February 28, 2005, 12:00 AM

Shrinking Shrink

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"We`d say to a store manager, you have $200,000 shrinkage in power tools," Dorsey says. But without a way to drill down into information on the status of inventory at the item level, it was nearly impossible to tell managers which SKUs in power tools had most likely been stolen, which had been debited from financial records due to damage, or which had been transferred to another store. The problem is often exacerbated by the fact that many general ledgers sit on home-grown systems on old mainframes, he adds. "They`re out of sight, out of mind, so people overlook them," Dorsey says.

The lack of item-level data can leave store managers and loss-prevention managers guessing at which SKUs were being stolen and which were accounted for by some obscure accounting entry, Dorsey says. "We didn`t want to be chasing accounting phantoms," he says. "We wanted to know how shrinkage was tied to the general ledger."

Once Chase-Pitkin has identified the SKUs most likely lost to theft, the next step is to zero in on the time period that theft occurred. Using ongoing reports on inventory levels and sales transactions, the retailer is able to view updates that show how many of the targeted SKUs should still be on retail shelves or in the warehouse. "The system will say we had five widgets in inventory today, but we sold three, so there should be two left on the shelf," Dorsey says. "If only one is left, then we go to surveillance cameras or other means to find out what happened."

Realizing that theft may occur at various points in the store by employees or store visitors--at the display counter, in the checkout line or in the warehouse, for example--Chase-Pitkin will resort to any of several loss-prevention measures after it identifies targeted SKUs. It may increase surveillance on possible points of theft, such as the shelves where the SKUs are displayed or POS terminals, by relocating video surveillance cameras or by deploying corporate loss-prevention staff as floorwalkers who blend in with customer traffic.

The thief on a schedule

One advantage that plays into the retailer`s loss-prevention efforts is that theft often recurs at the same place and time of day, Dorsey says. Even if a perpetrator isn`t caught, the retailer may be able to scare someone off by doing things to frustrate the would-be thief. "The really good ones tend to have a routine, a regular schedule, and if we can disrupt that schedule, they may go elsewhere," he says.

As effective as the ShowCase application has been in identifying SKUs in shrinkage, Chase-Pitkin expects to develop the system further to produce even better results, Dorsey says. "We`re tying our inventory system into the SPSS application on a more real-time basis, instead of through batch-processing overnight," he says. "Right now we can see shrinkage by day of the week, but not by time of day. When we get a more instantaneous feed of data, we can better track the specific times when shrink is occurring."

Operating as a web-based system makes that possible, Dorsey says. The web connection not only supports real-time data flow, but also makes information immediately accessible via a web browser. He adds that the ShowCase system supports customized views of data for multiple users, letting managers view reports related to overall corporate shrinkage as well as to the stores or departments for which they`re responsible.

The system can also lock out personnel from certain data, providing for checks and balances to guard against fraud perpetrated from inside the company, he adds.

Closing the barn door

The ability to narrow down loss-prevention efforts to small numbers of targeted SKUs, combined with the easy access to data, he adds, also makes it possible for Chase-Pitkin to battle shrinkage during busy periods when it is most likely occurring.

"Under the old system, the opportune time to take physical inventory was when there were few products on the shelves, but counting in a slow season puts you in a reactionary mode," Dorsey says.

But because Chase-Pitkin is now equipped to focus on only a few targeted SKUs, it`s feasible to check inventory against sales records frequently during peak seasons. "With the ShowCase tool, we zeroed in on 22 items in the garden department every week during the busy spring season last year, and our shrink came down dramatically," Dorsey says.

The web-based system also helps to boost employee morale in the arduous task of checking inventory, he adds. "When we first told employees we`d be counting inventory in the garden department every week, they almost fell off their chairs," Dorsey says. "Then we said we were only going to count 22 items, and they realized they could do that in 15 minutes."

Although the new system makes it easier to identify and act on inventory problems, it also presents new challenges to store managers and loss-prevention managers in maintaining improvements over the long term, Dorsey says. "It`s one thing for departments to get better at controlling shrinkage, but then they have to continuously go back to manage the loss-prevention process and see how well it`s doing," he says.

Further expansion

The cost of the ShowCase system is based on the number of concurrent users accessing its data reports over the web. A typical application starts at about $150,000, covering the software and access by five concurrent users, Kurnick says. He notes that a typical application would have about 15 users, with about five concurrent users at any time.

Dorsey says he expects to continue expanding use of the ShowCase application, which so far operates only within five of 17 departments - power tools, kitchen, bath, millwork and garden. The other dozen departments should go live over the next three to six months, he says. In addition to moving to real-time data reports, Dorsey says he expects to eventually feed the system with information on products through a future radio frequency identification, or RFID, network for tracking item-level inventory.

In the nearer term, he adds, Chase-Pitkin will expand the use of the ShowCase application to a broader range of product management as well as product departments, providing the regional retailer with additional clout in competing against its national rivals. Store merchandise managers, for instance, have already started to use the web-based data to better manage product lifecycles, as they see the effect on sales of price markdowns or transfers of products between stores. "We can see how multiple operations impact products further down their lifecycles," Dorsey says.


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