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How to Analyze Retail Shortage Control Measures in the Supply Chain

The bedrock upon which healthy retailers are built is the supply chain that provides the goods to be sold. A retailer’s competitiveness, then, or lack thereof, is in measurable part a reflection of the extent to which these avenues of supply are cost effective and efficient.

The responsibility of a supply-chain loss prevention professional, broadly speaking, is to execute priorities that preserve assets, at least those within the loss prevention purview. Fulfilling this directive, and thus promoting effective and efficient supply chains, often requires the LP pro to analyze different business units or types to ensure the sufficiency of retail shortage control measures.

Though the business types within a supply-chain unit or units may be varied, such as third-party logistics entities, picking and packing operations, consolidation units, and so forth, the approach needed to analyze each for shortage control sufficiency is the same.

Retail Shortage Control Analysis

Beginning a retail shortage control sufficiency review means first establishing an understanding upon which all shortage control efforts will be built. That understanding is this: the primary goal for the loss prevention professional is to identify exposure to shrink within the business type. Exposure simply means an area, process, practice, or condition in which or because of which loss is either occurring or likely to occur. Once exposure to loss is identified, retail shortage control measures can be directed at the exposure to either reduce or eliminate it.

- Digital Partner -

Three categories or areas of exposure can be analyzed in this approach—operational exposure, administrative exposure, and physical exposure. The nature of these broad categories is a symbiotic one; affecting one category may produce either a favorable or unfavorable effect on one or more of the others. This post takes a closer look at the first area of exposure to shrink: operational exposure.

Not discussed within the scope of this post, although they should be considered from a holistic shortage control perspective, are tools such as data mining, trending, and reporting capabilities. These tools, when used properly, can have a complementary and profound impact on the overall effectiveness of the retail shortage control measures implemented as a result of this analysis.

Operational Exposure. Review the business’s physical operation in its entirety. Start at the beginning of the process and analyze each subsequent step until the entire operational process has been reviewed. In a typical setting, one might start with a receiving process, work into the merchandise storage functions, and then move on to merchandise processing and handling, merchandise replenishment, quality control if applicable, and finally shipping.

As each independent function or handling process is reviewed for exposure, develop answers to questions similar to these to guide your analysis:

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  • Are there operational methods employed that although effective operationally nevertheless circumvent or undermine current retail shortage control measures?
  • Do the methods or practices employed in the operation generate unnecessary exposure to loss?
  • Can operational practices be changed such that the business of the operation continues on, without unnecessary impediment, but does so in a way that reduces exposure to shrink?

Consider the following example to illustrate an operational exposure review. A high-volume, high-value business unit secured by fencing around its perimeter generates empty corrugate as a byproduct of the inventory replenishment function. To remove this material, the operation employs the use of powered industrial trucks to drive the empty corrugate through a gate in the perimeter fence and on to a recycling location outside the area. Because of the volume of corrugate, a thorough inspection of the material at the exit gate by loss prevention personnel is impossible. This process is repeated several times daily, and from purely an operational perspective, it is effective.

A review from the perspective of operational exposure would reveal that this corrugate removal process, while effective functionally, circumvents shortage control hardware in place, namely the perimeter fence. Further, because of the volume of material and occurrences, a meaningful inspection at the exit gate is not possible. The potential for internal retail shrink during this process is likely high.

In this example, exposure to shrink has been identified through the corrugate removal process. The goal here is to reduce or eliminate this operational exposure by modifying how the corrugate is processed. Consider the following:

  • Could the corrugate recycling process be brought within the confines of the perimeter fencing? If so, the operational elements creating exposure to shrink will be largely removed or eliminated altogether.
  • Could the business change the way in which it removes corrugate from the area that would reduce the risk of loss? For example, could the corrugate be flattened, then palletized, and then removed from within? If so, a large portion of the risk of loss has also been removed.

The goal here is a challenging one. After all, you are going to be asking the operation to change the way it does business. Compromises will likely be an element of any long-term solution. However, intelligent changes made here will impact positively the health of the unit, and that is a result all the business partners can agree on.

- Digital Partner -

To take a closer look at the other two primary areas of exposure to shrink (administrative and physical), check out the full article, “Supply-Chain Shortage Control,” which was originally published in 2016. This excerpt was updated March 26, 2018.

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