When sales increase significantly, there is a high probability of an increase in operational shrinkage as a result of the greater movement of products to and within the store. That is why it is essential to know how to minimize this situation, which, if not managed properly, could affect the profitability of the business.
Although the pandemic has had a negative effect on several industries, in the case of home improvement the situation is quite different. In fact, there are several figures that shed light on this and project good results for 2021.
For example, in 2020 in the United States, sales increased by 25% during the last quarter in home improvement stores, and in Mexico the hardware segment grew by 40% in the first semester alone. In 2021, there was a 12.6% growth in sales of household goods or appliances and other items such as electronics, and the projections in general are on the rise in all categories of the sector.
With respect to shrinkage, this can be categorized into several types, the most relevant in retail home improvement being operational and administrative shrinkage. Administrative shrinkage is caused by errors in records of merchandise entering or leaving the store, while operational shrinkage is mainly caused by carelessness, improper operations (by people inside or outside the company), negligence, or other situations within the store.
Here are 4 tips to minimize shrinkage in your store operation and improve the supply of your products on the shelves:
1. Establish periodic inventory controls with different frequencies and objectives.
It is essential to make daily adjustments that allow, among other things, the raising of break incidents through visual inspections. For example, a good practice to achieve this is a store opening checklist, which will provide clarity on the situation before starting daily operations.
It is also key to carry out a cyclical inventory, through the counting and/or adjustments of inventories of predefined critical SKUs or those that are in some promotional activation, so that differences between theoretical and physical inventories can be minimized and therefore improve supply.
If the specific review of the list of products with the highest historical risk of shrinkage is added to the above, it is possible to minimize the reduction of operational shrinkage of these products inside the store.
2. Control of breakages and/or damage to products and packaging
For various reasons, there are always products that are not in suitable condition for sale, so it is essential that these are removed from the shelves.
For items whose sensory characteristics are not suitable for sale to be written off, there must be a defined process, a work routine, which includes an adjustment in the information systems in addition to the process of return to the supplier or physical elimination of the SKU.
There are several causes that can cause a product to be unfit for sale, such as: packaging failures of the products; mishandling of the replacement processes and of the products displayed by customers; poor stowage of the products in the storage or deposit locations; and problems in the transfer of the merchandise to the points of sale, from the supplier or distribution centers.
In order for these products not to be in the sales room, they need to be checked continuously. Only this procedure will ensure that those available on the shelves are in the appropriate condition. Implementing this type of process is ideal with the support of a task manager, which has the possibility of raising tickets to the areas in charge in the event that the products are in poor condition, allowing them to be removed in half the time of a traditional process.
3. Theft and fraud
The reality is that on several occasions thefts are recorded in stores, by alleged customers or employees of the company, which are not detected in time because there is no record of the place where it occurred, the method or the quantity of products that were stolen, that is, there is no traceability of the part of the chain where the problem occurs.
These situations generate losses in the business, so it is key that when a theft is detected, methods are implemented to prevent this from happening again, generate established action protocols and over time work on the prevention of them. In the case of fraud, these can be prevented by establishing control in the different processes of administration and also in the sale of merchandise. The technological support of a platform to keep this record with Frogmi®, allows in a short time to identify risk factors, measure and above all report these movements easily and quickly to eventual internal audits.
4. Reception
One of the aspects that is considered most complex and where more attention should be paid is the reception of the products, the entry of these into the store has to be rigorous. If everything in this process develops perfectly, all the stages that follow are simplified. However, due to the rigor that is required, it can translate into a long, and often inefficient, process.
Errors or lack of information regarding the transfer of products from the distribution center to the store, to the warehouse or to the sales room; code errors or SKU labeling; final quantity of products received that does not coincide with the inventoried due to handling or packaging problems, are some of the problems that can lead to situations in which workers must spend several hours of work in detecting the error, to correct it delaying the progress of the products to the shelf, being able to be out of stock and losing sales.
At Frogmi® we have successful cases of clients who have implemented their processes in the reception area and put the Task Manager into operation. With this, they have managed to reduce the product reception process in each store by 3 hours, halving the time from when a truck arrives with the items until they are installed on the shelves. This is thanks to improvements made to the process, especially with regard to high-value products.
In parallel, it has been possible to carry out and have an X-ray of all the processes involved, automating tasks with other areas, and identify bottlenecks. This has made it possible to generate continuous improvement processes, control shrinkage and, with it, execution times have been optimized, leaving time for workers to worry about higher-value tasks.
