How to Prevent and Reduce Backroom Receiving Shrinkage

The receiving process is unstructured in many retail organisations, with no written policies and procedures. Consequently, backroom receiving shrinkage accounts for an estimated 10% of retail shrinkage, which in an average supermarket amounts to over £30,000 annually. Vendor fraud and employee theft are responsible for the vast majority of receiving shrinkage.

A receiver plays a pivoted role in any retail store. They are the first line of defence in a store through which every shipment has to pass. If the process and the individual lack integrity, it will affect the entire store inventory system. When vendors notice that receivers are ignorant of the merchandise they are receiving, they exploit the situation by either short supplying or charging for goods undelivered.

It is imperative that every retail organisation have trained designated receivers with knowledge of the products they are expected to receive and technology they use.

Preventing or reducing backdoor receiving shrinkage will require the implementation of the following strategies:

1. Authorised  key control

It goes without saying that leaving the receiving bay open and unattended is an invitation for shrinkage. Receiving areas when unattended have to be secured and the keys held by authorised staff. Strict control of the receiving area is the most important element in ensuring compliance with laid down policies and procedures. Any personnel not actively engaged in the process should not be allowed access to this area.

2. Receiver training

Many retailers have still not been able to make the correlation between quality of staff allowed to receive goods and backdoor receiving shrinkage. Within numerous organisations there is no trained designated receiver, any staff member can receive and sign for deliveries. A receiver like a cashier literally holds the check book of the organisation, every error they make directly impact on the bottom line. That is why it is so important that receivers are extensively trained and supported with expert level of product knowledge. Much of the vendor fraud in retail stores occur primarily because dishonest vendors realise that the receivers are not properly clued up.

3. Clearly Written Policies & Procedures

Formally written policies and procedures that are implemented by a motivated and informed workforce will form the fundamentals of an efficient backdoor receiving shrinkage management system. The creation of a standardised system of receiving sends a message to dishonest employees and vendors alike that the organisation considers shrinkage reduction a priority.

4. Technology

The use of advanced technologies have aided the receiving process for most retailers. Technologies such as Direct Store Delivery receiving (DSD) or Radio Frequency Identification (RFID) Merchandise Security tagging have changed the receiving process and made it easier for retailers to track incoming products and increase inventory accuracy.  However, the use of technology is only effective if those using it are properly trained to get the most out of the device.

Technological devices used to their full potential can be of enormous benefit to the retail receiving process. Those retailers who harness technology to it maximum have succeeded in reducing their shrinkage level by as much as 9.2% and reduce their accounts payable by 65% and increase overall store profit by up to 3%.

5. Backroom Stock Control

Excess stock in the backrooms is a recipe for inventory shrinkage. It is imperative that stock kept in the backroom does not exceed 8-10% of total store inventory. Any losses due to damage, expiration, over-ordering or theft need to be recorded and properly documented.

6. Auditing

Auditing process has to be constantly monitored for integrity and compliance with organisational operating policies and procedures. Auditing should be carried out at least once in every quarter, by both internal and external auditors.

The central thesis of this article is that backdoor receiving is critical for the success of any retail venture because it is the first line of defence. Get it right and half of the inventory problem is solved. Get it wrong and the entire store inventory remains topsy-turvy for a long time. It is important that retail organisations give this a serious thought and ensure the process is treated with all conservative due respect.

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