A Word with Ray Esposito
Senior Vice President, Strategic Initiatives at LP Innovations
Achieving a goal is simplistic in its complexity. We define our target objective, we create the process to get there, and then we periodically measure our progress. In loss prevention, the latter we measure through the audit practice. In that sense an “audit” can really be any type of measurement. In the retail and restaurant environment, we audit many different practices and at times our overzealous desire to measure “everything” can result in information overload - a topic I’ll discuss further in an upcoming post.
Although every audit question provides some form of information, some questions are better than others are. This principle, loss prevention interviewers learn early in their careers. The questions and more specifically the types of questions we ask - or don’t ask - often determine our success. I also had the pleasure of raising five teenagers. Most parents learn that if you want the truth you need to ask the right - and often - very-specific questions. These lessons aptly apply to our
audit process. Some questions are just more critical to our understanding of compliance than others. The best questions grant us insight into the “bigger” operational compliance picture.
Experience teaches that some things predict or warn against other things. In audit functions there are five questions that provide the most informative details of the state of compliance. These questions are the “must haves” of our audit and they are the ones that we should take extra care in analyzing beyond the audit score:
1. Cash Shortages - Granted our consumer world is more plastic than paper, but the levels and frequency of cash variances (p
ositive or negative) tell us three potential things about our operations. The most obvious is that cash variances can be a sign of dishonesty. Through an analysis of the frequency and patterns, we can often discover the dishonest associate. Of course, that is only if we are regularly auditing the POS. Moreover, while that is the most obvious, there are still two other potential issues we can discover. The first is training concerns. Perhaps the shortages or overages are the results of error. If there are counting issues on the cash drawer, we can begin to imagine the other type of accounting mistakes made in our operations. The final concern is customer service. In a competitive consumer-market, can we afford to have our customers disgruntle because they were short- changed and feeling cheated?
ges/Moos - Imagine an entire year trying to reduce “fictitious” losses. Mistakes in damage, mark out of stock or waste and spoilage mean we aren’t accounting for things that should have been legitimately removed from inventory. As an industry standard, we believe that 15% of all reported losses are paperwork errors. That is an average, which means some locations might certainly lose thirty or forty percent to error. That’s a lot of ghost inventory chasing. And while a damage policy is fairly straightforward and seems easy enough to follow - simplicity sometimes means things don’t receive the attention they warrant. It’s like driving a car. After years of doing it, it become so “simple” we are comfortable juggling the operation with our cup of coffee, stereo and iPhone…and that’s when mistakes happen.
3. Shipment Reconciliation - Just like damages, shipment reconciliation is a critical area for review. It’s another place where mistakes can create inventory ghosts, impact replenishment and generally create a “sales” mystery that shouldn’t otherwise exist. Various cost saving philosophies have resulted in “blind receiving.” That dis-empowerment at the store-side can mean devaluation in the related practices to shipments and transfers. In that sense, it requires extra attention to the verification processes we do have in place. I also highly recommend an objective review of the distribution accuracy. Audit a sampling of shipment boxes before they leave the DC. If that accuracy is less than 99%, we are creating inventory ghosts in
our field operations.
4. Customer Service - We are only in business for one purpose - to serve the customer. While good and efficient operations are a part of that, we should question our process if we review our operations with a greater frequency than our customer service. Intuitively strong sales seem to offer that measurement, but those sales don’t necessarily indicate that we are maximizing our customer’s buying experience. Studies indicate that customers who are engaged with by associates, spend more time in our stores and buy more merchandise. Time is something we can measure. Engagement time is something we can improve upon. If of course, we actually audit it. In addition, customer service scores can measure not only the customer experience but also the probability that we are deterring shoplifting. It also measures our associates’ attention to the most important element in our business - the customer.
5. High Risk Transactions - HRT’s like refunds, voids, no-sales and discounts are the gateway to severe loss issues. We call them “high risk” because each of these provides an opportunity for theft. Theft through these types of transactions result in cash loss, inventory variances, and profit erosion. They are the trifecta that results in future “target” stores. Since these areas represent the most basic of our policy creation, they also tell an accurate story about train
ing and compliance. Within the HRT selection, you can develop several more questions to gain even greater insight into the operations - for example if there are no “no-sales” are we accessing the drawer with a key? Is one employee very high on the employee discount total? HRT’s are an LP investigators best friend, but for the Operations team there is much to learn from the results in this section.
We can place many more questions on an audit. All of the information can give us a snap shot of our operations, but more importantly, they can help us refine our processes, improve training, and ultimately achieve a level of compliance that reduces our losses. These 5 “must-have” questions however are the foundation we should build upon. Have your own “must-haves”?
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