The document discusses strategies for reducing shrinkage and increasing profitability through effective loss prevention programs. It notes that shrinkage significantly impacts retailers' bottom lines. Studies show best-in-class retailers realize shrink recovery can be a top profit source, and loss prevention programs can reduce shrinkage by 20-40%. The document advocates moving from traditional reactive approaches to more innovative predictive analytics utilizing comprehensive data to identify drivers of loss, monitor trends, profile high-risk stores, and target solutions. An analytical approach and roadmap are presented for building baseline models, validating accuracy, enhancing operations, measuring results, and addressing out-of-tolerance indicators to efficiently allocate resources and minimize losses over time.
2. What studies show
Deloitte Consulting:
Shrink is a big problem for retailers. In fact, for a typical supermarket or discount
store, the impact of shrink is felt everywhere – within individual departments,
across functions, and throughout the supply chain. This coverage makes managing
shrink difficult, but not impossible.
The right kind of program can reduce shrink by 20-40 %. A reduction of this
magnitude puts real money back into the business.
Larry Miller, Director in the National Supermarket Research Group, US, points out,
“Best-in-class supermarket operators have realized that shrink recovery can be
their top profit source.”
Pricewaterhouse Coopers:
The retail and consumer industry is one of the sectors hardest hit by economic
crime,
In the retail sector, companies face a two-fold threat, from ‘shrinkage’ – theft of
goods by both customers and employees – on the one side, to the broader
spectrum of economic crimes such as accounting fraud, corruption and bribery,
and intellectual property (IP) infringement on the other.
3. Innovative Loss Prevention
• From Traditional to Futuristic- a path forward
• Current environment Initiative
Common
Challenges
• From traditional to future
• A path forward What
Works
4. Loss Prevention – common challenges
Traditional environment
Information poor data;
Continued reduction of resources;
Reactive to failures;
Post-incident reporting;
Duplication of efforts for compliance;
Absence of historical data analysis and trending;
Minimal or no efforts on root cause analysis
Emerging vision
Information rich data;
Improved efficiency in resources;
Rapid detection of trends and patterns;
Risk identification – loss forecasting to help prevent;
Frequent audits based on real time data;
Collaborative efforts with other compliance teams;
5. Overall assurance
Today
Multiple points of view related to
operations
Risks Differing perspectives on risk
Potential for duplication and gaps
in coverage
Reduced visibility in the linkage
between sources of assurance
Tomorrow
Collaboration across departments
Develop a common view of risk Internal Controls Store Operations
related to the stores/locations
Presents a clear path to how key Risks Compliance
risks are being covered
Loss Prevention Health & Safety
This is more than developing
improvements in risk-based Others
internal auditing
6. Comprehensive & analytical approach
Understanding critical
processes and existing
sources of loss; Root Cause
Analysis
Isolating and quantifying key
drivers of loss;
Coordinating across functional
areas to develop a common
view of risk;
Address key drivers and Identify
Shrink Analytical
Drivers & Forecasting
monitor effectively and Trends
Engine
efficiently
Implementing a targeted
solution to rapidly detect
early warning signs and
address out of tolerance Store
situations; Profiling &
Better allocating resources to Clustering
high risk stores and
operational areas
7. Benefits of analytical approach
Reduce loss across historically poor
1
Benefits performing stores and products;
2 Targeted opportunities directed at
addressing factors highly correlated
5
and believed to be causing loss;
4
3 Shrinking the interval from
detecting to resolving at stores that
3 have yet to disclose continued poor
performance;
2
4 More efficiently allocating out loss
prevention resources;
1
Streamlining reporting systems and
5
Controls
Loss
8. Roadmap to Loss Prevention & Control
• Sep, 2012
Sep, 2012 Dec, 2012 Jun, 2013
Build baseline Rebuild baseline
models Operations models
Finance Validate Enhance Finance
Merchandize Accuracy & Operations Merchandize
Management Value Activities Management
Measure Results
Refine
Dashboard
Capabilities Finance
Finance Merchandize
Merchandize Operations
Monitor Leading indicators & Trends Management
Management Address Out of Tolerance indicators