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Do Cash Shortages Correlate to Shrink?

Posted on 5/30/13 8:51 AM

 Do Cash Shortages Correlate to ShrinkAlthough not reflected in inventory results, the loss of cash at the point of sale (POS) affects profitability. Because cash losses may be absorbed into the overall deposit amounts or because a series of small, individual variances are considered inconsequential these losses may not be recognized at the corporate level.

Interestingly, however, cash variances can be strong indicators of potential inventory losses. The problem with such prediction is that cash loss is a “correlate within a correlate” in shrink prediction.

Patterns and trends of cash loss correlate to one of three possible behavior deficiencies.

The 3 Behavior Deficiencies that Correlate to Shrink

1. Integrity – cash losses are caused by a dishonest individual. Dishonest employees tend to steal merchandise before cash. Consequently, by the time they steal money they have already created merchandise losses that will show up in shrink.

2. Training – An untrained employee will make several mistakes that cause loss. They may improperly ring merchandise, make MOOS mistakes, create customer service issues or through their errors create opportunity for others to steal.

3. Compliance – Cash losses may indicate that employees don’t care or simply don’t follow direction. If they have no concern over the “money” what other short cuts are they taking that cause loss.

We know that dishonesty, lack of training and compliance issues are all predecessors to higher shrink. Identifying which behavior is at play with any patter of cash loss will help to determine how best to resolve the issue.

These behavior deficiencies do correlate to shrink. We can use a measurable activity (a cash loss) to recognize a more challenging measurement (a behavior) and use that information to prevent a potential shrink increase.

Here are four steps to reviewing cash losses:

Step 1: Understand the exact patterns of cash variances within your locations; small change, less than $10, greater dollar loss, etc.

Step 2: Determine the frequency of these variance: Persistent, seasonal, one-time event, specific employee

Step 3: Identify the behavior deficiency creating the variances (based on step 1 &2)

Step 4: Correct the behavior. The success of correction is measured by changes in the trend. This should also include a timed review to ensure that the behavior was in fact corrected.

Cash losses are but one of the many methods of theft within a retail environment. The process of investigating losses can require specific expertise, knowledge and established methods. LP Innovations provides retail companies with various solutions to reduce loss and increase profitability.

Read more about some of our success models


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