Shrinkage: The Last Free Money on the Table

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ShrinkageThe Last Free Money on the Table

• Breakout 4-1
• Stockholm 31 May 2006

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Shrinkage the last free money on the table

• Welcome!

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The ECR Europe Shrinkage Project Team 2005-6
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Shrinkage the last free money on the table

• Session Objectives
• Illustrate the value in getting shrink right
• Highlight new insights to guide thinking
• Demonstrate the benefits of the ECR Approach

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Overview

• The Last Free Money on the Table
• Kenneth Bengtsson, CEO ICA
• ECR Principles and Understanding Shrinkage
• Adrian Beck, University of Leicester
• Delivering Improvement
• Paul Chapman, Cranfield School of Management
• Stuart Hughes, Adidas
• Lars-Boye Halvorsen and Johan de Vries, ICA
  Norway
• Interactive Session Thinking Like a Thief
• Adrian Beck, University of Leicester
• Close and QA

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Overview

• The Last Free Money on the Table
• Kenneth Bengtsson, CEO ICA
• ECR Principles and Understanding Shrinkage
• Adrian Beck, University of Leicester
• Delivering Improvement
• Paul Chapman, Cranfield School of Management
• Stuart Hughes, Adidas
• Lars-Boye Halvorsen and Johan de Vries, ICA
  Norway
• Interactive Session Thinking Like a Thief
• Adrian Beck, University of Leicester
• Close and QA

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Viewpoint by Kenneth Bengtsson - CEO, ICA

• The last free money on the table
• Many external forces affect retail profitability.
• Shrink is one line in the PL and thus within the
  control of the Board.
• Shrink reduction is a key financial opportunity
  to deliver extra profit and shareholders value.
• Strategy for shrink management
• Corporate policy.
• Systematic approach are making shrink management
  part of business process.
• Collaboration
• Role of suppliers, retailers to co-operate along
  the supply chain.
• Need for internal collaboration within retail
  organizations.
• Leadership
• Board/Management/CEO has a vital role to set
  corporate policy.
• Motivate people that work for suppliers and
  retailers to meet and sustain the challenge to
  start the war on shrink.

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Overview

• The Last Free Money on the Table
• Kenneth Bengtsson, CEO ICA
• ECR Principles and Understanding Shrinkage
• Adrian Beck, University of Leicester
• Delivering Improvement
• Paul Chapman, Cranfield School of Management
• Stuart Hughes, Adidas
• Lars-Boye Halvorsen and Johan de Vries, ICA
  Norway
• Interactive Session Thinking Like a Thief
• Adrian Beck, University of Leicester
• Close and QA

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ECR Europe Shrinkage Philosophy
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Existing ECR Europe Definition of Shrinkage
Shrinkage
Process failures
Inter- company fraud
Internal theft
External theft
Non-Malicious
Malicious
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Shrinkage Typology, 2006
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Two Approaches to Considering Shrinkage
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Overview

• The Last Free Money on the Table
• Kenneth Bengtsson, CEO ICA
• ECR Principles and Understanding Shrinkage
• Adrian Beck, University of Leicester
• Delivering Improvement
• Paul Chapman, Cranfield School of Management
• Stuart Hughes, Adidas
• Lars-Boye Halvorsen and Johan de Vries, ICA
  Norway
• Interactive Session Thinking Like a Thief
• Adrian Beck, University of Leicester
• Close and QA

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New Learning from ECR

• Session led by
• Dr Paul Chapman
• Senior Research Fellow
• Cranfield School of Management
• Store Improvement Road Map
• ECR Road Map SWOT
• In-store approach
• Results

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Project Results
Project Results
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Corporate Policy
Corporate Policy
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ECR Road Map SWOT
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Store Improvement Road Map

• Targeted at Hot Stores
• Take a learning-centred approach with store
  team
• Focus on individuals
• Engage interest by focussing on delivering
  results
• Aim to develop capability to further improve

Principles
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(No Transcript)
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THE JOURNEY..
Over 350 own retail stores - EMEA Transition to
a centralised retail model Previously no Profit
Protection/Security/Loss Prevention
function Largely unknown losses Weak processes
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STORE IMPROVEMENT ROAD MAP.
Hot Stores Back to the Floor One
Best WayA Picture of What Good Looks
Like Store Managers have Zero Discretion on
Process Raise Profile of Shrink Reduction Across
the Business Driven Corporate Policy
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TANGIBLE SOLUTIONS.
Robust Stock Takes Movement Of Stock Retail
Risk Assessment HR Pre-Employment Screening
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STORE IMPROVEMENT ROAD MAP...............
Adapted from Beck, Chapman and Peacock, 2001
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Score Board

• Across 2 Areas (9 countries)
• Worst store result fell from 9 of net sales to
  under
• 1 in the last 18 months
• 66 reduction in shrink across 2 areas
• 10 - 15 improvement in profit margin in these 2
  
• areas

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Conclusion..
You cant Arrest your way out of Shrink Focus
on Robust Efficient Processes Be Commercial and
Holistic
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Building the shrinkage program in ICA Norway
ECR presentation Stockholm, 31st May 2006
Lars-Boye Halvorsen ICA Norway Johan de
Vries Ahold
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Content

• Ahold shrinkage program
• ICA Norway shrinkage program
• Results

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Ahold Shrinkage Approach

• Ahold has created a shrinkage approach, based on
  the ECR road map
• Goal of the approach is to develop a tailor
  made shrinkage approach for the operating
  company based on the maturity level of the
  organisation
• Objective is to identify the root causes for
  shrinkage, not only fighting the symptoms
• Best practice
• Carry out interest analysis in the organisation
  and create a collaborative approach

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Shrinkage Approach

• STEP 1
• Definition of shrinkage
• STEP 2 (method)
• Plan
• Analyse
• Develop solutions
• Implement
• Evaluate

• STEP 3 (analysis)
• Ordering strategy
• Assortment strategy
• Mark down strategy
• Registration strategy
• Loss prevention and security strategy

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Shrinkage Approach

• STEP 4 (analysis)
• Flow of goods
• Flow of money
• STEP 5 (analysis)
• Basic conditions
• Communication
• Commitment
• Training
• Control
• Organisation

• STEP 6 Low hanging fruit
• Hot article approach
• Hot store approach

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Example Ahold hot stores approach
1. Increase of stock takes Objective Minimum of
2 stock takes per year, bad performing stores up
to 4 stock takes per year.
2. Hot store approach Objective Intensive care
for worst performing stores
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Support plan Norway
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Facts about ICA Norge 2005 pr. 31.12.05
Efficient store operations It pays off !

• 7359 employees (including franchise)
• 20,1 bill NOK sales (app. 2,5 bill Euro)
• 20,6 marked share
• 747 stores (147 associated)

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Our stores

• .Neighborhood store, The best store where
  you live/are, locally adapted, credible prices,
  experience of broad assortment, service,
  personal, meeting place, modernFood market,
  food enjoyment, baker, fresh food, large
  assortment fruit and vegetables, delicatessen,
  experience of broad assortment, credible prices
  Large market, volume, rational, low prices,
  fresh food, non food, varietyFixed low
  prices, simple, every day shopping

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Shrinkage issue in Norway
Efficient store operations It pays off !

• Preliminary analysis showed a savings potential
  in in-store logistic-related topics, including
  shrinkage
• Detailed analysis was needed to decide where to
  start
• The analysis was carried as an Assessment week
• Consisting of interviews, store and DC visits
• The analysis report was the ground basis for the
  Shrink Program
• Best practice
• The shrinkage reduction approach must be based on
  concrete facts, perform a thorough assessment
  before you decide on the actions

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Vinn Mot Svinn workstreams
Efficient store operations It pays off !

• Definition and accounting of shrinkage
• Monitoring and measurement
• Mark down procedure
• Fresh departments
• Awareness programme
• Ordering
• Stock level control

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Example Fresh-departments sub-streams
Efficient store operations It pays off !

• Delivery frequency
• Receiving procedures
• Cold storage capacity
• Plano grams
• Assortment
• Ordering
• Expire date checks
• Quality control
• Theft
• Markdown procedures
• Waste handling
• Food safety
• Internal use
• Temperature

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Adding value to the business
Efficient store operations It pays off !

• The reduced cost of products is only one part of
  the total savings of shrink reduction
• Less out of stock
• Less labor costs
• Less stock
• Higher customer satisfaction
• Higher sales
• Higher result
• Many companies base their shrinkage programme on
  identifying the sources and fighting the
  symptoms.
• By standardising the way of working you can focus
  on the execution of actions

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Hot store approach
Efficient store operations It pays off !

• 35 of the worst performing stores based on stock
  take results
• Special training sessions
• focus on procedures
• training on communication skills
• system knowledge
• Intensive care action plan
• store specific
• store manager is the owner
• Weekly shrink update reports

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Efficient store operations It pays off !
Results of hot store approach
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Efficient store operations It pays off !

• Results total programme
• Sales 20,34
• Average sales per customer 1,32
• Shrinkage 0,5
• Gross margin 0,17
• Labour cost 1,44
• Productivity 83
• These numbers are in comparison with the average
  development
• for similar stores

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Tack!
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Overview

• The Last Free Money on the Table
• Kenneth Bengtsson, CEO ICA
• ECR Principles and Understanding Shrinkage
• Adrian Beck, University of Leicester
• Delivering Improvement
• Paul Chapman, Cranfield School of Management
• Stuart Hughes, Adidas
• Lars-Boye Halvorsen and Johan de Vries, ICA
  Norway
• Interactive Session Thinking Like a Thief
• Adrian Beck, University of Leicester
• Close and QA

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Exploiting Opportunities The Offender Perspective

• Background
• Rationale
• Opportunity makes the thief
• Opportunity created by poor/absent procedures or
  lack of adherence to them
• Methodology
• Interviews with offenders
• Analysing company reports
• Interviewing security staff

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Thinking Like a Thief Exploiting Opportunities

• Role Playing the Offender
• You are a till operator
• Think of 5-10
• ways in which you
• or a friend could
• steal cash or goods
• at the checkout

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Opportunities for Internal Theft
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Opportunities for Dishonesty
Opportunities for Internal Theft

• Poor processes
• Reduced checking
• Less oversight
• Lack of data
• Reduced accountability
• Reformers beware! Streamlining business processes
  can have an impact upon shrinkage delicate
  balance between selling and stock loss

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Overview

• The Last Free Money on the Table
• Kenneth Bengtsson, CEO ICA
• ECR Principles and Understanding Shrinkage
• Adrian Beck, University of Leicester
• Delivering Improvement
• Paul Chapman, Cranfield School of Management
• Stuart Hughes, Adidas
• Lars-Boye Halvorsen and Johan de Vries, ICA
  Norway
• Interactive Session Thinking Like a Thief
• Adrian Beck, University of Leicester
• Close and QA

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Did we meet our Objectives?

• Session Objectives
• Illustrate the value in getting shrink right
• Highlight new insights to guide thinking
• Demonstrate the benefits of the ECR Approach

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Questions and Answer session

• Questions from the audience to the various
  presenters
• An invitation
• Participate in future research
• Join the ECR Europe Shrinkage Working Group