September, 2006

Shrinkage Shrinking

Close the gaps in your operation and keep those materials from disappearing.

By Tom Fife

We all deal with shrinkage at least once a year—usually at physical inventory time. Then we have to figure out whether it is paper “shrink” or a costly and mysterious disappearance of inventory.

The most common way that theft happens in our industry is through collusion between a loader and a customer. I was reminded of how easy it is to do while accompanying my son—a concrete entrepreneur—to the local lumberyard.

Tony drove right through the gate when we arrived, paying no heed to the standard sign saying PLEASE STOP AND GET YOUR PAPERWORK BEFORE CONTINUING. He drove on into the back of the yard where the materials he needed were located. He said that just last Saturday a yard worker had asked him for his paperwork and my son told him he would get it on the way out—after being loaded. The worker said OK, and after loading about $150 in materials into the pickup, asked him if he would like to pay him or go to the office. He told Tony the cost would be only a $20 bill—paid directly to the worker!

About that time a manager showed up and asked to see our paperwork. I was so relieved. My son explained that he knew where to find the materials he needed and would load himself and then come inside to pay. The manager didn’t bite and to my relief we went back inside to follow proper procedures. After paying for the purchases as well as the difference from the previous Saturday we went back home discussing the very real problem of theft in our industry. In case you’re thinking this was a unique situation, my son routinely has been offered the same deal from other yard workers at other yards.

Collusion between the delivery driver and a loader is another often used method for theft. The driver accepts unauthorized goods to be split or sold later, and the profits shared.

How many times in a year does a customer call to tell of the shortened shipment? We do make mistakes but there are many times that the driver or someone who is in cahoots with a team member will return to the job site to take some merchandise after delivery.

While there will always be some shrinkage, there are many steps that can be taken to slow or stop the leaks:

• Rule No. 1: NO MERCHANDISE LEAVES THE OPERATION WITHOUT BEING INVOICED. How often does sales hurriedly gather material to take to a job and forget to invoice the customer? That emergency delivery sans paperwork gets forgotten way more than we would like to believe!

• Good checkers are worth their weight in gold and will continually pay for themselves. Make it policy to check merchandise against the invoice (not the order).

• Be aware. Look for the loader that always loads the same customer. Customers should never be loading themselves.

• Consider visiting job sites to spot-check deliveries and/or require signatures at the site.

• Take regular walks around the fenced perimeters looking for worn areas where goods have been funneled out. Make sure that the back rows of goods aren’t leaning on the fence or within an arm’s reach of a thief.

• A daily check of the dunnage pile is worth the effort. Assign the area to a couple of experienced team members with pricing authority to assure it’s really dunnage.

• Limit and record all personnel who have gate keys. Change locks and responsible parties as circumstances dictate, but always know who has access.

Educating your frontline team members will heighten everyone’s awareness to this unnecessary financial drain. Initiating preventive measures now is far more cost-effective than sleuthing the case of the “shrinking shrinkage.”