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Shrink is the 1,000-pound gorilla in the store. It can wipe out the profits of a business. It can drive a company into bankruptcy.
Even worse, shrink may be the most difficult expense to manage. It often occurs not from what you have done, but from what you have failed to do. If you don't have strict processes and procedures clearly defined and enforced, you are allowing dollars to run right out the wide-open "barn door."
Fundamental receiving and handling processes and procedures to minimize shrink include:
- verify you received the amount of product for which you are billed.
- verify you are being billed the correct cost.
- verify you are receiving and paying for the quality of product you ordered.
- check product temperature when receiving perishables.
- do not allow any product to leave the store without a proper credit document from the delivery person.
- any damaged product should be credited.
- maximize product shelf life by getting perishable product into coolers and freezers immediately upon receiving.
- maintain a dating code on each case and rotate product stocking the oldest product first.
- cross-reference current cost with retail price to ensure product is achieving gross profit objective.
- place newly received product behind or under older product when stocking the shelves.
- check for internal damage of product when it is received or stocked.
- item count products received in unsealed cases.
- set a value policy to identify products to be item counted, such as cigarettes.
- never allow the back door to be left unattended and unlocked.
- never allow a supplier unattended access to your backroom.
- never allow a supplier to "give" a receiver product.
- never allow a supplier to maintain product and shelf pricing of their products for regular pricing or promotional pricing.
- management must constantly supervise the receiving and handling process running random audits to verify accuracy and accountability.
- develop an evaluation process for receivers which holds them accountable for performance.
You can limit your levels of shrink by close management of the elements that cause it. By using a purchase to sales record and incoming gross profit reports, you can monitor expected performance and compare to actual results. Tracking markdowns by product, department and day of the week also helps to identify where tighter controls need to be implemented. A camera system that monitors the receiving area can also be helpful.
The back door is only one of many locations where high levels of shrink can occur. Unfortunately, shrink does not happen at the same level in all stores. Most often it will happen at a catastrophic level in one store. If you allow the basic management controls to slide, that catastrophe could hit your business.
-- Jack E. Hubbs, Editor, Food for Thought