Tackling Shrinkage to Improve Your Bottom Line

1
Tackling Shrinkage to Improve Your Bottom Line

• Breakout Session
• Shrinkage Working Group
• ECR Europe Annual Congress, Brussels
• May 2004

2
Welcome

• Colin Peacock
• The Gillette Company
• Co-chair, Shrinkage Working Group

3
Seminar Overview

• Purpose
• Enthuse the ECR community about the ECR shrinkage
  reduction methodology
• Objectives
• Illustrate retailer supplier collaboration
• Promote the ECR Approach
• Provide new knowledge

4
Agenda

• Introduction
• BQ Plasplugs Case Study
• ECR Shrinkage Survey
• Sainsburys Menzies Case Study
• Key Performance Indicator Research
• Makro Gillette Case Study
• Wrap up
• QA

5
Designing in Solutions Eddie Joyce,
Plasplugs Gill Yardley, BQ
6
BQ

• Biggest home improvement retailer in the UK
• Employs over 36,000 people
• Turnover last year 5.7 billion
• Profit 546 million
• 1998 BQ merged with Castorama to become
• largest DIY Retailer in Europe
• 1999 BQ opened its first store in Shanghai

7
Plasplugs
History Founded 1970 in the UK Family owned
Fixings
Tiling Tools
Brand Values Leadership, Quality Innovation
Employees Over 350 world-wide
Sharpening Systems
Knives Blades
Turnover Circa 59 million pa for the group
8
Old Packaging
9
BQ Reasons for Change

• Sales good yet room for category growth
• Industry standard packaging - opportunity to
  improve
• High shrinkage (10) due to damages and theft
• Environmental compliance
• Space efficiency packaging space hungry
• Requirement for suppliers to source tag
• Opportunity to reduce Environmental tax levy
• Customer wants to touch and feel the product

10
Plasplugs - Reason for Change

• Improve visual display
• Reduce returns
• Introduce hidden source tagging
• Reduce dependency on third parties
• Improve tactile nature of packaging
• Desire to strengthen market leadership
• Innovation and differentiation
• Add value to product

11
Old Packaging
12
The Process

• Both companies around the table to agree
• requirements
• Plasplugs CEO involved from conception to
  delivery
• Support from BQ Sustainability Team and
• Commercial team
• Solution evolved over period of time

13
Evolution of Packaging
Blister, Card Adhesive
14
Evolution of Packaging
Blister Entrapment
15
Evolution of Packaging
Blister-less - Only Card
16
Evolution of Packaging
Packaging Free
17
Plaspak Demonstration
18
Old Vs New
Tile Edge Nibblers
19
Old Vs New
Quik Tiler
20
Old Vs New
Tile Files
21
Old Vs New
Tile Scribe
22
Old Vs New
Tile Rack
23
The Benefits of Collaboration

• 50 reduction in shrinkage
• 33 increase in sales (1.6M retail)
• Space created raised sales further 1.5M
• Customer can touch and feel product
• Secondary use of packaging
• Customers perceive this as added value
• Reduction in environmental levy

24
Additional Benefits to Plasplugs

• Design innovation has led to patented design
• solution
• Return on investment within 18 months
• Packaging deliveries now minimal
• Plasplugs are at the cutting edge of innovative
  
• packaging solutions

25
BQ Tiling Accessories Display
26
In Summary

• By innovation and collaboration benefits have
• been seen by both Plasplugs and BQ.
• Key Benefits
• Reduced shrinkage and stock loss
• Enhanced presentation of the product
• Better control of costs
• Maximised space and profit per square metre

27
2nd ECR Shrinkage Survey

• Adrian Beck
• University of Leicester

28
Background and Methodology

• Last survey in 2000
• Need for a new benchmark
• Definition of shrinkage
• External Theft
• Internal Theft
• Process Failures
• Inter-Company Fraud
• Stock loss calculated at retail prices

29
Background and Methodology

• 26 countries surveyed (21 last survey)
• 250 retail companies and 44 manufacturers/supplier
  s contacted
• Total FMCG sector valued at 1,004 billion
• Sample represents 13.7 of retail companies with
  a combined turnover of 137.2 billion

30
Topics Covered in the Survey

• Counting the cost
• Location of the problem
• Extent of co-operation
• Measures used to tackle shrinkage

31
Counting the Cost
32
Counting the Cost

• Total loss equates to
• 66 million per day
• 46,000 per minute (4.1 million for this
  seminar!)

33
The Retailing Shrinkage Iceberg
Unknown Loss 9.5 billion
Significant increase in known loss
34
Location of the Problem
35
Causes of Retail Stock Loss
36
Retail Company Co-operation
37
Spending on Stock Loss
38
Causes and Spending on Shrinkage
39
Other Survey Highlights

• Companies that
• have a corporate policy
• prioritise stock loss
• provide bonuses for good stock loss results
• have good intra-company co-operation
• carry out shrink reduction projects
• have lower levels of shrinkage

40
For a copy of the final report contact

• Adrian Beck bna_at_le.ac.uk

41
WELCOME
The UK Magazine Market An Insight Into
Shrink 25th May 2004

• David Morton

Chris Price
42
EXECUTIVE SUMMARYAims Structure

• A story about addressing SHRINK In the UK
  Magazines sector
• Sector complexity .. Process Issues
• How working together with wholesalers achieved
  results
• How Sainsburys managed to reduce shrinkage by
  25
• Explain how shrink on News Magazines
• is a broader Industry issue
• Industry-wide approach .. Results .. 3m
• Approaches, Learning's Blue Book

43
The UK Magazine Sector
The Magazine sector is worth 2.5 Billion Euros
per year
Wholesalers
Publishers
Retailers
Consumers
MD
LARGE
WHS
Medium
DN
Small
Ind
10 Main Publishers 3,000 Titles 160 Categories
55,000
3 major 5 Independent 100 Depots

• Small number of big players
• Big number of small players

44
Menzies Distribution - The Facts

• International services group .. time critical
  logistics T/O 1.8bn
• Newspaper Magazine distribution (UK) ..
  4,000 employees

• 1500 van routes ..
• Every morning
• To 22,000 retail outlets ..
• From 30 depots
• 520,000 lines / 24 hours
• Unsolds scanned every day.

JIT .. Cross Dock .. Consolidation .. ..
Reverse Logistics
45
Sainsburys The Facts

• Sainsburys stores sell over
• 1200 magazine titles
• A UK Market share of 5.5
• Top 100 titles count for
• 74 of turnover
• Losses running at over
• 6 of sales
• WE HAD A PROBLEM!

46
Sainsburys - First Steps - Alone

• Initial internal review
• Complex area .. Not main focus of Supermarkets
• Inconsistent Store Procedures
• High level of Rejected Returns Credits (Sale
  or Return)
• Wholesale supplier input .. End to End process
• You will see . . How ECR provided the
  introduction agency
• You will hear. .How Sainsburys were not alone

47
The SectorThe Publisher The Product

• The Publisher
• Determines look, feel, quantity created
• Places (Pushes) into the market ..
  advertisers, not just sales
• Sale Or Return reverse logistics

• The Product
• Each issue uniquely created ..new barcode
• Magazines are not like tins of beans.

• The Creative mix means risk of
• Poor attention to practical detail

48
Product Challenges
2 2.90
1.75 2.55
49
Product Challenges
Disney and Me
PC Gamer Presents
50
Sector Tensions Shrink
Market Tensions !!!

• Shrink hit the Industry agenda late 2002 and
  went TOP!
• Retailers clear Its Publishers and
  Wholesalers fault.
• Publishers clear. No it isnt
• Wholesalers . The meat in the sandwich!

• Industry-wide collaborative project group formed
• Establish .. Define .. Recommend .. But an
  uneasy background!

51
End-To-EndIndustry-Wide Shrink Initiative
A Meeting of Minds? . More a Clashing of Heads!

• Deal in Facts . Not Noise!
• Definition Principles and Method
• ECR Blue Book Recipe !

• Our Principles
• All committed .. Solve .. Dont just shift the
  problem!
• Overall structure .. prioritise

52
Industry Shrink GroupModus Operandi

• Adopt a process
• Research
• Map key processes, together
• Establish interdependences
• Highlight pressure points
• Measure .. Identify costs
• Identify solutions .. Prioritise

• Good News (of sorts)
• We were not alone .. Shrink affects all supply
  chains

53
End-To-End RoadmapFishing for Detail
Build a structure to identify, log relate
points of failure
RETURNS ISSUES
LIVE SUPPLY ISSUES
54
Prioritising Hot Spots Quick Wins
Focus x Addressability Quick Win Factor
Severity x Probability Focus Factor

• Objective Priorities
• Hot Spots
• Quick Wins

55
Industry From Analysis to Actions

• Objective build up as a team .. Scoring ..
  Reviewing .. Etc
• Mutual, logical view .. As part of Big
  Picture

Leads To 4 Key Action Areas

• Small steering group
• Manage specific work parcels
• Firm, objective co-ordination
• Rigorous robust

56
Key Achievements to Date

• Credit Claims New synchronised period
• Benefit 3m p.a. to Retail from July 2003
  .. -23
• Audited Hard wired Sustainable Step Change

• Product Identification Error Reporting
• Measure .. report .. inform .. educate
• Web based National Title File
• www.nationaltitlefile.co.uk

57
Key Achievements To Date

• Supply Management Sales Based Replenishment
• Modelling pilots .. lead to Best Practice
  Guide
• Menzies Test .. 6 depots, 218 customers, 100
  titles
• Benefit .. Sales 2.6 , Returns -51

• In Store Process Best Practice
• Simple guide produced to benefit all retailers
  
• 3 Areas where Shrink eats away your profits
• If you do nothing else .. Do This
• Golden Copies!

58
ECR .. Leads toJoint Sainsburys-Menzies Action

• Sainsbury's Menzies Shared common Roadmap
  approach
• Address holistically .. Big Picture .. Not
  Knee Jerks
• Resource jointly .. Sainsburys team Shrink
  Doctor
• Leverage from Industry work
• A clear joint Brief
• Aim for understanding and sustainable actions
• Target Hot stores
• Map .. Benchmark .. Quick Wins

59
Sainsburys Issue Identification
Mapping, Analysis Risk Assessment points to

• Key Issues
• Procedure Training
• Processes
• Management Information

60
Actions Achievements

• Procedure Training
• Introduced a supplier funded Colleague
  handbook
• Built Wholesale relationship Raised our
  Internal profile
• Process
• Invoice Matching .. More robust store
  charging system
• Simple more robust stocktaking process
• Information
• Produce timely Management information
  throughout estate
• Wholesale data feed of rejected returns
• Shrinkage down 25 .. Sales up 10 .. At Pilot
  stores

61
Key LearningsSainsburys-Menzies Collaboration

• Got stuck in .. Dug out the facts .. Learned from
  the front line
• Whole new meaning to the word observe ..
  Objective appraisal
• Did it for real bottom up, In detail ..
  Identified the basics
• Knee Jerks Only deliver short term results
• Sustainability .. Comes from End to End process
  understanding
• Retailers / Wholesalers encouraged to do more
• There are NO short cuts!

62
Key LearningsIndustry Collaboration

• Industry-wide Collaboration can be done .. But
  its a Journey!
• Requires clear systematic focus .. And the
  right people
• Blue Book .. supported move from Subjectivity
  to Objectivity
• You CAN move from Them Us to US!
• Technical analysis .. .. People issues
• Its about Solving! .. Not shifting!
• Within the Big Picture .. for Sustainability
• The journey continues .. We are still walking
  talking together

63

In Conclusion
Thank you
64
Measuring Stock LossDeveloping a KPI

• Dr Paul Chapman
• Cranfield School of Management

65
Issues to Consider

• A clear definition of Stock Loss
• The scope of the issue
• Method of calculation
• Methods of valuation
• Focused management action

66
A Clear Definition of Stock Loss?

• Internal theft external theft process failure
  (including waste) inter-company fraud
• All inputs that cannot be accounted for

67
The Scope of the Issue

• Holistic, supply chain view
• raw material to shopper, e.g. the cow to the
  fridge, including returns
• Being practical
• Limit the start of the supply chain to either
• Declared production in the factory
• Product in manufacturers DC
• Limit end point in the supply chain to either
• The shelf
• The checkout

68
Method of Calculation

• Total Stock loss Known loss unknown loss
• Discrepancy between book stock and physical stock
• Net inventory net movements
• (opening stock closing stock) ((purchases
  incoming transfers) (sales outgoing
  transfers))
• Where known loss
• Known theft processed Known errors processed
• (including write offs damage donations mark
  downs cost of sales adjustments out-of-date
  tasting)

69
Categories Included
70
Methods of Valuation

• Value of loss calculated at either
• Sales value
• Gross including VAT
• Net excluding VAT
• Purchase price
• Transfer price

71
Method Used
72
To Conclude Deliver Focussed Action

• Use your data
• Top level KPI reveals total opportunity
• Cascade measure to expose under performance
• Know how to take action
• The ECR Roadmap
• Dedicate the capacity to implement
• Drive progress against targets

73
Makro Gillette on track with the ECR Shrinkage
Roadmap

• Werner Cooreman, Makro
• Dieter Mertens, Gillette

74
Programme

• Profiles
• Collaborative objectives
• Phase 1 defensive
• Phase 2 innovative
• Phase 3 the ECR shrinkage roadmap
• Take away

75
Profiles the retailer - the supplier
gt 1,2 billion
gt 70.000 SKU
gt 3.600 employees
gt 1 million customers
76
Collaborative objectives
Evolution of Objectives through phases of
improving collaboration
better performance
Less Shrink more sales
Less Shrink
mid 2002
mid 2003
2004
77
Phase 1 defensive

• PHASE 1
• Makro Call
• Shoplifting
• Safercases
• Results
• Shrink - 80 (approx.)

78
Phase 2 Innovative

• PHASE 2
• Gillette Call
• Shoplifting Back office
• Clamshell CC pack
• Results
• Shrink stable at 0.2
• Sales 131 (pilot test)

79
Phase 3Using the Roadmap

• PHASE 3
• Full Collaboration
• Holistic approach
• Store supply chain solution
• Results
• Shrink - 20 (Q1) ongoing...
• Sales 18 (Q1) ongoing...

80
Phase 3Using the Roadmap
Illustration Road Map by video
81
Phase 3Using the Roadmap
82
Plan
Mach3 family
- 10
20
October 2004
October 2003
83
Map Measure
Focus on Mach3 Family (12 pack 4 pack)
84
AnalysisProcess Map
Process Map
85
Root causes analysis Failure Mode Effect
Analysis
86
Possible Solutions
Gillette 10 step process
87
Implementation
3.fast tracking to secure area
1.secure storage
?
?
4.check delivery
5.visible location
?
?
88
Implementation
6.Anti-theft fixtures
7.frequent replenishment
?
?
8.regular counting
9.staff awareness
?
?
89
Evaluation

• Overall preliminary results
• Shrink (3 phases) - 85
• Sales (3 phases) 18
• Positive acceptance on the workfloor
• Roll out solutions (10 Steps) in other stores
• Final evaluation due October 2004

90
Take away

• Use of the roadmap requires commitment
• Loss prevention is about simple issues stock
  control, identifying opportunities,but with
  great impact
• Collaboration works

91
Thank you for your attention !
92
Wrap up

• John Fonteijn
• Royal Ahold
• Co-chair, Shrinkage Working Group

93
An Invitation ...

• Join our working group
• Use the Road Map
• Share your results

94
ECR Shrinkage Award

• To the person / organisation that has made the
  most significant contribution to shrinkage
  reduction in 2004 5.
• Judging criteria
• Approach
• Results
• Dissemination
• Sustainability

95
Thank you QA