible food products to charities.”
The more scientific dashboard approach has enabled Flink and her team to be more forensic and control things in a more centralized fashion.
Whereas the political and economic future of Finland and northeastern Europe is still in question, measuring and managing losses—both known and unknown—is a way that SOK’s has seized control of its own destiny. So now, whatever the democratic or financial climate, the cooperative has a stronger hold on countering shrink and its causes so that it can at least point profit in the right direction to get it over the Finnish line.
This article was originally published in LP Magazine EU in 2015.