Supply Chain Blog

FMCG Stock Shrinkage happens in the best run operations, even yours!

Posted by Dave Jordan on Wed, Aug 13, 2014

My colleague Stefan Cucu recently wrote on the subject of stock shrinkage in coolers located in HORECA outlets in Romania. One of the points he made warned Supply Chain professionals about the likelihood of stock shrinkage anywhere along the chain.

The term “shrinkage” covers a multitude of incidents but all inevitably lead to missing stock, extra cost and ultimately, poor customer service. If you and your systems think stock is available and you provide a promise to customers then finding (or not finding) missing pieces/promotional premia/cases/shrink-wraps and even pallets will not leFMCG Stock Shrinkage Sources resized 600ad to a “Happy Bunny” situation.

Here I take a look at some of the common and some of the more unusual causes of stock shrinkage.

At the factory

Apart from getting the standard QC/QA checking spot on, factory personnel should have a close look at their rubbish. Any packaging that is wasted should be 100% destroyed and factories should think carefully about sending waste to anyone other than a very honest recycler. For example, any bottles that are potentially usable can be filled with water and swapped for filled bottles along the supply chain. Yes, I have seen this happen!

At the warehouse

A minefield full of potential shrinkage opportunities. Routine cycle counting will alert management to any variances and ensure stock available to promise is really available but you should adopt the “trust is good but check is better” approach. Ensure you have clear segregation of duties so no individual has the access and authority to book stock in AND out. Monitor the relationships between operators and security personnel and rotate security shifts to avoid any “comfortable arrangements”. Although it is a pain, I would also rotate third party security companies on a regular basis. Keep an eye on damage levels too as they can always be used to substitute for good stock when backs are turned.

In the delivery truck

Installation of tachographs and Sat Nav systems have helped to minimise shrinkage during delivery but where there is an ill will there is a way. Did the driver sign off on what was actually loaded? If not, there is the opportunity to stop and remove a few cases from the inside of pallets which is not immediately obvious to the naked eye. Keep an eye on Sat Nav routings and any unexplained idle time.

On the customers delivery dock

You may have reached thus far with 100% load integrity but you are far from safety and a signed 100% OTIF delivery note. On one notable occasion when I was a Supply Chain Director in the FMCG sector a certain big name retailer continually reported shortages. Now, nothing is ever 100% perfect but when they started complaining about non-receipt of full pallets I smelled a bit of a rodent. A personal close inspection of the unloading process saw the driver sent away to an inside office to get documents stamped. While he was away the customer dock operators calmly took 2 pallets from the load and hid them in a nearby electricity building. When the driver returned he was completely powerless and could do nothing but sign against a shortage.

In the retailer outlet

No, not finished yet! In addition to the RTM drinks cooler caper described by Stefan, shrinkage can occur in store and not just through shop-lifting adventures. If you do not attach your promotional premia to the host sku securely they will be removed. Unscrupulous retailers will “ramp” the free product or item thus destroying your FMCG promotional activity but increasing their revenue. If the item being promoted is not available in the same store, e.g. a pen, then you are simply giving it away to anyone with enough nerve to slide it into a pocket.

That is just a snap-shot of what can go wrong as the possibilities to shrink your top and bottom lines are endless.

Image courtesy of Stuart Miles at freedigitalphotos.net freedigitalphotos.net

Tagss: Customer service, Brewing & Beverages, FMCG, Dave Jordan, Performance Improvement, Supply Chain, Logistics Management, Inventory Management & Stock Control