MISSION: LOSS PREVENTION

e [Music] [Music] la [Music] [Applause] 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 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 shop lifter here for example 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 mer 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 sportsware department and see how a book inventory was made up for a recent 6-month period at the beginning of the 6mon 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 receive our book inventory will be higher than the actual inventory won't it we'll have an inventory shortage during this same 6month 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 $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 six 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 $22,000 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 [Music] stores 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 $115,000 worth of sports 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 $112,500 worth of sportsare merchandise not $155,000 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 swamp done Le it over carefully and put my initials on it with 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 Sal I lost it okay thank you thank [Applause] you I'll be back in a minute johnie okay [Music] hey hi Don sorry I'm late I couldn't find a parking space 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 $498 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 78 ladies handbags have been counted for markdown from 1298 to 1098 the supervisor jots 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 ey 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 was 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 Dock 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 is taught his assistant to ignore the very purpose of her audit her prompt tracing action might have prevented further theft [Music] 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 a 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 the 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 how's business slow I'm going to lunch in a few minutes oh I'll wait for you good say uh I understand your Diner 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 have birthdays tomorrow that's a good idea I hate to pay the full price couldn't I buy it now for the sale price I can't wait till Monday it's against the rules Joe ah it's the difference only a couple of days okay look I'll tell you what now I'll sell you won now at the sale priz if you'll sell me a couple of your golf clubs at next week's sale priz 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 shorted 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] [Applause] [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 you like to see it yeah hey that's pretty nice it is isn't it yes great he well I'll see you after lunch [Music] okay 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 inv shortage and what's worse his negligence has helped create a [Music] thief outright thievery does occur among a small percentage of employees and among non-company service employees too any store employee Being Human can be a fall guy for Outsiders if he doesn't keep his wits about [Music] him there to be 32 jaggets on that right 32 right say friend you hear a story about this guy who gets married to a champion swimmer it sounds like a know one anyway get married [Music] hey that's a pretty good one let's see counted this one right it was 32 yeah this there 32 on that one 32 right I me have that there you go thanks a lot right see you next week [Music] 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 appearing 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 hone I'm swamp all right let me have it give me the merchandise and sales receipt why don't I go down to the receiveing dock and 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 you it'll only take a minute I'm sorry Joe it's still against the rules and you know what as well as I [Music] do uh put it in your locker Janie you know the rule okay I'm sorry hey hey you already got it that right there are 32 on this one too well I'll just double check it 2 5 8 10 12 excuse me [Music] buddy a 10 piece of short you better uh check the truck yeah uh let's double check [Music] [Applause] it 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] you