How Good is Your Shrink?

 

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Produce managers generally have a sense that there will always be some level of shrink. It used to be that a certain percentage of shrink was actually a byproduct of the “stack ‘em high and watch ‘em fly” strategy to reach sales goals so shrink was tolerated with a “good enough” syndrome.

However, times are changing with profitability, competition and food waste issues coming to the forefront. Shrink rates are finally being scrutinized because it is missed opportunity to increase the bottom line. Simply put “good enough” is no longer good enough. Shrink occurs for many reasons and many systems can be put in place to revise shrink to a sustainable level such as 1-3%. It’s a merchandising issue as much as it is a purchasing issue. But what cannot be measured is hard to fix. It is common for produce departments to run 5-8% shrink and most often there is not a clear picture of where the losses are occurring. Setting shrink metrics is pivotal for changes to happen throughout the department and in sustained ways.

So, just how do you do that?

A project that begins to gain insights into what limits freshness and drives shrink is the place to start.  It’s crucial to spend time developing a system to gather a base of facts. Most stores have basic, if not detailed daily sales information. As a produce buyer, it’s a good idea to learn Excel and a necessary one if you are going to drill down into the shrink challenge and set new target goals. There are free and easy to learn tutorials on the web or you might even convince your employer to send you to an Excel class. Either way spreadsheets are fast becoming the produce buyers friend, offering purchasing and pricing insights that just aren’t visible with a clipboard or a calculator.

There are 3 types of spreadsheets to successfully manage your shrink:

A purchase order guide tracks how much you need to order to keep your display stocked until your next delivery. When setting up an order guide it forces you to look at how much you are selling of each item per day from your sales reports so that you can dial in your orders and prevent spoilage. It also gives you another perspective with which to step back and carefully review how much display space you allow for each item. Walking through this step with the employees who do the stocking provides valuable insight to plan a reset with new stock levels that save purchasing dollars and improve freshness.

A purchase journal guide tracks your purchases and helps you stay within your budget and monthly margin goals. Are you ordering to fill the department or are you ordering within your budget? Sometimes departments can hold much more product than what daily sales require causing unnecessary spoilage. Accurately setting your displays to be abundant, attractive and within budget is another area to focus efforts. Purchasing accuracy is one piece of the pie in maintaining freshness and preventing shrink.

A blended margin pricing guide allows you to price each item, enter the volume purchased and then adjust the individual margin for each item to achieve a blended target margin. Highly perishable items need to be priced to move quickly, otherwise they will spoil. This sometimes means they will have a margin lower than the target margin for the department. Longer shelf life items can capture a greater margin and offset items under the target margin to help the department meet its target goals and maintain freshness and prevent spoilage. Without taking into account your purchase volume (weighted margin) your target margin is just a shot in the dark. Setting up and managing a daily guide does not need to be time consuming, a well-constructed guide could take as little as 20 minutes a day.

By gathering and piecing together data from every relevant area, sales movement reports, a weekly purchasing budget guide, blended margin spreadsheet and working with staff on display level best practices and so on, it is possible to rapidly build up a clear picture of what’s driving shrink. Percentage points add up and shrink is more often spread across many categories and systems rather than just a few. Making detailed changes across the department is what’s required to recapture the margin points on a daily basis. By taking these steps and using new tools shrink levels can begin to fall in a matter of weeks and provide you with solid numbers to base future actions on as well as regain thousands of dollars from product shrink.