Measuring and
Managing Shrink
October 2012
WIS Share Forum
KPMG LLP
Inventory Accuracy and Shrink
Identification, quantification and remediation of shrink is a challenge
‒ Shrink in on the rise
‒
Requires a holistic approach
‒
Traditional tools and focus are not enough
‒
Growing percentage of shrink is not associated with physical loss
‒
Limited shrink reporting
‒
Root causes of shrink are not well understood
‒
Framework to identify, quantify and remediate shrink
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
1
Shrink is on the Rise
‒
Rising inventories
‒
SKU proliferation
‒
Method of inventory valuation
‒
Master data issues
‒
Definition of cost
‒
Misaligned processes and systems
‒
Major system replacement or upgrades
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
2
Requires a Holistic Approach
Stores
In-transit
Physical Shrink
Distribution Center
Vendor
Warehouse
Transaction Processing
Systems
Shrink
Interfaces
Conversions
Master Data
Inventory Management
Paper Shrink
Processes
Global Imports
DC, Cross Docks and Stores
Returns
Account Payables
Accounting
Inventory Accounting
Inventory Control
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
3
Traditional tools while effective are not enough
Examples of Shrink Tools
Human Resource Program

Integrity Screening
Pre-Employment
Screening
Employee Awareness
ILLUSTRATIVE
Training/Job Aides
Shrink Improvement Program: “Quick Reference Guide”
Electronic Article Surveillance (EAS) Tagging
Deters Shoplifters and Detects External Theft
Electronic Article
Surveillance
(EAS) System
A selected group of products receive EAS tags. When these products are scanned at the cash register,
the EAS tags are deactivated. If the EAS Tags are not properly deactivated, an alarm signals [at the
antennas (pedestals)] that store employees must respond to.
Deter
PROPER TAGGING PROCEDURES

Background Checks

Loss Prevention

Shrink Binder

Newsletters/Videos
Detect
Monitoring Program

Mgmt/Compliance Reporting and Score carding

Daily Transaction Reports

Cash Handling

Refunds, Voids, etc.

Shrink Management Tool – Store Profile
Control
High Risk Product Program

Improve Supply Chain Processes
(DCs, Receiving, Storage, Handling, etc.)

In-store display

Anti-theft Fixture

Source Tagging
One EAS Tag Should be Placed:
 On all items with the shelf tag symbol !!
 Securely on the item where the surface is flat, dry and clean
 On the back or bottom of the item
 On the paper or cardboard part of battery packages
 EAS tags can be placed on all magnetic media such as video, audio and film
Shelf Tags: Look for !! and !!M Here
EAS Tags Should Not be Placed:
 On items with the shelf tag symbol !!M (those items have Source Tags from manufacturers)
 Placing an EAS tag over a Source Tag deactivates both tags
 Over product names, instructions, prices, warnings, ingredients, expiration dates, call numbers
or other key information (color, size, etc.)
 Directly to metal: Includes batteries and boxes with aluminum wrapping inside
 Directly on vinyl or leather (adhesive can damage the merchandise)
 On microwavable items (tags can damage the microwave)
 On a product if the EAS tag has a pink/red dot on it (these tags are deactivated)
EAS Tag: Front
EAS Tag: Back
PROPER RESPONSE TO EAS ACTIVATIONS (ALARMS)
Store employees must RESPOND TO and TRACK all EAS antenna (pedestal) alarms
 A member of store management must respond (manager, assistant manger or key cashier)
 If store management is unavailable to approach the customer, only ONE employee responds
 Every time the system alarms, record the event in the EAS Activation Log Notebook
Steps when ALARM SOUNDS as a customer EXITS the store
1. Approach customer in a non-threatening manner: smile, be friendly and discreet - Never yell, run at or embarrass customer
2. Use this apologetic approach: “Excuse me, apparently we have failed to deactivate your inventory control tag (use this term
in front of customers.) Will you please allow me to deactivate the tag?” (Hold out hand for purchase - NEVER grab the bag or
merchandise)
3. Once the customer hands you the bag, step away from the system so the alarm stops
4. With the bag in hand, step completely THROUGH the antennas
5. If the bag sets off the alarm return to the cash register and CHECK THE RECEIPT for the items in the bag
 If the item is LISTED ON THE RECEIPT:
Apologize for the inconvenience, deactivate the product and neatly re-bag the items
 If an item is NOT LISTED ON THE RECEIPT:
? Ask the customer: “Since we failed to correctly ring up and deactivate a product, would you like to purchase this item?”
? After this check, take the purchase and walk through the system with the customer following you
? If the alarm does not respond when you walk through but does respond when the customer walks through: the
customer may have an unpaid product that is not properly deactivated
? If the customer admits to shoplifting and if they agree to sign a report: complete an External Loss/Theft Incident ReportForm 1171 and also provide the shoplifter with a copy of the Civil Demand Notification
 Upon completion of Form 1171: West Coast stores fax a copy to (541) 475-8091and East Coast to (818) 787-4201
 Please post fax numbers in the office (please keep fax numbers current- may change)
 If the shoplifter is uncooperative, has a shoplifting record and/or does not have an ID: Call police (at your discretion)
 Issue the shoplifter a Barring Notification if you believe he/she is a “threat to the store”
6. If the bag does not set off the alarm, or the customer did not have a bag when the alarm initially went off
 Have the customer walk through the antennas: If the alarm goes off, the customer may have an unpaid product that is not
properly deactivated
 If the customer admits to shoplifting follow Rite Aid’s Policy and Procedure on Shoplifting (above)
Steps when ALARM SOUNDS as a customer ENTERS the store
Schlage Shield for Wallet
1. Approach the customer in the same fashion as above
2. If the customer has a bag, ask if they would like you to deactivate a tag another
store might have missed
3. Ask if the customer has a key access card (one type could set off the EAS system)
If so, check if the card sets off the alarm and give them a Schlage Shield Card to avoid future system activations
 Beepers, cell phones, credit cards and keys DO NOT set off the system
Shrink Mgmt Tool
Compliance Reporting
Exception Reporting
HRP Identification
Risk Analysis Model
High Risk Stores
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
4
Inventory Accuracy and Shrink
Growing percentage of shrink is not associated with physical loss
‒
Reported shrink (known shrink) is understated and a significant cause of
controllable shrink.
‒
Inventory valuation is subject to volatility in reporting based on the cost
compliment calculation, retail valuation for center store and cost based valuation
for perishables
‒
Master Data – often retailers do not have a single item master database which
drives several issues contributing to shrink including item setup errors, system
update errors, and late cost changes
‒
Receiving Accuracy - Receipt accuracy is likely contributing to shrink and out of
period adjustments
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
5
Process Shrink
‒
‒
How effective are your physical inventory processes?
Do you see significant margin or inventory valuation swings in your fresh
departments
‒
Do you have detailed process maps related to inventory movement?
‒
Are your processes, controls and systems in synch?
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
6
Strengthening basic fundamentals
Implementation timeframe: 6 months or
less
Vendor
Compliance
 Vendors do not oversship against the purchase order quantity
 Vendor sends accurate ASN’s
 Verify receipt to the PO quantity
Accurate
Receiving and
Payables
 Input accurate receiving information on a timely basis
 Pay for what you receive – order
 Balance direct import GL inventory and liability accounts
 Minimize changes to PO quantities
PO Controls
ASN Accuracy
Implementation
timeframe: 6
months or
greater
Manual
Receiving
Controls
 Close out old purchase orders in warehouse system
 Company X translates EDI transactions accurately into the ASN tables
 Improve and govern ASN compliance with vendors and ODP systems
 Receive shipments accurately against the purchase order
 Minimize key strokes
 Receive against the purchase order
Next Steps
 Match net receipt transactions with purchase order and invoice (3 way match)
 Automation of journal entries in direct import accounting
 Reengineer financial controls for vendor settlements, store receipt adjustments and returns
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
7
System Shrink
‒
Have you recently implemented any new systems?
‒
Does you organization have a current systems Map?
‒
Are automated balancing routines established between systems?
‒
Who is responsible and are error logs worked daily?
‒
Do business owners have to sign off on all system design changes?
‒
Has your organization completed transaction testing?
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
8
Inventory System Interface Diagram
Legend
Pay Systems
DB2 Table
Receive/Ship/
Transfer
Systems
General
Ledger
System
Retek
Real-Time Data Interface
Batch Job Data Interface
POM
Mainframe
GSS
Global
PO
Updates
PO Modeling
PO Updates
Auto
Replenishme
nt Program
RDF
RMS
Oracle
Dashboard
WDTS
NonCode
Item
Data
Procurement
Systems
Vendor
Portal
Manual SKU
Strategy
Settings
Data
Transfer
Systems
SKU/P
O
Activit
y,
Alerts
Customer
Sales/Return
s Systems
Item Cost and List
New Item Data,Price Data
Cost Changes,
Forecasts
Item
Maintenance
Systems
Message
Queue
Paid
Reporting Data
Manual PO Creation
Auto PO Creation from RDF Data
Sales
Sales/Returns Accounting
System
Store Receipts, Transfers, Adjustments
RTV Data
Receipts & Adjustment Data
Customer Orders
Warehouse
Inventory
System (WIV)
COS/Sector
Routing
System
STS
Order Fulfillment Data
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Sales/Returns
Customer Orders
POS
Item Data,
DC OnData
Sales/Returns
hand Qs
WMS –
Distribution
Centers
Receipts/Shipment Data
Item Data
WMS –
Cross Docks
PO/Item Data
Sales/
Return
s
RTV Data RTV System
AOPS
Vendor Payment Data
Store
Inventory
System (SIV)
Receipt J/Es
Store Inventory
System Web
Front-End
G\L Data
DB2
Non-Code Item Data
SITran
License Plate Data
Sales/Returns Data
RCC System
Integral A/P
Non-Code Item Data
Vendor Receipts/Rec’t Adjustment Data
Non-Receipt/Sale Transaction Data
PeopleSoft
G/L
PeopleSoft
A/P
PeopleSoft
9
Accounting Shrink
‒
How is your inventory valued?
‒
How is cost of goods calculated?
‒
Effectiveness of physical inventory’s reconciliation?
‒
Has your organization trace transactions to the GL account?
‒
How many manual accounting processes are in place?
‒
Are all AP processes reconciled on a regular basis?
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
10
Summary Findings
False Overages
Markouts without Receipt Adj.
# of occurrences
# of occurrences
Receipt Adj. after AP match
# of occurrences
2000
14000
1500
12000
1500
10000
1000
8000
1000
6000
500
4000
500
2000
3077
3075
3074
3073
3072
3071
3070
3069
3066
3063
3078
3077
3075
3074
3073
3072
3071
3070
3069
3066
3063
3061
3077
3075
3074
3073
3072
3071
3070
3069
3066
3063
3061
3061
0
0
0
Key Influencers:
1. Changes in receiving , production and shipping policy at the cross docks due to new scanning technology
2. Increased volume of non-flow through freight not designed to support cross dock business rules
Split shipments (Batch v. flow)
Vendor consolidation
Packaging
Multi-cross dock deconsolidation
3. Increased volume of global imports managed by a broken global accounting process
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
11
Shrink Reporting
Shrink reporting lacks consistency in the method that it is collected, posted
and reported
How effective is your reporting related to:
‒
What accounting method do you use to report shrink
‒
Know shrink and waste
‒
Inventory adjustments
‒
PO, receipt, invoice & payments
‒
ASN exception reporting and receiving accuracy
‒
Vendor compliance
‒
Non-match reporting (RTV, PO Order Qty, Receipts, Wrong or missing PO)
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
12
Shrink Reporting
Improving Shrink reporting:
‒
SKU based information
‒
Tracking unit variance history vs. dollars
‒
Tracking unit history over larger periods
‒
Track and monitor inventory movement
‒
Track all product leaving the building POS, Backroom, trash compactor
‒
Monitor accuracy of price file
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
13
Inventory Shrink Roadmap
Discovery
PHYSICAL
Root Cause Analysis
Remediation
Steering committee
Executive Presentations
SYSTEMS
Working committee & project resources
Issue Identification
•

Framing the issue
Shrink workshop
Data Analysis

•

What gets better
Review current findings
Process& system reviews

•

Fundamentals
Identify Organizational Timeline
Root cause identification


Strategic roadmaps
Review key process, system & accounting
Quantify Identified Issues
changes
Observations & Recommendations
Outputs
PROCESSES
ACCOUNTING

High Level Systems Overview

High Level Data Flow

Map PI Process Flow

Develop preliminary list root causes

Develop high level project plan
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Implementation roadmap

Activities

Milestones

Timelines

Resources

Cost

Impact on the bottom line
14
Discovery
Steering committee
‒
Working committee & project resources
Shrink workshop
‒
Review current findings
‒
Identify Organizational Timelines
‒
Review key process, system & accounting changes
Outputs
‒
High Level Systems Overview
‒
High Level Data Flow
‒
Map PI Process Flow
‒
Develop preliminary list root causes
‒
Develop high level project plan
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
15
Discovery
Review and document key processes, systems, accounting and reporting to
assist with the identification of gaps and to provide observations and
recommendations
‒
Set up cross functional meetings to discuss key business processes
‒
Document current state process flows, systems, accounting
‒
Review procure to pay processes, systems, and accounting
‒
Root cause analysis
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
16
Process, System and Accounting Maps
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
17
Example Deliverables – Detailed Process Mapping
Inventory Functional Area: Master Data; Index of Activities
N1
Merchant reviews Item
information
N8
Decline
Item
Request?
No
Yes
Re-assign
to Another
Merchant?
No
Merchant selects
another Merchant and
submits the request
Yes
Vendor
Portal
Vendor
Portal
Yes
No
N9
Merchant adds other
relevant information
including retail prices
and hierarchy
System routes item
request back to the
Vendor.
Yes
System routes
item
request to the
selected
Merchant.
A
Vendor
Portal
Approved
by
Merchant?
Merchandising
Vendor Portal routes
item request back to
the Merchant
A
System routes item
request to Item
Control based on the
Dept of the item
B
Standard Item Cost
Change by OD (Upload)
(pg. 7 of 10)
Vendor
Portal
No
Merchant selects a
DMM and submits the
request
Vendor
Portal
New Standard Item by OD
(Upload)
(pg. 6 of 10)
C.1.1.
1.2
C.1.1.
1.1
Vendor
Portal
A
New Standard Item by OD
(Manual)
(pg. 3-4 of 10)
Standard Item Cost
Change by OD (Manual)
(pg. 5 of 10)
Vendor updates item
information and
submits the request
Vendor
Portal
Receipt/Sales
(pg. 2 of 2)
System routes item
request to the selected
Merchant for approval.
C.1.1.
1.3
Vendor
Portal
Vendor inputs item
information including
cost, selects a
Merchant, and submits
the request
End
Standard Item Cost
Change by Vendor
(pg. 2 of 10)
N7
Start
Vendor
Portal
PG1.1
.1.1
WAC Update
(pg. 1 of 2)
Vendor
Portal
N2
Inventory Functional Area: Master Data; Process: 1.1.1 Item Master Maintenance – New Standard Item by Vendor (Page 1 of 10)
Vendor
Portal
Activities
New Standard Item
by Vendor
(pg. 1 of 10)
1.1.2 Weighted
Average Costing
Vendor
Portal
1.1.1 Item Master
Maintenance
Vendor
Process Flows
System routes item
request to the selected
DMM.
Delete Item
Request?
No
N3
Vendor
Portal
DMM reviews item
information
Vendor
Portal
System routes item
request back to the
Merchant
RMS
N8
Wholesaler Items
(pg. 8-9 of 10)
System updates its
internal item tables
Approved
by DMM?
C.1.1.
1.5
Yes
item management systems.
• N2 – A Standard SKU is defined as a SKU that can be sold across various channels and flows. Virtual and
Consignment SKU’s are created through the Standard SKU process. However, the SKU must be linked to a
virtual supplier or consignment vendor respectively. A Proprietary SKU is defined as a customer(s) specific
item outside of base assortment. Proprietary Items are created via the Quick Item Entry method in the
Standard SKU process.
• N3 – A Wholesaler SKU is defined as a SKU that is sourced from a wholesaler.
• N4 – Non-code SKU’s refer to product outside the normal assortment. Non-code items are normally bought
on a one-time basis for a contract customer.
Vendor
Portal
Item Control
reviews
item information
Approved
by Item
Control?
No
C.1.1.
1.4
Observations
• PG1.1.1.1 – Inaccurate item data input can have downstream effects that cause rework in EDI transmissions.
• PG1.1.1.2 – Inaccurate item data input can have downstream effects that create the potential for inaccurate
recording of inventory received.
A
N10
Yes
Hourly batch job runs
that pushes RMS item
table data into the
DB2
DB2
• N1 – Item Master Maintenance is the process to create, modify, or delete items/SKU’s within the various
N8
B
RMSHRLY
Batch Job
Process Description
Item Control Group
N4
Non-Code Items
(pg. 10 of 10)
Item tables updated
with DB2 item table
data
End
Process Controls & Observations
Process Description
• N7 – The Vendor Portal application is used to create new items or make cost changes by vendors, merchants, • C.1.1.1.1 – Merchant reconciles the item cost to the negotiated item cost. Merchant then approves or rejects
and the Item Control group.
• N8 – Approvals/rejections are captured in the Vendor Portal workflow.
• N9 – Merchants are responsible for determining the retail price of their items. Margin requirements vary based
on the department and item.
• N10 – RMS assigns each new item a unique SKU id.
Last Modified: 05/29/08 10:31:49 PM
•
•
•
•
the item.
C.1.1.1.2 – If the retail pricing is below the cost or above the list price entered by the Vendor, an error
message will be generated that will not allow the user to proceed until the retail price is corrected.
C.1.1.1.3 – Vendor Portal captures who initiated the new item/cost change request.
C.1.1.1.4 - Item Control Group reviews the item information to ensure (1) the description meets Item
Control’s criteria, (2) the accuracy of the UPC for inner case quantity, and (3) the existence of sell
dimensions. Item Control Group then approves or rejects the item.
C.1.1.1.5 - DMM reviews the item information to ensure that the margin guidelines are being met based on
the product category and channel the item will be promoted in. DMM then approves or rejects the item.
Last Modified: 05/29/08 10:31:49 PM
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
18
Discovery
Review the accuracy of the current retail or cost method of accounting
‒
Assess the retail or cost method of accounting
‒
Test cost compliment calculation or definition of cost
‒
Provide a summary of recommendations related to key themes (Definition of cost,
inventory adjustments, cycle counting, master data management, etc)
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
19
Discovery
Complete a reporting impact analysis
‒ Document key current operational and financial reporting related to margin, shrink
and inventory adjustments
‒
Importance of establishing one source of truth for reporting
‒
Assess master data clean-up and maintenance
‒
Assess shrink and waste calculations
‒
Assess inventory adjustments, cost adjustments, and other top level adjustments
impacting margin, shrink and inventory adjustments
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
20
Systematically research, identify, and resolve Inventory Variances and
Shrink
Unexplained Shrink
$95 Million Trend (200x)
Issues

Resets

Theft

Drop Ships at Stores

Vendor Contracts

Over Production

Auto-distro’s

R-claims

Markdowns

Etc
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Validate and
Categorize
Quantify
Bucket 1
Bucket 2
Component 1
Component 2
Bucket 3
Component 3
Component 4
Bucket 4
Bucket 5
21
Categorize
Based on our analysis the top ten contributors to shrink in 200X are:
‒
Reported Shrink (Thrown Away) - $26.9 Million
‒
Shoplifting – $19.3 Million
‒
Under Reported Thrown Away - $15.1 Million
‒
Cost Compliment Variance - $ 9.2 Million
‒
Unknown – $4.9 Million
‒
Under Reporting (Thrown Away Weight Estimate Error) – $4.9 Million
‒
DC Pick Errors – $4.6 Million
‒
Cost Changes - $3.4 Million
‒
Retail Price Changes - $2.6 Million
‒
R-Claim – $2.3 Million
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
22
Categorize
Period covering May 1, 20xx – April 28, 20xx
$24M
$86M
Misaligned business rules across operations and general ledger processes
Markouts without receipt adjustments
Receipt adjustments after AP match
Lack of controls with global accounting process relative to changes to purchase orders and
receipt
$56M
$11M
$6M
Systems deficiencies with PO and ASN information
POM not updating GSS quantities
Duplication of ASN quantities
-Known Loss
Flexible receiving policies
$45M
Ability to receive shipments against any purchase order
-Shrink Reserve
Ability to change purchase orders once they have transacted with accounting
Assumed receipt information posting to the general ledger without verification at the cross
docks
2006-07
Preliminary
Inventory
Shrink
Results incl.
known loss
2006-07
ReserveInventory
Shrink plus
known loss
Final
Inventory
Adjustments
Reclassified
(balance
sheet items)
as Inventory
Inaccuracy at
the Cross
Docks
Inaccurate information provided by third party
K&N providing inaccurate ASN information
Final 20xx-xx
Inventory Shrink
($62M)
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
23
Remediation
Selling shrink projects to your executive suite
Developing Executive presentations
–
Frame the Issue
–
Setting the Priorities
–
Business Case Development
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
24
Frame the Issue - Example
Focus Areas
Business
Value
Difficulty
Estimated
Savings/Benefit
1) Improve reported shrink tracking and management reports
High
Med
$29-$36 Million
2) Distribution operational and financial reporting changes
High
Low
$8-$11 Million
3) Improve the preciseness of inventory valuation
High
High
$10-$14 Million
4) Master data clean-up and maintance
High
Low
$3-$5 Million
5) Store Detail receive all DSD shipments
Med
Low
$1-$2 Million
6) Theft Reduction
Med
Low
$2-$4 Million
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
25
Setting The Priorities
Realizing sustainable shrink improvement hinges upon setting clear priorities which consider
business value and level of difficulty.
High
Focus Areas
Gems
1
Difficult
but
Rewarding
Business
Value
2
3
1) Improve Shrink Tracking
2) Distribution Operations
3) Inventory Valuation
5
4
6
Back Burner
Quick Wins
4) Master Data
5) Detail Receiving
Low
6) Theft Reduction
Low
Difficulty
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
High
26
1 – Improve Reported Shrink Tracking
Observations
Shrink reporting should be standardized using cost or retail and should include all product removed from the store using a single
process. Shrink allowances & R-claim should be systematically tracked by vendor and included in management reports. Stores
should be rewarded for accuracy of shrink reporting and improvement, not based on a rate.
Recommended Actions
 Assign a cross functional team with representatives from stores, distribution, buyers and finance to standardize, simplify and
develop the business requirements including:
 Enable the stores using the handheld's to track the root cause and amount of reported shrink including:
–
Damaged, code dates, resets, production, force outs, and excess inventory
–
Scan all items removed from the store (ensure all item have UPC/PLU’s)
–
Track items used for production and include in cost of goods sold rather than shrink
 The RMS system should direct the stores related to disposition of the product and record the shrink into the correct bucket
automatically
 Use bar codes on each r-claim box for improved reconciliation
 Establish guidelines for tracking other key information to assist in developing new reporting related to on-going diagnostic and trend
information including:
–
Late cost changes, Production tracking, RMS flag accuracy, R-claim variance reporting
Business
Value
H
Difficulty
M
Timescale
M
 Assign IT resources to scope, develop detailed design and cost estimates to support business requirements
Business Value
 Reduce current reported shrink from $49 Million to $13-$20 Million
 Measure and understand the root causes of reported shrink
Costs
M
 Monitor the appropriateness of shrink allowances
 Improved R-Claim Reporting
Resources
M
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
27
Contact Information
Al Voels
Retail Practice Leader
KPMG Canada
Telephone: (206) 979-7654
Email: arvoels@kpmg.ca
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
28
© 2012 KPMG LLP, a Canadian limited liability
partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a
Swiss entity. All rights reserved.