24/11/05 LPR's Jane Gorick looks at the less high profile forms of shrinkage that are stealthily thwarting growth for many retailers

Expectant retailers are crossing their fingers that consumers across Europe will continue to creep back into the shops in the hope that all-important Christmas sales are healthy. If August and September's consumer trends are anything to go by, sales increases should continue - slowly but steadily - in the run up to the holiday season.

"Such small percentage point increases can mean a great deal to retailers throughout the UK. For example, the latest European Retail Theft Barometer reports annual shrinkage across Western Europe to have fallen from 1.35% of turnover to 1.24%, yet this still equates to 28938 million euros.

"The industry has seen major introductions such as chip and pin and sophisticated store detection systems tackle shrinkage at point of sale. With figures showing that there are direct correlations between high staff turnover and high shrinkage figures, many retailers are also looking at many ways to reduce employee theft. From staff drugs testing to increasing salaries, employers are considering all manner of options.

"However, shrinkage goes much deeper than customers and employees at store level. Shrinkage, in terms of waste, needs to be a greater focus area for retailers and this applies all along the supply chain. For an industry that takes such pride in its lean supply chain practices, this may be met with a degree of surprise. Indeed, one area in particular, where retailers may not even be aware that they are haemorrhaging money is in the misappropriation of pallets.

"Whether choosing the 'one way trip' pallet pooling model or the 'one for one' alternative, pallets which 'go missing' are affecting the industry in a number of ways, the most obvious being the cost of recovery. As well as the administration involved in excessive numbers of lost pallets, comes the cost of replacement. When you consider that lost pallet figures can reach millions, the associated costs can be considerable.

"Due to the issue of pallet misappropriation, tracking systems have been developed to detect when levels of lost pallets exceed a certain amount and it is at this point that a financial penalty can be incurred. However, a financial consequence is not the only one that is possible, as people who take what they think are unwanted pallets are actually committing an offence. At all stages of their cycle, pallets belong to the pallet provider.

"These measures may make providers appear rather harsh in terms of control over pallets, yet it is done with the interest of the customer in mind. Keeping the number of lost pallets down will keep a customer's costs down - its as simple as that.

"Once a pallet operation with a new customer is running smoothly, pallet providers cannot stress enough how keeping dwell times down will help minimise cost for retailers at an RDC level - pallets get back to the provider quicker, are repaired quicker and can be re-issued to suppliers, with less administration involved.

"Pallets sometimes stay with an RDC's supply chain for too long, often being used for order-picking or downstream distribution and as well as creating unnecessary dwell time, there is an increase in the likelihood of more significant pallet repairs being required.

A key differentiator of the one-way trip pallet pool system that LPR operates is the quality of the pallets provided. All are inspected to a consistent standard, prior to delivery from depots to customers. Operating in an increasingly automated environment, damaged pallets will result in hold ups throughout the system and can lead to product that is being carried on the pallet getting damaged. As well as product waste for the customer, LPR incurs increased repair costs, resulting in a no-win situation.

"In the retail sector products move on pallets - they are integral to the flow of goods in the supply chain. Costs can be saved and margins increased when pallet processes run smoothly and everyone does their 'bit'. In an industry where reducing shrinkage is such a high priority, it is vital that retail managers work as a team with their colleagues and partners throughout the supply chain to combat this problem at all levels - in store and out."