An overview of the latest White Paper from ECR Europe
ECR Europe has run a Shrinkage Committee for some 10 years, and focuses very much on new ideas and methods of combating crime - which in the European fast moving consumer goods industry, relates mainly to shrinkage.
The committee's definition of shrinkage is very similar to ours in SA - product losses to unknown causes.
Every year retailers worldwide spend billions of dollars, euros, rands on various types of technology such as CCTV, tagging and data mining in an attempt to tackle the ever-present problem of shrinkage, which is currently estimated to cost the European FMCG sector 18 billion Euros per annum. In South Africa, the Consumer Goods Council of South Africa (CGCSA) estimates shrinkage to be R1,7 to R2 billion a year.
It is common knowledge that throwing extra manpower at the problem is not a solution, so retailers are increasingly turning to technology for a solution. Deciding in which technology to invest is a tricky business; vendors often make extravagant claims unsubstantiated by any published evidence or case studies.
This means that persuading the business to invest in these technologies, without a recognised process to measure the value of such investments, is extremely hard.
In order to address these issues, the ECR Europe Shrinkage Group commissioned a study and published a report focusing on providing the loss prevention/risk management community with a better understanding of how to calculate the value of investments in a range of technologies, together with a series of practical steps to measure their impact on the shrinkage problem.
The publication of this report follows on very nicely from the recent Retail Risk Seminar series recently run by the CGCSA and Hi-Tech Security Solutions.
Some key points from the report are:
* If retail loss prevention practitioners are to be taken seriously by other functions/departments in their businesses, then they need to show greater rigour and professionalism in the way they go about developing business cases for investment in security, and how they monitor and measure the performance of the 'solutions' they recommend.
* Security managers are under increasing pressure to reduce the cost of crime (including shrinkage) to their business, and often can feel pressured into making investments in technologies that may not deliver all that was originally promised.
This ECR White Paper provides security/loss prevention managers with a valuable guide so that future decisions to invest in technology are based on a much more informed and systematic approach. This approach will ensure that investments achieve the maximum return on investment (ROI) in shrinkage control.
The report contains the following guides:
* A step-by-step guide on how to develop a coherent and persuasive business case for investing in shrinkage solutions (including a detailed worked example).
* Detailed explanations of how to measure the 'value' of such investments, including a comprehensive explanation of the four key measures commonly used in financial circles:
- Return on investment.
- Net present value.
- Discounted payback period.
- Internal rate of return.
* Clear guidance on how these measures should be used when communicating with the rest of the organisation, to ensure credibility.
* How to measure the 'value' where strict financial returns are not easy to identify, such as with CCTV; including a list of possible variables that can be used for CCTV, EAS and data mining technologies.
* Detailed information on what retailers are using in Europe; how they rate these technologies and how they go about measuring their performance.
* A comprehensive list of data mining exception reporting variables to enable loss prevention practitioners to make the most of this technology in their bushiness.
* A checklist of requirements to ensure that CCTV, EAS and data mining technologies are implemented effectively.
The report makes a number of interesting assertions, based on the study, about the state of the loss prevention community in Europe. These find resonance in the current South African security/loss prevention community and therefore have immense relevance:
* The loss prevention community (in Europe, although the South African loss prevention community is probably just as much in need) needs to radically improve the way in which it measures the value of investments in shrinkage control and other anti-crime technologies. As business competitiveness increases, and demands for returns on internal investment comes under greater scrutiny (something which will happen in South Africa's current retail climate), the need to 'prove' value for money is becoming more necessary.
* There is a lack of understanding of how to measure the value of investments and too often LP practitioners use the generic term 'return on investment' as a catchall phrase to suggest overall effectiveness rather than a precise measure of value as i9t was originally intended to convey.
* LP executives need to understand and use the language of senior management when making business cases for investment. Incorrect use of financial terms and naïve cost/benefit models will undermine credibility, particularly when compared with investment requests from other functions in the business.
* There is a dearth of published information available charting the value of investing in CCTV, EAS and data mining technologies in the retail environment. While some studies exist on EAS and data mining, virtually nothing has been written about the value of investing in CCTV. Those studies that do exist adopt overly simplistic methods to measure the impact of the interventions.
The ECR Europe Shrinkage Group has been in existence for some 12 years, and publishes a biannual report into the causes of loss in the retail industry in Europe. This research covers over 400 companies across Europe. The group also has regular seminars, case studies and collaborative projects.
For details contact CGC Crime Prevention Programme, 0861 101 726, [email protected], [email protected]
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