Shrinkage in India
Why the shrinkage?
The shrinkage is not just due to the consumers, most of the shrinkage is in the supply chain. Leakages are due to loose system controls at various points in the supply chain - warehouse issues/receipts, store issues/receipts, store back room issue / returns processes. Also loose physical security at the stores and warehouses contribute to the high level of shrinkages. Also unlike the west which has learnt to securely display their high value SKU's, Indian retailers are still learning better ways to securely display high value SKU's. For example Gillette razors typically have maximum shrinkage possibility need to be secured in a locked display unit and similar. Security devices and video surveillance training needs to be beefed up at retailers as just having video cameras in the stores does not guarantee catching the perpetrator. Further analytical shrinkage analysis using POS data is not yet prevalent practice in India
Its not that the retailers are lax about processes, believe me .. I have spent lot of time with many Indian retailers and also retailers from the west. Retailers in India simply don't have the bandwidth, process experience or there is simply lack of trained personnel in the retail industry in India
Most of the retailers are simply still struggling to evolve the right viable business format for the stores in terms of size, assortment width, location, supply chain etc.. All of them are still also struggling to get their basics in place in terms of all processes - in store, merchandising, supply chain, financials, HR etc. This is like being in a startup where there is chaos around but there seems to be a lull in this madness.
The recent recession has given the retailers a chance to look back and take a pause - concentrate on process maturity. This is reflected in the recently published gross margin figures of major Indian retailers which has shown some improvement. This means now the retailers have decided to concentrate on process maturity and this would lead to shrink getting a bit under control by next year.
For example I know of one major Indian retailer who has appointed CA/auditors for each store whose job is to certify each operational individual document like a GRN, Store transfer, Stock adjustment witho ut which the transaction is not acc ounted for and any discrepancy is debited to the store personnel in charge. This system was recently introduced. I also know of a commercial VP of a reputed retailer in India who was so flustered on his inability to put in controls in place due to simply untrained operations personnel, that he took upon himself to write SOP's for basic processes like receiving and stock transfers and personally monitors exception transaction level reports every day to bring down shrink !
Operational excellence is going to be a key in Indian retailers surviving going forward. Most of the biggies are now realizing what they have got into when they started retail :) Its not a easy business and it needs tremendous process operations excellence to be profitable in this tough business.
Lets hope they survive.....
The shrinkage is not just due to the consumers, most of the shrinkage is in the supply chain. Leakages are due to loose system controls at various points in the supply chain - warehouse issues/receipts, store issues/receipts, store back room issue / returns processes. Also loose physical security at the stores and warehouses contribute to the high level of shrinkages. Also unlike the west which has learnt to securely display their high value SKU's, Indian retailers are still learning better ways to securely display high value SKU's. For example Gillette razors typically have maximum shrinkage possibility need to be secured in a locked display unit and similar. Security devices and video surveillance training needs to be beefed up at retailers as just having video cameras in the stores does not guarantee catching the perpetrator. Further analytical shrinkage analysis using POS data is not yet prevalent practice in
Most of the retailers are simply still struggling to evolve the right viable business format for the stores in terms of size, assortment width, location, supply chain etc.. All of them are still also struggling to get their basics in place in terms of all processes - in store, merchandising, supply chain, financials, HR etc. This is like being in a startup where there is chaos around but there seems to be a lull in this madness.
The recent recession has given the retailers a chance to look back and take a pause - concentrate on process maturity. This is reflected in the recently published gross margin figures of major Indian retailers which has shown some improvement. This means now the retailers have decided to concentrate on process maturity and this would lead to shrink getting a bit under control by next year.
For example I know of one major Indian retailer who has appointed CA/auditors for each store whose job is to certify each operational individual document like a GRN, Store transfer, Stock adjustment w
Operational excellence is going to be a key in Indian retailers surviving going forward. Most of the biggies are now realizing what they have got into when they started retail :) Its not a easy business and it needs tremendous process operations excellence to be profitable in this tough business.
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