Counting the costs of shrinkage

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As the impact of rising interest rates and tighter credit hit home to consumers, retailers will be watching the tills nervously in the run up to Christmas. Lean times may well lie ahead. For the supply chain that means a closer eye kept on costs, inventory levels and efficiency.

But one area of supply chain cost that is setting alarm bells ringing at the moment is shrinkage (stock loss from crime and internal error). According to findings from the Global Retail Theft Barometer, a report put together by the Centre for Retail Research for Checkpoint Systems, shrinkage has risen in 2007 for the first time in four years across Europe and now represents an average of 1.26 per cent of retailers’ turnover, against 1.24 per cent in 2006. This adds up to €29.3 billion in lost stock over the 12 month period.

Apparently, the UK has the highest total value of shrinkage in Europe with €5.6 billion lost during the last year to customer, employee and supplier theft and internal reporting errors. But when compared to the rest of the world, the UK has the third highest total value of theft behind the USA €39 billion and Japan €7 billion.

Interestingly, customer theft accounts for the largest loss of stock in all territories apart from North America where only 35.2 per cent is attributed to customers and 45.8 per cent to disloyal employees. But there is growing concern over employee theft in all countries surveyed.

Technology for protecting expensive items involves the use of RFID, with many retailers planning to implement source tagging in the next two years. Greater use of RFID should help to not only help pinpoint leakage in the chain, but should also help to reduce inventory errors – also part of the shrinkage figures. In fact, 16 per cent of shrinkage in Europe is attributable to internal errors, so perhaps it’s not just technology that needs to be applied but better processes too.

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