MISSION: LOSS PREVENTION

[Music] Heat. Heat. [Music] Heat. Heat. [Music] We've just seen the simplest kind of inventory shortage. There is, a hijack. We know what caused the shortage. We've got a witness to it, and we can probably recover this loss from our insurance company. But each year, retail stores in our country lose over $2 billion dollar in inventory shortage that will never be recovered. That's over 100,000 truckloads of merchandise. And we'll never recover it because we don't know what happened to it. But we do know this. We know that most shortage can be prevented. And so wherever shortage exists, somebody failed failed to prevent it. Inventory shortage is a mark of failure by a manager or a supervisor. Let no one tell you otherwise. But on the other hand, your success in preventing shortage is an important measure of your executive talent and ability because inventory shortage is a direct loss of hard-earned profits. Profits which you must protect. Let's see just what an inventory shortage is. Here's a guy with a shortage. He thought he had $5 in his wallet, but it isn't there. He only has $1, barely enough to pay the tab. So, he tries to figure out how much he started with, how much he spent, and how much he should have left. But he can't account for the difference between what he should have, and what he does have. Now, an inventory shortage in a retail store is just like that. It's the unaccountable difference between how much inventory your record books say you have and how much you actually have by physical count. Supposing, for example, your department received a shipment of 10 cigarette lighters to be sold at retail at $5 each. That's $50 at retail charged to your inventory books. Now, if someone steals a lighter, the books say you still own $50 worth of lighters, but you have only $45 worth when you take physical inventory. A shortage of $5 between your book inventory and your physical inventory. Now, a $2 billion shortage isn't caused by shoplifting alone. There is no shoplifter here, for example. [Music] But $1 has just been rung up for a $10 pair of slacks. There's a $9 error in one of our records. The cash register tape, which is one of our records, is wrong by $9. And so there's a difference of $9 between what the book inventory records say we should have and what we actually have in the department. In other words, we have a $9 difference between our book inventory and our physical inventory, haven't we? Well, what is a book inventory? Very simply, a book inventory is a record of the retail prices of all the merchandise that we started with, that came into our store, and that went out of our store. Naturally, if we change the retail price of any merchandise, we should make a record of that change in our book inventory, shouldn't we? In other words, our book inventory should truly reflect the retail value of all merchandise in our store at any given moment. Cost prices have nothing to do with our book inventory. For our purposes today, we're concerned only with retail prices. Let's go to our sportsear department and see how a book inventory was made up for a recent six-month period. At the beginning of the six-month period, we already had on hand $10,000 worth of merchandise at retail prices. We call that our opening inventory. and we got that figure by a physical count. Now, to that figure, we add the retail value of new merchandise or purchases coming into the department, $80,000. If we fail to spot a shortage in a shipment and pay for merchandise never received, our book inventory will be higher than the actual inventory, won't it? We'll have an inventory shortage. During this same six-month period, $2,000 worth of merchandise at retail value was returned by customers for refunds. It became part of our stock again. If we make a mistake and refund $12 for a $2 sweater, our book inventory will be higher than our actual inventory, and we'll have a shortage, won't we? [Music] $6,000 worth of additional merchandise was transferred into the department from other stores. If we don't check it in carefully against the transfer sheet, we can again have a shortage. Then we had $2,000 worth of markups when we raised our prices after an anniversary sale, thereby increasing the total retail value of the merchandise and the department. If those markups are not carefully recorded, our book inventory won't be the same as our physical inventory. Well, okay. When we add up all the merchandise charged into the department at retail price during the past 6 months, our opening inventory, our purchases, our refunds, our transfers in, and our markups, we have a total of $100,000 charged in. Now, let's find out how much merchandise was charged out of our department during the same period. Naturally, most of the merchandise which left the department was sold. We have $75,000 worth of sales. $2,000 worth of merchandise received was defective or otherwise unacceptable and it was returned to the vendor. If we didn't charge out the correct retail price of those vendor returns, the book inventory could remain too high and we'll have a shortage when we take the physical. Another $2,000 worth of merchandise left the department because it was transferred out to other stores. [Music] And then the retail price of some merchandise was reduced or marked down because, let's say, they were slow sellers. Naturally, their retail value diminished a total of $4,000. If we failed to record these markdowns to reduce our book inventory, we've got a shortage again. In addition, we gave customer adjustments of $500 and employee discounts of $1,500. And so when we add up all of the merchandise that was charged out, our sales, returns to vendor, transfers out, markdowns, customer adjustments, and employee discounts, we have a total of $85,000 charged out of our book inventory. And if you recall, we had a total of $100,000 charged into our book inventory. And so, as you can see, our book inventory tells us that we should have $15,000 worth of sportsware merchandise in the store at this moment. But, do we have it? Well, the only way to find out is to take a physical inventory and count everything. Well, we looked everywhere and we counted the merchandise, but we can find only $12,500 worth of sportsware merchandise, not $15,000. And so we have an inventory shortage of $2500, which is 3.3% of our $75,000 in sales. In other words, for every dollar in sales, 3.3 cents was lost. Well, what happened to it? Let's see where somebody failed to prevent a loss. Where the book inventory was distorted by error or the physical inventory was reduced by theft. >> Miss Brown, I need your signature on that. I'm >> swamped. Done. Read it over carefully and put my initials on it, will you? >> Okay. >> Thank you. Thank you. >> Hi. >> Hi. I'd like to have a refund on this piece of luggage. I got the same thing for my birthday, so I'm bringing this one back. >> You have salsa? >> I lost it. Okay. Thank you. >> Thank you. [Applause] >> I'll be back in a minute, Donnie. >> Okay. [Music] Hey. >> Hi, Don. Sorry I'm late. I couldn't find a parking space for you. Are you ready to take me to lunch? >> You bet. Good. >> But first, take this over to the refund desk. It's made out in your name. >> Oh, but I didn't buy a transistor radio for $14.98. Shh. >> We're having lunch on the company today. Don just charged his department for a radio it never got back. He didn't know it, but he increased the book inventory when he wrote that fraudulent refund slip. Result, an inventory shortage that could have been prevented if the supervisor had been paying attention and doing her job. [Music] 78 ladies handbags have been counted for markdown from 1298 to 1098. The supervisor jotss the count on a slip of paper so he can record it later in the markdown book. His intentions are good, but later well there's $156 of unrecorded markdowns. $156 worth of failure right there. A price ticket is another piece of paper that often causes shortages. The price on these shirts should be 950, but the girl's eye has reversed the five and the nine, and she comes up with a ticket for 5.90. A simple mistake, but why didn't her supervisor check the price ticket and catch the error? Was she too busy? obviously. And her fingernail inspection will cause an inventory shortage of 360 for each shirt or $259.20 for six dozen shirts. That's a lot of failure. Now, a store could spend a lot of time and money tracking down non-existent thieves when mistakes in receiving transfers, pricing, markdowns, and other records are at fault. And every retail store does spend a lot of money trying to correct errors even before the book inventories are posted. Take this audit clerk. Her job is to account for all transfer sheets in numerical order. >> Mr. Holden, number 4392 isn't here. Why don't I go down to the receiving doc and look for it? >> Oh, don't bother. It's bound to turn up sooner or later. But that transfer sheet isn't going to turn up. It was stolen along with the merchandise. It'll only turn up as part of an inventory shortage. That supervisor failed to do his job and he has taught his assistant to ignore the very purpose of her audit. Her prompt tracing action might have prevented further theft. Sometimes hurry and impatience can cause mistakes and shortages. Remember when you guessed at a price to get a customer off your back? I can't find the price. >> That's the third time today. How are we supposed to sell merchandise if it hasn't got a price tag? >> Should I look up the price? >> Now look, I can't stay here all day, you know. >> Oh, make it $9.98. That's the price of those toasters over there, and they're about the same. >> Well, take another look, Mr. Supervisor. That toaster is priced at $13.98. The customer got an unadvertised bargain and there will now be a $4 shortage on the books. Sometimes employees do things that may not be openly dishonest but are close to it simply by failing to adhere to rules and procedures. They can cause shortages to appear on the books. >> Hi. >> How's business? >> Slow. Uh I'm going to lunch in a few minutes. >> Oh, I'll wait for you. Good. Say, uh, I understand your dinette sets are going on sale next week. >> Yeah, they're knocking $20 off the price of that one there. >> Gee, I ought to buy one for my wife. Her birthday is tomorrow. >> That's a good idea. >> I hate to pay the full price. Could not buy it now for the sale price. >> I can't wait till Monday. >> It's against the rules, Joe. >> Ah, what's the difference? Only a couple of days. >> Okay, look, I'll tell you what. Now, I'll sell you one now at the sale price. >> You'll sell me a couple of your golf clubs at next week's sale price. H. It's a wonderful weekend for golf. >> Okay, Ed. It's a deal. >> It's a deal. All right. Those supervisors are buying merchandise at the wrong price before a sale, and they know it. They know that items on the books at full price are going to leave the store at reduced price before the sale markdowns have been recorded. result, a shortage that could have been prevented. Oh, they're not stealing maybe, but they're certainly laying themselves open to an accusation of dishonesty. Most theft can be prevented by closely adhering to company regulations. Look how important proper control of a key can be. [Music] [Applause] [Music] [Music] [Applause] [Music] There goes some valuable merchandise that won't be recovered. It will be part of an inventory shortage that could have been prevented if that key weren't available in an open draw. Some employees become really accomplished thieves if the opportunity is offered to them. >> Hi Jamie. Hey, what'd you buy yourself? >> New bathing suit. Would you like to see it? >> Yeah. >> Hey, that's pretty nice. >> It is, isn't it? >> Yes. Great. Hey, well, I'll see you after lunch. >> Okay. [Music] Now, that supervisor knows the regulation that employees must check their purchases with security or keep them in their lockers. But it never occurred to him that this nice young lady would do anything like this. That supervisor has failed to prevent a loss, an inventory shortage. And what's worse, his negligence has helped create a thief. [Music] Outright thievery does occur among a small percentage of employees and among non-comp service employees, too. Any store employee being human can be a fall guy for outsiders if he doesn't keep his wits about him. [Music] ought to be 32 jackets on that rack. >> 32, right? Say friend, do you hear the story about this guy who gets married to a champion swimmer? >> It sounds like another one. >> Anyway, you get married. [Music] Hey, that's a pretty good one. Let's see. You counted this one, right? It was 32. Yeah. Now, this one there 32 on that one, too. >> 32, right? Let me know how that you go. >> Thanks a lot. >> Right, man. See you next week. Right, man. Well, there are 32 pieces there, including the 10 pieces taken off the rack you already counted. They replace the 10 still in the truck. 10 pieces that the store will never see. Those jackets will turn up as part of the inventory shortage. All because of a joke. But it's no joke for the store or its employees. It's all part of that $2 billion national disappearing act every year. A loss that eats into the benefits of everyone, including you. We've just seen a few of the many causes of inventory shortage. Shortages that could have been prevented by somebody. Take that guard who was asleep on the dock. What if he'd been alert? And what if the supervisor in the pin ticketing room had been doing her job? Helen, could I have your signature on that? Honey, >> I'm swamp. All right, let me have it. Give me the merchandise and sales receipt. >> Why don't I go down to the receipt and do look for it? >> Good girl. Let me know what you find. >> Who is it? I'm very sorry, madam, but it's our fault that there's no price tag and we don't want to overcharge it. It'll only take a minute. >> I'm sorry, Joe. It's still against the rules, and you know it as well as I do. Uh Put it in your locker, Janie. You know the rule. >> Okay. I'm sorry. >> Hey, hey, you already counted that, right? There are 32 on this one, too. >> Yeah. Well, I'll just double check it. 2 5 8 10 12 Excuse me, buddy. 10 pieces short. You better uh check the truck. Yeah. Uh let's double check it. [Music] [Applause] Now, don't get me wrong. Supervisors aren't watchmen or policemen, and they don't use weapons, and they don't use force, but they do use their heads. Particularly if they're believers in Murphy's law, which says if anything can go wrong, it will. So, the winners make sure that nothing can go wrong. They keep their wits about them. stick to the rules and follow procedures all the time with no shortcuts, no exceptions. They prevent losses before they ever get a chance to happen because prevention is the only cure for shortages. Your store's future is your future. Make the most of it. [Music] Heat. Heat.