Real World Advice for Retailers - Loss Prevention, Chapter 2

Taking Physical Counts

Most retail companies perform a physical inventory count annually, while some do it semiannually or even quarterly. When the count is completed, the difference between the actual inventory on hand and what it should be, according to purchase and sales records, is called shrinkage.  Shrinkage has three key causes: shoplifting, employee theft and data entry errors.  While an inventory control system cannot stop shoplifters, it can assist in preventing the other two forms of shrinkage.

The extent of employee theft can only be approximated since inventory shrinkage reflects the losses from all causes. There are so many ways that merchandise can be stolen by employees that the imagination is the limit. The most successful way to combat such theft is to prevent or discourage it. A prepared retailer must have comprehensive systems of control and accountability over merchandise from the moment it is received through the various stages of preparing it for sale, displaying it to shoppers, and finally handing it over or delivering it to the customer. A good inventory control system provides the tools and methodology to track merchandise throughout the inventory cycle in every inventory location across the entire retail operation.  Even in multi-store operations, as items are received into each location and the stores' databases are updated with current "on hand" quantities, the Head Office database must also be updated regularly. 

Regular cycle counts can provide frequent variance reports that can show problem areas before they become crippling.  A good inventory control system should allow cycle counts to be performed easily and allow them to be done while the POS stations are selling, thereby minimizing disruption in the daily operation of the store.  Managers should also perform ad hoc counts of popular items throughout the day and a good inventory system will enable this without affecting the cashiers' ability to transact sales.

Receiving Orders

Many retailers do not use a system to track purchase orders; rather they manually place orders and track them manually on documents or in spreadsheets.  A good inventory control system will include a purchase order module that can be used to automatically create suggested orders, allow you to edit the orders and then place them with the suppliers or with head office.  Incoming merchandise should be physically counted and verified against the accompanying documents created by your purchase order system. Receipts given to delivery people should indicate any shortages found. Shipments should be verified again for completeness when they are unpacked and processed for the selling department.  The documents that match the merchandise should be checked for detail, particularly as to cost and quantity.  

Even if the merchandise is received properly into an inventory control system, incorrect ticketing will create shortages whether it is mistakenly or deliberately done.  Another feature of a good inventory control system is the ability to create merchandise labels, or tags, based on actual merchandise received.  The system should be able to print labels with full descriptions of the items so that your employees can make sure the correct labels and tags are applied to the right items.

Tracking Stock Transfers

If you have more than one inventory location, one of the easiest ways to lose inventory is during the process of transferring stock form one location to another.  Platform and shipping employees can falsify the various receiving and delivery documents. Sometimes this is even done in conspiracy with drivers.  A good inventory control system will track all stock transfers between locations and will allow management to reconcile Transfers-Out to Transfers-In, thus identifying items that have "fallen off the truck" and who was responsible for losing them. 

Inventory Reports

A good inventory system will provide automated functions for all of these tasks but will also enable you to generate a number of key reports that highlight potential issues, before they become problems.  Inventory movement reports will show you the entire picture of your inventory: when it was received and by whom and from where; who sold it and to whom; everything that you will need to re-create the life cycle of any inventory item in your store.  In addition, exception reports should show you trends and allow you to drill down to actual transactional data, thereby disclosing who did the transaction, where it was done and when.

A good inventory control system won't completely wipe out shrinkage, but it can take you a long way to minimizing, or eliminating, internal theft as well as shrinkage caused by human error.