Hot Product Controllers Hot Product Controllers South Africa

• The Awful Truth

• The HPC Programme

• Collaborative Approach

• Recruitment /Standards

• Understanding why employees steal

Briefing

• Understanding why employees steal

• Understanding shrinkage and the effects

• Identifying your hot products

• HPC Function

• Shrinkage results

• Benefits

• Closing

The Awful Truth

• Pick n Pay is a general merchandise retailer with over 775 outlets in sub Sahara Africa.

• In 2003, shrinkage was above 2% in the Gauteng region and Store Managers began to defensively merchandise hot product on to defensively merchandise hot product on shelf or behind service counters.

• Shrinkage results on Mach3 blades exceeded R800,000 (6 months).

• Pick n Pay required a solution that would reduce loss and improve availability.

The HPC Programme

• In August 2003, it was agreed that a collaborative approach was needed between manufactures and retailers.

• The 80/20 principle was used to identify hot products and hot stores (data mining)products and hot stores (data mining)

• The solution was developed around improving the handling process of hot products from receiving to the shelf (non-malicious shrinkage).

• The understanding was that by reducing shrinkage we would improve product availability and increase sales.

Collaborative Approach

• Pick n Pay approached certain manufactures to participate in this trail.

• The benefit for the manufacturers was to improve on shelf availability and reduce OOS.

• It was agreed that the retailer would pay 50% of the • It was agreed that the retailer would pay 50% of the cost and the manufactures would equally split 50% of the cost

• HPC cost per store = €850.00

• Retail cost per store = €425,00

• x 10 Manufactures cost per store = €42.00

Understanding why people steal…

• An overwhelming 79% of workers admit they have or would consider stealing from their employers (Kessler & Associates)

• The real reason people steal is opportunity. When companies make it easy through lack of control, an atmosphere of theft is created.easy through lack of control, an atmosphere of theft is created.

• Employees steal to the extent management permits it. There's no shortcut to prevent it, you have to remove the opportunity, create awareness and achieve their support.

• The human mind is ingenious as ever when it comes to acquiring illegitimate goods

•

10-10-80 Rule

10%

The good news is that there is much a business can do to sway this 80%to their side.

Employee Theft

80%

10%

10%

You & Me Baddies Good Guys

Take away the opportunity -raise the risk

We spend 90% of our security budget chasing the bad guys

Understand Shrinkage

� System set up errors

� Picking errors

� Delivery error (short or over)

POS Scanning errors

• General Public Theft• Grazing• Personal Use• Theft for Resale

Non Malicious Malicious

� POS Scanning errors

� Pricing errors

� Product damage

� Product out of date

� Markdown

� Transfer to other site error

� Counting error

� Information misalignment

• Theft for Resale• Colleague Theft

• POS Fraud• Grazing• Refunds• Collusion

• Contractor Theft• Supplier Fraud

Start first by addressing the non malicious causes of loss

Shrinkage Effects

What We Do Know…

� Shrinkage transcends departmental and company boundaries

� It’s not just shoplifting

� It’s not all stores

� Its not all products

- 80/20 principle applies (not all products cause shrink i.e. 20% of

products cause 80% shrink).

(Concealable, Removable, Available, Valuable, Enjoyable and Disposable)

CRAVEDCRAVEDCRAVEDCRAVEDCRAVEDCRAVEDCRAVEDCRAVED

Identifying Your Hot Products

Shrinkage Overview Western Cape

�� EDIBLE GROCERIES G12 (1.5%)

� LIQUOR G14 (1.4%)

� NON EDIBLE GROCERIES G13 (0.4%)

� TOILETRIES G15 (2.0%)

� HARDWARE H20 (2.1%)

Edible Groceries G12 Shrinkage Breakdown

Hot Products

Retailers Opportunity

3 %

4 %

5 %

Ave

rag

e R

etai

ler

Mar

gin

1.84%

AverageRetailerShrinkMargin

0%

1 %

2 %

3 %

CurrentCurrentCurrentCurrent PotentialPotentialPotentialPotential

Ave

rag

e R

etai

ler

Mar

gin

AverageRetailerProfitMargin

2.99%4.83%

Solution HPC

Fast Tracks

Checks Delivery

• Double Checks delivery

• Improves data accuracy

• Moves goods out of vulnerable area

•Reduces opportunities for theft/damages

Secure Storage

Evaluation

Shelf Replenishment

Daily Counts

theft/damages

• Reduce access to hot products

• One key holder / accountability

• Replenish at rate of sale

• Planograms maintained

• Reduce SOOS

• Identifies theft during & after-hours

• Improves staff awareness

• Measures and adapts

Checking Delivery

• Must be present for all hot product deliveries

• The HPC must be called to receiving as soon as the delivery truck arrives

• Must be present when the delivery is off-loaded from the truckloaded from the truck

• Ensure that delivered goods are off-loaded to your satisfaction (invoice sequence)

• Use the copy of the delivery invoice to independently check the quantities and ensure that the goods are accurately received

• Check the delivery with the Receiving Manager (not after)

• Ensure the delivery address is correct with the correct store code

• Invoice must be checked top to bottom or vice versa

• When checking each line, check that product description, unit of sale, quantity and packaging are correct

• Ensure that delivered quantities match what is recorded on the invoice

When Checking the Invoice

• Ensure that delivered quantities match what is recorded on the invoice

• All hot product boxes must be opened and packs individually counted

• Accuracy is more important than speed – do not be intimidated or rushed whilst counting

• Check for dummy packing

• Check for damages or tampered boxes

• Check for short deliveries

• The receiving area is busy with staff and product movement

• The receiving area is usually congested with stock

• It’s a vulnerable area

• Its not a good place to leave hot products

• The HPC must immediately move all Hot Products away from the receiving area to the Hot Product Locker

Fast Tracking

area to the Hot Product Locker

• No other staff member or merchandiser should be allowed to handle hot products.

• All hot products must be secured in a separate locker facility within the store

• Ensure that the locker door is secured and that the key cannot be duplicated

Secure Storage

duplicated

• The HPC is the primary key holder – the Store Manager or other designated manager may handle the locker key

• Spare locker keys must be sealed (float bag) and secured in the cash office safe

• Staff members or designated merchandisers are only allowed access to the locker under supervision from the HPC

• Locker keys must be signed in/out the store OB book under supervision from the Store / Assistant Manager

• Check your locker daily for any possible holes in the fencing or open ceiling boards.

• Too little stock on display leads to out-of-stocks and frustrates shoppers resulting in lost sales.

• Too many products on display

Shelf Replenishment

• Too many products on display attract thieves and results in stock loss.

• Replenish at rate of sale – little but often as follows:

• What is measured is managed

• Helps you to identify shrinkage, sales and OOS issues

• Improves staff awareness

• Allows you to measure and adapt

Daily Stock Counts

• Allows you to measure and adapt

• Use the stock count system to do daily counts on all hot products both at opening and closing times.

• Count products on the sales floor (front) and in the locker (back)

• Obtain daily sales data for each hot product

• Measure and adapt

• Identify shoplifting activity

• Identify theft from display / locker afterhours

• Identify poor shelf availability

• Identify out-of-stocks

Measure & Adapt

• Identify out-of-stocks

• Report all shrinkage issues to the relevant Store Manager• Send OOS Alerts to the relevant manufacturers• Send planogram alerts to the relevant manufactures

HPC Results

120,000.00

140,000.00

160,000.00

180,000.00

200,000.00

HP

C V

AR

IAN

CE

HEALTH FOOD

Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09

Series1 156,432.0 169,489.0 11,772.00 6,806.00 12,518.00 4,384.00 4,950.00 1,368.05 5,068.00 17,312.00 4,908.00

-20,000.00

0.00

20,000.00

40,000.00

60,000.00

80,000.00

100,000.00

120,000.00

HP

C V

AR

IAN

CE

ASSESSMENT CYCLES

HPC Results

300,000.00

350,000.00

400,000.00

HP

C V

AR

IAN

CE

ELECTRICAL

Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09

Series1 357,223.00 192,989.00 51,326.00 29,276.00 67,274.00 36,924.00 11,974.00 21,183.52 11,974.00 29,586.00 44,398.00

0.00

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

HP

C V

AR

IAN

CE

ASSESSMENT CYCLES

HPC Results

100,000.00

120,000.00

140,000.00

160,000.00

HP

C V

AR

IAN

CE

S

DENTAL CARE

Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09

Series1 139,405.0 130,734.0 12,874.00 6,176.00 8,031.00 -1,672.00 560.00 926.40 560.00 3,953.00 -2,245.00

-20,000.00

0.00

20,000.00

40,000.00

60,000.00

80,000.00

HP

C V

AR

IAN

CE

S

ASSESSMENT CYCLES

40,000.00

60,000.00

80,000.00

100,000.00

120,000.00

MEDICINE / AGEST

HPC Results

Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09

Series1 91,827.00 30,502.00 -78,258.00 2,930.00 11,957.00 40,363.00 1,112.00 3,819.96 0.00 7,319.00 8,454.00

-100,000.00

-80,000.00

-60,000.00

-40,000.00

-20,000.00

0.00

20,000.00

40,000.00

100,000.00

120,000.00

140,000.00

RAZORS & BLADES

HPC Results

Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09

Series1 130,576.00 104,168.00 44,450.00 55,042.00 81,790.00 46,501.00 19,736.00 44,077.39 19,736.00 21,147.00 35,699.00

0.00

20,000.00

40,000.00

60,000.00

80,000.00

100,000.00

350,000.00

400,000.00

SKIN CARE

HPC Results

Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09

Series1 341,461.0 253,913.0 36,083.00 39,066.00 32,372.00 19,868.00 18,006.00 23,814.31 18,006.00 42,514.50 15,872.00

0.00

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

300,000.00

100,000.00

120,000.00

LADIES TOILETRIES

HPC Results

Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09

Series1 108,684.0 100,252.0 5,797.00 -298.00 8,170.00 -717.00 2,015.00 3,218.45 2,015.00 -1,844.00 -1,630.00

-20,000.00

0.00

20,000.00

40,000.00

60,000.00

80,000.00

1,200,000.00

1,400,000.00

1,600,000.00

CONSOLIDATED SUMMARY 14 STORES

HPC Results

Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09

Series1 1,338,226.0 1,049,542.0 84,044.00 138,998.00 222,112.00 145,651.00 58,353.00 98,408.08 57,359.00 119,987.50 105,456.00

0.00

200,000.00

400,000.00

600,000.00

800,000.00

1,000,000.00

Benefits

• Lower Costs• Higher Brand Loyalty• Better planning & execution• Increased Sales• Increased Profits

• Lower Costs• Higher Store Loyalty / Penetration

Retailer• Lower Out Of Stocks• More Open Merchandising• Greater Choice• Consumer Satisfaction• More convenience

WINWINWINWINWINWINWINWIN

• Increased Profits

Manufacturer

Penetration • Efficient Replenishment• Increased Sales• Increased Profits

• More convenience

ConsumerWINWINWINWIN

• Manufactures can increase sales by 78% if products are moved from defensive to open sale

• Retail profits could be 30% higher if shrinkage is reduced by 50%

“If it works in South Africa it will work anywhere”

Thank YouThank You