May 03, 2019
The types of inventory loss and how to minimize your risk (part 1)
Inventory loss is either a result of admin mistakes, spoilage/stock damage, expired product, or even theft – all of which can end up being a substantial amount of loss if there are no prevention plans in place. Let’s look at some ways to minimize these losses before they put you out of business.
This article tackles the sensitive area of theft in your business and ways to minimize your loss. In our next article, we will look at spoilage/stock damage and expired product.
Educate your employees by training them on loss prevention and discuss with them the implications of theft by employees and what the consequences of their actions will be. This training will also make employees more aware and be able to spot theft, whether among their fellow workers or by customers. Employees should learn the basic body language signs, ie, shoppers that avoid eye contact, linger in odd areas, leave and return to the store multiple times and appear to be nervous, and so on. To avoid possible lawsuits, make sure that your employees do not try to restrain or approach a shoplifter – that is the duty and responsibility of your store security.
Access and security
Make sure that your storeroom is secure and that not ALL staff have access, only staff that need to access your inventory should have access. Keep your storeroom neat and clean at all times; it is much easier to notice if something is missing when the area is tidy.
Make sure that your receiving area is secure – this is where a lot of inventory theft takes place, employees have been known to mark shipments as ‘spoiled’ when they are not and then take them. To add a control measure to this process, ensure that all items marked as “spoiled” are inspected by another employee or even a manager, and this person should preferably be from a different department. Use clear bags for trash removal so the contents are visible.
In a clothing retail environment, ensure that your dressing rooms are monitored by a dressing room attendant and that they are aware of how many items a shopper takes in and out of the dressing room.
Install a surveillance camera system throughout your store and your floor space, and make sure employees know that they are there. Place mirrors in those areas that are hard to see and that are likely areas for theft. Ensure that you look at your camera footage at least once a week to pick up any unusual behaviours. Post signs warning against theft and the penalties incurred.
High-value items should be kept in areas that require a higher level of access, under lock and key with only nominated managers having access.
To ensure regular checks and balances, split employee’s duties by not allowing the same person to manage, process receipts, and record receipts.
Make sure you have an efficient POS system that requires individual login and ensure you look at each terminals transactions daily. If any of these warning signs occur, you should investigate.
· An excessive amount of access to the cash drawer
· Refunds that are recorded in small amounts
· Returns that do not match the product
· A fake discounted price but the client pays the full price – ensure you have a threshold in place, where management needs to override anything over that threshold
· Employees should have restrictions in terms of what they can do without a supervisor’s override – ensure these are in place.
· Watch for Universal Product Code errors – to avoid this, ensure that items have the correct barcode and that they are scanned, labelled, and shelved correctly.
On your shop floor, place your cash registers close to the entrance/exit so that staff can welcome your customers as they enter. Cashiers then have line of sight of the entire store. Place your more expensive items close to the cashiers as shoplifters are not likely to steal if they know they are being watched.
Institute regular stock counts. If you have an extensive inventory consider cycle counting where you count a small amount each day until you have gone through your entire inventory – then rinse and repeat.
If you haven’t implemented an Inventory Control or Inventory Management solution, this should be top of mind. Read our previous article on the Differences of an Inventory Control and an Inventory Management solution.
Consider implementing a full warehouse management system on top of your Inventory Control and Management - equipped with barcode scanners/mobile devices so you can track inventory from receiving all the way through to the cash register, as well as unique auditable logs.
Theft is a topic that many supply chain companies don’t like to consider, but it’s a reality and one that could severely dent your profits. Don’t bury your head in the sand just because this is an uncomfortable topic. Put the necessary processes and procedures in place today, and you’ll be far better off in the long run.
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Written by Craig de Kock
Craig comes from an engineering background, receiving his degree from the University of Pretoria in the early ’90s. His experience in supply chain started in 1992, where he joined a team developing ERP and logistics solutions for local organizations in South Africa. Focusing in supply chain, Craig moved to a specialist supply chain business in the early 90's and moved through the ranks to eventually end up managing a team of consultants on various supply chain projects in SA. Craig joined Barloworld logistics as General Manager of product development and was responsible for the development, testing, and international rollout of their inventory optimization product. Craig later expanded his talents and joined a team to manage IT infrastructure, IT Projects, Warehousing, Operations and Supply chain in a cellular business as the COO and later CIO. In 2011 Craig went back to his supply chain roots and joined cloud-based Inventory Management company NETSTOCK. He began his journey at NETSTOCK, building the business from the ground up. Today Craig is President for NETSTOCK in the USA and CIO for the group. Craig focuses on NETSTOCK customers, empowering his team to make sure they have the right systems and processes in place to deliver a superior customer experience.