Warehouse Management

Unit 1

Unit 1

Supply Chain and Warehousing

Structure
1.1

Introduction
Objectives

1.2

Supply Chain Impact on Stores and Warehousing

1.3

Retail Logistics
Retail transportation
Issues in retail logistics
Managing retail shrinkage

1.4

Summary

1.5

Glossary

1.6

Terminal Questions

1.7

Answers

1.8

Case Study: Profit of ABC Pvt. Ltd. by Reducing Shrinkage

1.1

Introduction

Supply chain management (SCM) is the backbone of the retail industry. All
other functions revolve around SCM. Supply chain management is the
integration of business procedures from end consumer through suppliers
that offer products, services and information so that it provides value
addition to consumers.
A supply chain consists of all the parties involved directly or indirectly in
fulfilling a customer request. The supply chain includes not only
manufacturers and suppliers but also transporters, warehouses, retailers
and even customers.
Warehousing is a critical part of the chain of transportation of goods from
the manufacturer to the retail store. Warehousing processes ensure
procurement, distribution and movement of materials up to the point of sale
to the customers.
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In this unit, you will study the supply chain and its impact on retail stores
and warehousing. Then, you will study retail logistics, the various aspects of
retail transportation and the issues that arise in retail logistics. Towards the
end of the unit, you will study management of retail shrinkage.

Objectives
At the end of this unit, you will be able to:

describe the impact of supply chains on retail stores and warehousing

describe retail logistics

explain retail transportation

explain the issues involved in retail logistics

describe the management of retail shrinkage

1.2

Supply Chain Impact on Stores and Warehousing

You can define supply chain as the chain of activities and processes that
ensures the movement of a product from its raw stage, through value
addition, to the final customer. The objective of a supply chain is to ensure
that the right product reaches the right customer in the right condition at the
right time and at the right price.
Supply chain management is the integration of business procedures from
end consumer through suppliers that offer products, services and
information so that it provides value addition to consumers. It is the network
of transportation and warehousing processes that ensure the procurement,
distribution and movement of materials up to the point of sale to the
customer. It is a network of different companies that produce, handle and
distribute products.
An efficient supply chain benefits customers by reducing the incidence of
stock-outs and providing the assortment of merchandise as required. This,
in turn, leads to higher sales, higher inventory turnover and lower markdowns for retailers.
Logistics is that component of the supply chain procedure which plans,
executes and controls the competent and operative storage and flow of
goods, services and associated information from the source of origin to the
point of utilisation in order to meet the requirements of the customer. SCM is
a comprehensive and strategic perspective that includes logistics, inventory
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management, vendor relations and even new product development.

Figure 1.1 is a graphical representation of a supply chain flow:

Figure 1.1: Supply Chain Flow

The impact of supply chain on retail stores is as follows:

i.

Short life cycles: This includes products with short life cycle, such as
perishable groceries or fashion that is dependent on season. In case
the life cycles are short, the supply chain needs to be much more
efficient.

ii.

Time-to-market: This is the time that an organisation takes to

recognise an opportunity and convert it into a product or service and
make it available in the market. In case the time-to-market is slow, the
company misses out on an opportunity to increase sales at the retail
stores.

iii. Time-to-service: This is the time taken by a retailer to service the

customers demand. If the customer has to wait for months to receive
the product, he/she may lose interest and purchase product from a
competitor, leading to a loss of sales at the retail store.
iv. Concept of just-in-time (JIT): This is an inventory strategy that
companies employ to increase efficiency and decrease waste. In JIT
strategy, organisations receive goods only when they are needed in the
production process. This reduces inventory at the retail store. This is
possible only if the SCM is very efficient and reliable.
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v.

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Concept of collaborative planning, forecasting and replenishment

(CPFR): This is a process of engaging the vendors of a retailer to
participate actively in inventory management and re-supply, thus
reducing costs and response time, all around. The retailers share the
forecast based on sales or demand with the vendors, fortnightly or on a
monthly basis so that the supplier/manufacturer can plan production
accordingly.

vi. Stocking program or delivery centre: Most suppliers set up a

stocking centre or hire third party delivery centres close to the
manufacturer or retail stores with a high demand for their products or
parts to manage the dynamic customer demand.
If sourcing is done globally, that too influences the supply chain, which
further impacts the retail stores. Various factors linked to the supply chain
that impact a retail store if sourcing is done globally include:
Country of origin: Retailers prefer to source products from the country
having expertise in these products. For example, products made in Europe
are more expensive than those made in, say, Bangladesh. However,
products made in Europe are supposed to have a higher quality. Thus, a
luxury retailer may prefer to source from Europe. Similarly, a country like
Japan is perceived to be the producer of superior quality consumer
electronics. So, retailers prefer to source consumer electronics from Japan.
The price of products reduces if the quantity is large.
Foreign currency: Foreign currency fluctuations also influence global
sourcing decisions. The rate of the dollar or pound influences the sourcing
decisions of certain countries, which in turn affects the delivery at the retail
store.
Duty: Duty is a tax placed by the government on imports. Import tariffs have
been used to favour domestic manufacturers over international competition.
The General Agreement on Tariffs and Trade (GATT), the North American
Free Trade Agreement (NAFTA) and foreign trade zones reduce tariffs.
GATT was replaced by the World Trade Organisation (WTO), which
monitors free trade. A free-trade zone is a demarcated area within a country
which can be used for warehousing, packaging, inspecting, labelling or the
assembly of imports without being subject to that countrys tariffs. An
example of this is the Sharjah Airport International Free Zone (SAIF Zone).

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Transportation cost: The farther the merchandise has to travel, the higher
the transportation costs and longer the time taken. For example, the time
and cost of shipment from Europe to India will be higher than that from
Bangladesh to India.

Impact on warehousing
Supply chains perform various functions, and they contribute in a valuable
way to warehousing operations. Some of the functions that impact
warehousing include:
1.

Management of inbound transport: The vehicle carrying the required

stock must arrive at a specified date and time, as receiving centres
allocate the receiving docks to separate suppliers throughout the day to
avoid clustering of incoming delivery vehicles at the receiving centre.
Any delay in incoming delivery vehicles may have a negative impact on
timely deliveries to the store.

2.

Receiving and inspection: The delivered stock is recorded and

checked for quantity and quality to ensure that the correct product of
the right quality has been received in the required quantity. This is
called incoming quality inspection.

3.

Storage: The merchandise is unloaded and stored in the warehouse

following inventory management principles, such as first in first out
(FIFO) or last in first out (LIFO) or as per the ABC technique.

4.

Making the merchandise ready for sale: This normally involves

placing the merchandise on hangers or shelves, recording their receipt
and filling the required reports. This can also include tagging the
products, putting stickers, labels or UPC codes and the stores codes. A
universal product code (UPC) is the black and white bar code printed
on the package of most of the products. To fulfil a replenishment order,
the warehouse performs various functions, such as coordinating
inbound transportation; receiving, examining, storing and crossdocking; organising products for shipment in a floor-ready state;
meeting orders and then directing outbound transportation.

Self Assessment Questions:

1.

The full form of GATT is _______ ________ __________ _____.

2.

The full form of UPC is ____________ ________ _______.

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3.

The objective of a supply chain is to ensure that the right product

reaches the right customer in the right condition at the right time at
the right price. (True/False)

4.

Fashion products are not seasonal. (True/False)

5.

In case the time-to-market is slow, the company misses out an

opportunity to increase sales at the retail stores. (True/False)

Activity 1:
Identify the limitations of using a warehouse in a retail organisation.

1.3

Retail Logistics

You quite often assume that when you go to a store, you will get the product
you want to buy. The vast variety of products that are available for purchase
makes you forget at times the complicated way in which those products are
supplied to the retail store. You have the right to expect your vegetables to
be fresh, that particular model of TV you always wanted to be available and
so on. Now, with e-commerce, we expect 100% availability and, that too,
from the comfort of our homes. Consumer beliefs and needs have altered.
Our willingness to wait for being satisfied or served has diminished, and we
anticipate immediate gratification in terms of product availability and
delivery. It is apparent from these changed consumer expectations that the
supply or logistics system that obtains products from manufacturing and
delivers through retailing to utilisation also needs to be altered. Logistics
management and the subsequent concern about the entire supply chain
have replaced the system of physical distribution and materials
management. This logistics revolution is a result of changes in cost and
service prerequisites of the customer. The components of logistics can be
extremely expensive, if not managed effectively.
It is very costly to hold stock or inventory in warehouses in anticipation of an
emergency. The stock of materials is expensive and may not sell or might
become outdated. Generally, warehouses and distribution centres are costly
to build, function and maintain. Vehicles used for transporting goods
between warehouses and shops are costly, in terms of capital, as well as
running costs. Therefore, there is a cost that is vital to ensure that logistics

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is taken care of efficiently and competently through the most suitable

distribution of resources along the supply chain.
At the same time, there can be service benefits. By appropriate integration
of demand and supply, primarily through the extensive use of information
technology and systems, retailers can offer better service to their
customers, for instance, by having fresher, better quality produce to meet
the customer demand for such products. With the help of suitable logistics,
products can have better presentational quality, can be cheaper and have a
longer shelf life, and there would be considerably fewer occasions of stockouts. The reaction time to a sudden eruption in demand can be improved
drastically by using information transmission and broadcasting technologies.
If operating adequately, a good logistics system can reduce costs and
improve service, while providing a competitive edge to the retailer.

The logistics imperative

Retailing and logistics are related to product availability. This has been
described as getting the right products to the right place at the right time.
However, this description does not justify the amount of effort that has to go
into a logistics supply system and the number of ways that supply systems
can go wrong. The statement seems to suggest that logistics is a simple
and easy process. However, it is not an easy process. The real trick of
management is in making logistics appear easy, day in and day out, while
reacting to quite unpredictable consumer demand. Therefore, the logistics
managements task initially involves managing the components of the
logistics mix. We can identify five components:
1.

Storage facilities: These include warehouses or distribution centres or

stock rooms of the retail stores. Retailers handle these storage facilities
to keep stock in anticipation of or to react to the demand for the
products.

2.

Inventory: All retailers hold inventory to some extent. The significant

issues for the retailers is the quantity of stock or inventory (finished
products and/or components) that has to be stocked for each product
and the place of this stock in meeting demand.

3.

Transportation: Most products have to be transported in some way at

some stage of their journey from production to consumption. Therefore,
retailers have to administer a transport operation that could involve

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different types of transport, different sizes of containers and vehicles

and the arrangement and accessibility of drivers and vehicles.
4.

Unitisation and packaging: Consumers generally buy products in

small quantities. They sometimes make purchase decisions on the
basis of product presentation and packaging. The main concern of
retailers is to develop products that are easy to control in terms of
logistics and not too costly to package or handle, yet retain their selling
ability on the shelves.

5.

Communication: To get products to where retailers need them, it is

necessary to have information about not only demand and supply but
also volumes, inventory, prices and movements. Therefore, retailers
have become more involved with encapsulating data at suitable points
in the system and utilising that information to have a more effective and
professional logistics operation.

1.3.1

Retail transportation

The management of transport assumes significance in case of direct store

deliveries, as this becomes a complex process if multiple vendors are
involved. To handle this issue, some retailers have dedicated a logistics
function that tracks the routes and schedules of transportation. This
computerised system incorporates information about store sales, road
conditions and other transportation-related constraints to develop the most
efficient way to transport the product to the store. Therefore, stores are
provided with an accurate estimate of the time of arrival of products at the
store. This also helps in maximising the utilisation of transport vehicles.
Reverse logistics is the backward flow of products from the customer to the
store to the warehouse and back to the vendor. Reverse logistics is not a
simple task. The products sent back may be damaged or without their
original packing, resulting in special handling needs. Transportation costs
may be higher, as the returned product may be in small quantities. Some
retailers may move some of the returned merchandise for online sales, and
ensure their sales.
Sears, for example, has sold several hundreds of products online using
eBay.com and has recovered, on an average, the double of what it would
have, had it used other liquidation channels. A third party distributor, Genco
Distribution Systems, collects products from Sears, inspects it and displays

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it on eBay without mentioning the name of Sears. After the auction, Genco
packs and ships the products to the customers.
To overcome the problem of long waiting hours in distribution, a quick
response system was developed, where all the stakeholders actively shared
information. Point-of-Sale (POS) systems were installed and data on the
sold products was shared using the electronic data interchange (EDI). The
retail industry adopted the Universal Product Code (UPC).
The quick response system incorporates feedback and information from the
marketing and sales teams on promotions, discounts and other schemes to
enable manufacturing and distribution in a planned manner. Planned
distribution results in lower costs and speedy product availability. With Quick
Response (QR) systems, stores can negotiate direct delivery to the stores,
and the vendors deliver products that are ready to go on to the shop floor
rather than the warehouse.

1.3.2

Issues in retail logistics

The various issues in logistics depend on the different types of logistics. The
main types of logistics are listed below:
i.

Procurement logistics: This type of logistics includes activities like

planning requirements, conducting market research, evaluating make or
buy decisions, managing suppliers and placing orders. The objective of
procurement logistics is to maximise efficiency and minimise costs.

ii.

Production logistics: This type of logistics is the bridge connecting

procurement and distribution logistics. The objective of production
logistics is to utilise the available production capacities to produce the
goods required by the distribution logistics. This involves planning
layout, production and control.

iii. Distribution logistics: This type of logistics is concerned with the act
of delivering finished products to the customer. This involves
processing orders, warehousing the products and transporting the
product to the customer. This type of logistics is important, especially
since production quantities vary over a period of time and with the
demand.
iv. After-sales logistics: This type of logistics deals with the services and
supply of spare parts required after the product is sold, in order to
support customer service.
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v.

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Disposal logistics: This type of logistics relates to the disposal of

waste produced during the operational processes of a business. The
objective is to minimise the cost of logistics and enhance service levels.

vi. Reverse logistics: This type of logistics involves the reuse or return of
products and materials. This includes the management and sale of
extra or surplus products, as well as those products returned by the
customer to the supplier for various reasons.
vii. Global logistics: This type of logistics deals with the global nature of
businesses. It governs the logistic flow of products across international
borders.
viii. Domestic logistics: Logistics management is defined as the function
that plans, executes and controls the efficient forward and reverse flow,
including the required storage in between of goods, services and
related information, between two points that are normally referred to as
the point of origin and the point of utilisation or consumption, in order to
meet the customers demand.
The Council of Supply Chain Management Professionals (CSCMP) explains
logistics management as management activities that include inbound and
outbound transport management, fleet management, handling of
warehousing materials, order fulfilment, stock management, planning of
demand and supply and management of third party logistics service
providers. To varying degrees, logistics also comprises customer service,
procurement, planning and scheduling of production and packaging. Logistics
management comprises all levels of planning and implementation, whether it
is strategic or operational. It integrates logistics with other functions, including
marketing, sales, manufacturing, finance and information technology.
The issues in logistics are attributed to its key components, which can be
divided into two categories:
a.

Core activities: These take place in all supply channels and contribute
the most to the total cost of logistics, as they are essential for effective
logistics. These activities are:
i.

Customer service: The issues that arise are mainly related to

customer satisfaction or dissatisfaction.

ii.

Transportation: The issues that arise are attributed to delays in

the transportation of products.

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iii. Inventory management: The issues that arise here are related to
higher- or lower-than-desired inventory levels.
iv. Information flows and order processing: The issues arising here
are basically relay of insufficient or inaccurate information.
b.

Supporting activities: These activities include:

i.

Warehousing: This includes determining space, planning layout of

stock and organising the placement of stock. The issues arising
here are related to non-optimisation of warehousing space.

ii.

Material handling: This includes selecting equipment, setting up

order-picking processes, making storage policies and implementing
efficient retrieval mechanisms. The issues here are related to
wrong products being picked up or mishandling of products leading
to damage.

iii. Purchasing: This includes selecting vendors, deciding the time of

purchase and deciding the quantities to be purchased. This aspect
is responsible for issues, like the selection of wrong vendors or
non-explicit terms of purchase.
iv. Packaging: This includes designing and packaging to facilitate
handling and storage while protecting the products from damage.
The issues here are mostly about inadequate packaging.
v.

Operational coordination: This includes specifying quantities,

informing the sequence of procurement and scheduling supplies.
Inaccuracies and insufficient information are mostly the types of
issues that arise at this stage.

vi. Information handling: These include collecting information,

storing the information, analysing data and establishing information
flow control systems. The issues arising here include non-capture
of relevant information or a misleading analysis of the information
at hand.
Logistics is the function of an organisation, which manages the flow of
products, services and information from the point of origin or supplier to the
destination point or the customer. This comprises four basic elements
supply, support, distribution and returns. With advances in operational
techniques and information technology, there has to be an active exchange
of information amongst the elements to achieve the goal of logistics, which
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is delivering the right product of the right quality in the right condition at the
right time to the right place at minimum costs to ensure high customer
satisfaction levels.
Logistics focuses on the actual transportation and storage of goods while
dealing with inbound and outbound freight, warehousing, material handling,
delivery, coordination, transport routing and scheduling and management of
other logistic processes.
Logistics is like a piece of a mosaic puzzle, which when put in the right
place, completes the supply chain picture. Logistics is also known as
materials management, channel management, distribution management
and logistics management.
SCM can include inventory management, material management and
production planning in its concept. Logistics includes forecasting and
demand management.
SCM is a larger concept that encompasses logistics management among
the members of the supply chain. In addition to the flow of goods from point
A to point B, SCM also involves supplier relationship management, logistics
partner relationship management and customer relationship management
using strategic alliances, ensuring rigorous resources and information
exchange. The objective of SCM is to add value to the relationships
between different entities by synchronising the processes of each of the
partners involved in the relationship.
Supply chains cover all dimensions of sourcing and procurement. They
establish the links that connect businesses to each other.
Another major issue with logistics is that it may affect the business in more
than one way. Less than optimum logistics may lead to increased costs and
low customer service levels. On the other hand, efficient logistics would
serve to reduce costs for the business and increase customer service levels
thus increasing profitability. There are four types of cost trade-offs that
should be considered while designing a logistics system that would
generate a competitive advantage. These are:
1.

Within distribution elements: For example, using random storage

locations can result in better storage of products, but it is more timeconsuming while order picking. In comparison, using fixed locations in a
depot reduces the picking time but may not be as good for storage.

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2.

Between distribution elements: For example, an organisation may

enhance the robustness of packaging, thereby increasing its cost, but it
may discover better savings through fewer breakage and damage of
products during storage and warehousing.

3.

Between organisational functions: For example, a longer production

run may reduce the cost of production per unit of product but would
result in the company incurring higher warehousing costs, as the
demand may not be that high.

4.

Between the organisation and other organisations: For example,

the delivery of products directly from the manufacturer to the retail store
may have different cost implications from delivering the product to the
retailer via a warehouse.

Broadly, logistics consists of two directions of flow, inbound and outbound.

Inbound logistics focuses on procurement and coordination of inbound
movement of raw materials, spare parts or finished products from the
supplier to the manufacturing location where the product needs to be
processed or the movement of finished product from the manufacturer to the
retail store. Outbound logistics relates to the movement of the product to the
end customer.
Issues in logistics can be analysed by breaking down the function into its
components:
1.

Transportation: Mode of transport, freight consolidation, route

planning and vehicle scheduling.

2.

Inventory management: Short-term forecasting and product mix,

including number and size.

3.

Information flow: Claims processing, orderinventory interface,

information transmitting means, data analysis and control systems.

4.

Warehousing: Decisions on just-in-time, pullpush techniques, space

allocation, stock placement and warehouse configuration.

5.

Material handling: Equipment selection, storage practices, orderpicking and retrieval processes.

6.

Procurement: Purchase quantities and purchase timing.

7.

Protective packaging: Handling, storage and transportation of

materials.

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Certain components are present in every logistic channel, whereas others

are menu-driven, based on the requirements of the customer. The ideal
logistics mix will be designed in order to service the customer in the best
possible way. The cost of logistics will change depending on the logistics
mix availed by the customer.

1.3.3

Managing retail shrinkage

Retail shrinkage is basically the reduction in inventory due to loss or

damage. The reasons for loss are many, like shoplifting, theft, non-theft
shrinkage, etc. You will study about these reasons in detail in the later units
of this book.
Some of the common causes of merchandise spoilage that fall under nontheft shrinkage are:

Wrong or irresponsible handling of merchandise. This can be managed

by training employees on merchandise handling techniques.

Water damage and the presence of dampness or moisture around the

area where the merchandise is stored. This can be managed by
ensuring that no moisture seeps in anywhere near the location where
merchandise is stored. This may involve asking the maintenance
department to correct the moisture causing factors.

Dirt and dust in the storage areas. This can be managed by proper
housekeeping and making schedules to ensure regular cleaning.

Undesirable temperature and humidity. This can be managed by

ensuring proper ventilation and air conditioning to control temperature.

Contamination of the products by other products due to close proximity.

This can be managed by ensuring segregation of products.

Rodents and insects and other forms of infestation, like fungus. This can
be managed by regular pest control and fumigation.

Incorrect sequence followed for issuing merchandise. This can be

managed by training the staff on processes related to the issue of
merchandise.

Fire incidents can be managed by training the staff on fire prevention

methods and fire control techniques, including using the fire extinguisher
and measures to take in case of a fire, usually done as a fire drill.

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Sources of shrinkage
The goal is to maximise profits by reducing inventory shrinkage, essentially
the value of missing inventory. Normally, retailers try to keep shrinkage to
less than1% of the inventory value.
Shrinkage is divided into five categories:

Employee theft

Shoplifting

Administrative error

Vendor error

Internal handling damage

Incorrect material in warding

System issues

The first two factors account for about 75% of the total shrinkage, which is
why most retailers efforts are directed at reducing incidents attributable to
these two factors. Recently, credit card thefts have also gained notoriety as
a cause of shrinkage.
The number of stolen credit cards in retail stores can be equal or more than
that of the online retail websites. Usually, this is due to several reasons.
Retailers have generally relaxed their processes for checking credit cards in
order to shorten the time customers spend at the cash counter. Also,
purchasing commodities first hand provides the credit card thief some
inscrutability, as against providing a mailing address for an online trade.
Most retailers are not accountable for the use of stolen cards, unless they
have chosen to override the PIN and accept the signature of the customer
instead.
Retail shrinkage can be controlled through:

Exception-based reporting (EBR)

Closed-circuit television (CCTV) cameras

Electronic article surveillance (EAS)

Two-way radio sets

Point-of-sale

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Exception reports

Electronic journals

Cash office audits

Ink tags

Ceiling mirrors

Bottom of basket

Consent searches

Viewing towers

Integrity shopper

Facial recognition

Unit 1

Self Assessment Questions:

6.

The objective of procurement logistics is to maximise efficiency and

_______ costs.

7.

All logistics activities can be divided into two categories, the core
activities and the ____________ activities.

8.

The full form of EBR is ________ _______ ___________.

9.

The full form of EAS is __________ ________ _________.

10. Holding stock or inventory in warehouses, just in case it is needed, is

an extremely costly activity. (True/False)
11. Reverse logistics is the backward flow of products from the customer,
to the store, to the warehouse and back to the vendor. (True/False)
12. The goal is to maximise profits by reducing inventory shrinkage,
essentially the value of missing inventory. (True/False)
Activity 2:
Identify the importance of managing logistics for a grocery store.

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1.4

Unit 1

Summary

In this unit, you have studied about the concept of supply chain.
A supply chain refers to a chain of activities and processes that help in the
movement of a product from its raw stage to the final customer by going
through a series of value additions. The objective of a supply chain is to
ensure that the right product of the right price reaches the right customer in
the right condition and at the right time and place.
An effective supply chain helps retail stores to reduce time-to-market the
product and time-to-service the customer, as well as apply the JIT and
Collaborative Planning Forecasting and Replenishment (CPFR) systems.
Some of the supply chain functions that impact warehousing include the
management of inbound transport, the receipt, the inspection and storage of
merchandise, and making the merchandise ready for sale.
Supply chain management (SCM) is the integration of business procedures
from end consumers and the suppliers offering the products, services and
information that provide value addition for the customers. The retail logistics
management task initially involves the components used in managing the
logistics mix, which includes storage facilities, inventory, transportation,
unitisation and packaging and communications.
The main types of logistics are procurement logistics, production logistics,
distribution logistics, after-sales logistics, disposal logistics, reverse
logistics, global logistics and domestic logistics. The activities of logistics
can be divided into two categories, namely core activities and supporting
activities. Core activities include customer service, transportation, inventory
management and information flows and order processing. Supporting
activities, on the other hand, include warehousing, material handling,
purchasing, packaging, operational coordination and information handling.
The four types of cost trade-offs considered while designing a logistics
systemwhich would also help in providing a competitive advantageare
within distribution elements, between distribution elements, between
organisational functions and between the organisation and other
organisations.
Retail shrinkage is the reduction in inventory due to loss or damage. The
reasons for the loss are many, like shoplifting, theft, non-theft shrinkage, etc.

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1.5

Unit 1

Glossary

Let us have an overview of the important terms mentioned in the unit:

Cash office audit: An audit that includes counting of the cash from
transactions at the retailer's registers.
Ink tag: A tag is used mostly by clothing retailers.
Ceiling Mirror: A mirror that allows loss prevention investigators to watch
activity in a high theft-prone area without being seen.
Bottom of basket loss (BOB): A loss that occurs when an item is placed
on the lower tray of a shopping cart.

1.6

Terminal Questions

1.

Describe the impact of supply chains on retail stores.

2.

Describe the impact of supply chains on warehousing.

3.

Explain the components of logistics mix.

4.

Enumerate the issues in retail logistics and list the components they
can be attributed to.

5.

Describe any three ways of managing retail shrinkage.

6.

List the types of non-theft shrinkage.

1.7

Answers

Self Assessment Questions

1.

General Agreement on Tariffs and Trade

2.

Universal product code

3.

True

4.

False

5.

True

6.

minimise

7.

Supporting

8.

Exception-based reporting

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9.

Unit 1

Electronic article surveillance

10. True
11. True
12. True

Terminal Questions
1.

Refer section 1.2 Supply Chain Impact on Stores and Warehousing

that describes the impact of supply chains on retail stores.

2.

Refer sub-section Impact on warehousing under section 1.2 Supply

Chain Impact on Stores and Warehousing that describes the impact
of supply chains on warehousing.

3.

Refer sub-section The logistics imperative under section 1.3 Retail

Logistics that explains the components of logistics mix.

4.

Refer section 1.3.2 Issues in retail logistics that enumerates the

issues in retail logistics and lists the components they can be attributed
to.

5.

Refer section 1.3.3 Managing retail shrinkage that describes any

three ways of managing retail shrinkage.

6.

Refer section 1.3.3 Managing retail shrinkage that lists the types of
non-theft shrinkage.

1.8

Case Study: Profit of ABC Pvt. Ltd. by Reducing Shrinkage

A fast-growing retail chain, ABC Pvt. Ltd, was exploring a variety of

alternatives to reduce shrinkage, which was a significant part of the costs.
The aim was to reduce the shrinkage by 20%, which would translate into a
profit of ` 20 lacs.
New inventory systems, RFID tags and front-door cameras were being
tested at various locations. While each initiative seemed effective, they were
getting different impact levels of the different initiatives at the test locations.
Moreover, each initiative required a certain expense. The management was
hesitant to invest more until the results could be understood better.
The company brought in experts on shrinkage control who studied the
shrinkage data and the effect of the initiatives that the company had
implemented so far. They isolated the true impact of each initiative. They
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quantified the minimum shrinkage loss quantum that must occur at each
location to justify the investment in a shrinkage control initiative.
They segmented the data on demographic, competitive and other attributes
to isolate the reasons for differences in impact.
It was seen that while cameras were mostly effective, the disparities could
be attributed to specific customer segments that were uncomfortable with
this technology. Owing to this nature of the customer segment, fewer buyers
were purchasing from the stores and the sales were going down. This
reduction in sales was more detrimental than the cost of shrinkage incurred
at that store.
Thus, the management developed a rollout plan that addressed each store
in a manner that suited its individual profile, including that of its customers.
Automated models predicted the impact of each initiative store-wise,
thereby determining the right shrinkage control initiative for each store.
By using the recommended rollout plan, ABC was able to achieve a
reduction of 20% in shrinkage and a ` 20 lac profit.
Questions:
1.

How did ABC reduce its shrinkage?

2.

What are the reasons for non-theft shrinkage?

Reference and Suggested Readings

Emmett, S. (2005), Excellence in Warehouse Management: How to

Minimise Costs and Maximise Value. West Sussex, England: John Wiley
& Sons Ltd.

E-References

http://www.scmr.com/article/warehousing_efficiency_and_effectiveness_
in_the_supply_chain_process

http://www.citeman.com/10109-retail-logistics.html

http://www.nitl.org/spring-policy06/ErikAutorNRFPresentation.pdf

http://www.fibre2fashion.com/industry-article/7/652/retail-shrinkage1.asp

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