Tackling Shrinkage to Improve Tackling Shrinkage to Improve Your Bottom Line Your Bottom Line

ECR Europe Annual Congress, Brussels

May 2004

WelcomeWelcomeColin Peacock

The Gillette CompanyCo-chair, Shrinkage

Working Group

John FonteijnRoyal Ahold

Co-chair, Shrinkage Working Group

The ECR Europe Shrinkage Project

Supply Chain and Logistics Expertise

Academics

Excellence in Crime and Security

Management

Three Key Messages

1. Shrink = Profit Opportunity

2. Collaboration is critical

3. The ECR approach is working

€24 billionper year

Message #1Shrinkage = Profit Opportunity

€461 millionper week

• Lower Shrink

€65 millionper day

€2.7millionper hour

Message #1Shrinkage = Profit Opportunity

• Lower Shrink

0

1%

2%

3%

4%

1.8%

Shrink

Profit

3%% ofSales

Message #1Shrinkage = Profit Opportunity

• Lower Shrink

0

1%

2%

3%

4%

Profit

Shrink

0.9%

30% Uplift Savings

3.9%% ofSales

Message #1Shrinkage = Profit Opportunity

• Lower Shrink

• Lower Costs

Message #1Shrinkage = Profit Opportunity

• Lower Shrink

• Lower Costs

• Increased Sales

10%+ Sales

Increase

Message #1Shrinkage = Profit Opportunity

• Lower Shrink

• Lower Costs

• Increased Sales

open sale = 80%+

salesincrease

SHRINK: Fighting Back

Anders Moberg

President & CEO Royal Ahold

Shrink is a:

•Strategic issue

• State of mind

• Joint fight

The Three Causes

• Process failure

• Fraud

• Theft

ECR Shrink Reduction Road Map

1. Develop project plan

2. Map key processes

3. Analyse risk

4. Risk-reduction solutions

5. Implementation plans

6. Evaluation procedures

Fighting ShrinkFighting Shrink

• Programs and targets

• Build shrink into the corporate culture

• Tone at the top

• Working together in the supply chain

Working Together

• Align measurements

• Increase transparency

• Share information

Ahold and Shrink ApproachAhold and Shrink Approach

• Work with suppliers / academics / government

• Problem solving

• Treat like our overall business; – Strategy

– Accountability & Internal Controls

SHRINK: Fighting BackSHRINK: Fighting Back

Thank you

Three Key Messages

1. Shrink = Profit Opportunity

2. Collaboration is Critical

3. The ECR approach is working

Message #2Collaboration is Critical

• Internal and External

Message #2Collaboration is Critical

• Internal and External

• Prevention orientated

Message #2Collaboration is Critical

• Internal and External

• Prevention orientated

• Focused - 80/20

People

Places

Products Processes

Role of the Executive TeamRole of the Executive Team

Nikolaus RitterManaging Director

Makro Belgium

Programme

• Why Executive involvement in shrinkage

issues ?

• Examples from Makro Cash&Carry Belgium

• Lessons learned

Three Good Reasons

For Executive Involvement

in Shrinkage

Executive involvement ?

SHRINK is a RISK

Risk Management = Executive ResponsibilityRisk Management = Executive Responsibility

Executive involvement ?

SHRINK influences PROFIT

Profit = Executive ResponsibilityProfit = Executive Responsibility

Executive involvement ?

SHRINK impacts OPERATIONS

Operations = Executive ResponsibilityOperations = Executive Responsibility

Executive involvement ?

SHRINKAGESHRINKAGE

==

EXECUTIVE RESPONSIBILITYEXECUTIVE RESPONSIBILITY

Examples

of

the Makro Way…

Examples at Makro Belgium

• Basic approach:

– cross-functional– result-driven– structured approach

Examples at Makro Belgium

• Cross-functionalExample 1:

Loss Prevention Committee- Chaired by Managing

Director- Members: Buying Director

Food, Buying Director Non-food, Director of Operations, Financial Director, Head of Internal Audit, Loss Prevention Manager

Examples at Makro Belgium

• Result drivenExample:

Annual Shrinkage report- Annual focussed report

on operational Shrinkage, comparing long-term and short-term evolution

- Drill down to product level

SHRINKAGE (% of TO at COST)

1998 2004

-36%-0,5

Examples at Makro Belgium

• Structured approach

• Executive Training

• National Road Map

• Shrink Training

0. Wake Up

2. Map &Measure

4. Develop Solutions

5. Implement

6. Evaluate

1. Plan

3. Analyse

Lessons

Learned

Key lessons

• Executive involvement• Need for a “captain”• Internal collaboration

is fundamental• Collaboration with

suppliers is essential

OperationsOperations

BuyingBuying SupplierSupplier

Thank you

Three Key Messages

1. Shrink = Profit Opportunity

2. Collaboration is Critical

3. The ECR approach is working

Research Conclusions

• Existing Approaches not working

• Underlying cause is poor management

• Good management is the solution

Message #3The ECR approach is working

• Data led

0

4

8

12

16

20

24

28

32

36

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8 8.5 9

Losses acrossstore universe

Average

% o

f Sto

res

Message #3The ECR approach is working

• Data led

• Structured

0. Wake Up

2. Map &Measure

4. Develop Solutions

5. Implement

6. Evaluate

1. Plan

3. Analyse

The ECR Shrinkage Road Map

Message #3The ECR approach is working

• Data led

• Structured

• Removes process failures

Success Achieved

46% total shrinkage reductionPortugalFeira Nova

74% loss reduction288% sales increaseHungaryTesco

40% loss reduction

12% sales increaseUKSainsbury’s

7% loss reductionUKWickes

Factory and DC operations tightened upItalyCoop

43% loss reductionPolandAhold

78% loss reduction

55% sales increasePortugalUlmer

29% loss reductionPortugalSonae

ResultsCountrySupplierRetailer

Danone

Gillette

Industry

GET

P&G

Sokolow

Gillette

Colgate

Category

Yoghurt

Shaving

Spirits

Electrical

Deodorants

Sausages

Shaving

Oral Care

Video: What happened next?

Three Key Messages

1. Shrink = Profit Opportunity

2. Collaboration is critical

3. The ECR approach is working

Your Call to Action

Q: How big is your shrink opportunity?

Q: Will increased collaboration help?

A: Use the ECR Approach– Buy the ECR Blue Book from www.ecrnet.org

Better Still.......

• Invest 90 minutes with us

– Join us at our Shrink Breakout Session

– Tonight at 5.30pm

– In the Green Room

Thank YouThank You