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LOSE LESS AND SELL MORE : Using the ECR Europe Approach to Manage Shrinkage

LOSE LESS AND SELL MORE : Using the ECR Europe Approach to Manage Shrinkage. Adrian Beck Reader in Criminology University of Leicester , UK. Structure. Defining Shrinkage The Scale of the Problem Key Principles of Effective Shrinkage Management A Case Study in Success. Defining Shrinkage.

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LOSE LESS AND SELL MORE : Using the ECR Europe Approach to Manage Shrinkage

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  1. LOSE LESS AND SELL MORE: Using the ECR Europe Approach to Manage Shrinkage Adrian BeckReader in CriminologyUniversity of Leicester, UK

  2. Structure • Defining Shrinkage • The Scale of the Problem • Key Principles of Effective Shrinkage Management • A Case Study in Success

  3. Defining Shrinkage

  4. Shrinkage Process failures Inter- company fraud Internal theft External theft Original ECR Europe Definition Shrinkage

  5. What Does Shrinkage Mean? •  Deliberate Under/Over Delivery •  Invoice Errors •  Quality and Weight of Items Inter-Company Fraud •  Inventory Errors  Promotion Errors • Pricing Errors  Stock Going Out of Date •  Damage to Stock  Product Delivery/Scanning Errors Process Failures •  Theft of Stock and Cash •  ‘Grazing’ •  Collusion Internal Theft •  Shoplifting  Till Snatches •  Returning Stolen Goods  Burglary •  ‘Grazing’ External Theft

  6. New Shrinkage Typology

  7. Scale of the Problem

  8. International Comparisons

  9. Shrinkage Retail Iceberg • Lack of visibility • Lack of awareness • When did it happen? • Where did it happen? • How did it happen? • Who was responsible? • Lack of accountability • Prioritisation of the most visible/acceptable 49% 51%

  10. Causes of Retail Stock Loss

  11. Location of the Problem 24% Manufacturer Distribution 5% Retail Distribution 71% Retail Stores

  12. 5 % Average Retailer Shrink Margin 4 % 1.84% 1.84% 3 % Average Retailer Margin 4.83% 2 % Average Retailer Profit Margin 2.99% 1 % 0% Current Potential Retailer’s Missed Profit Opportunity 62% Margin Growth

  13. Shareholder Value Calculated by the Cranfield School of Management based upon the following assumptions Sales Margin = 15%; Inventory Holding Costs = 20%; Net Overhead Cost = 30%; Share Price is a Multiple of 20 on Net Income.

  14. Principles of Effective Shrinkage Management

  15. Guiding Principles • Engage senior management • Convince them of the opportunity • Show the impact on the consumer • Persuade them that a multi functional approach is required • Secure resource

  16. Guiding Principles • Measure the problem • Data accessibility, timeliness and granularity • Mining the data warehouse • Monitor and generate transparency

  17. 10p report Cashier error? Data mining... 14,836,947 products £12,000,000 shrinkage 1.48 billion kr

  18. Guiding Principles • Promote inter and intra company collaboration • Who needed to be involved? • Manufacturer • Design team • Production • Supply Chain • Marketing • Sales • Retailer • Buyer/Merchandising • Loss Prevention • Supply Chain • Store Operations • Environmental agency

  19. End to End Solutions Before After

  20. Guiding Principles • Adopt a systemic and systematic approach • The ECR Europe Road Map

  21. Wake Up Call! ECR Shrinkage RoadMap CORPORATE POLICY Evaluate Plan Implement Map & Measure Develop Solutions Analyse

  22. Wake Up Call! Crisis-Driven Shrinkage Management CORPORATE POLICY Evaluate Plan Implement Map & Measure Develop Solutions Analyse

  23. Problem • There is no product on the shelf 1. Why? Because it is in the back room 2. Why? Replenishment team cannot find it 3. Why? All packs seem to look the same 4. Why? No differentiation except by barcode 5. Why? Pack designed to suit DC operation Example Tool: 5 Whys

  24. ECR Road Map Principles • Collaborate and engage all stakeholders • Focus effort on the processes: Products/Information/Money • Identify greatest oppportunities then target root causes • Remove the opportunity for loss or error • Encourage evaluation & learning

  25. ECR Road Map Benefits • Ensures the right resources and people engaged • Better and more sustainable results • Less daunting • More cost efficient • Higher probability of success • Quicker to implement • Lessons can be reapplied to other problems

  26. Guiding Principles • Unlock the value of the 'hot' concept • Products • Places • People • Processes Places People Products Processes

  27. Hot Products Example

  28. Benefits of the ‘Hot’ Concept • Avoids spreading valuable resources too thinly • Focus on the vital few amongst the trivial many • Rapid impact • Greatest return • Possible diffusion of benefits

  29. Guiding Principles • Focus on process failures first • Removes opportunity • Receipt process • Returns • Masks malicious activity • Delivers • Quick wins • Cost effective wins • Sustainable solutions

  30. Process Compliance & Shrinkage Source: Ahold Hypermarkets: Czech: 2004

  31. Guiding Principles • Encourage innovation and experimentation • Keep ahead of the game • Initiate……. • Pilot Studies on new ideas • Road Map projects with suppliers • Benchmarking against industry surveys • Experiment….. • New solutions • New store layouts • ECR survey showed that retailers who innovated and experimented most had 20% lower shrinkage

  32. Guiding Principles • Document learning and disseminate success

  33. Adherence to Disseminate Use the Road ECR Road Map DocumentLearning Procedures Motivate Staff Collaborate Focus on Hot Concept Measure Start with Non Malicious Shrink Engage SeniorManagement Adopt Systemic a SystematicApproach InnovateExperiment Guiding Principles

  34. The ECR Road Map in Action: Tesco and P&G Case Study

  35. Products Locked Up Shelf “out of stocks” The Problem - 2003 Failing to serve the customer and failing to support their businesses

  36. Tesco UK Shrinkage - 2003

  37. Tesco - Call to Action • “Got the call” from the very top • “Licence” to work across functions to reduce shrinkage • Permission granted to take drastic action if needed

  38. Plan • Hot Products • Hot Stores • Look for Internal Process Failures

  39. Hot Products...Health & Beauty

  40. Hot Stores...

  41. Tesco UK Shrinkage - 2003

  42. P&G Hot Products - 2003

  43. Picking Shelf Map & Measure

  44. What could go wrong? Scored each risk Severity Occurrence Detection Assessed root causes for key risks Analyse

  45. Secure Supply Chain for top 500 hot products Solutions Developed

  46. Secure storage in top 200 stores This has become “design” standard and is rolled out in all stores Solutions Developed

  47. Modified Packaging to enable product protection in all stores Solutions Developed

  48. Introduced regular counting of hot products to measure results Solutions Developed

  49. P&G Hot Products

  50. Tesco UK Shrinkage

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