Shoplifter Profiling: A Retail Loss Prevention Tool

Chris E. McGoey

Does Shoplifter Profiling Exist?

Do retail store loss prevention personnel use profiling tactics as a means of determining which customers are most likely to shoplift? The answer is, undeniably, yes. Shoplifter profiling is a loss prevention technique that many retailers are practicing silently in an effort to reduce inventory losses. Does that seem shocking? It shouldn’t. Large marketing firms and national advertising media use profiling every day as a means to improve their efficiency of being able to predict future behavior of consumers.

Can You Judge a Book by Its Cover?

If you think about it, the art of profiling people is part of our daily lives. It is how we judge who is friendly, who is dangerous, who is honest, and who is compatible with our values. The personal attributes of appearance and personality are definitely intertwined in our decision-making process for how we first perceive the image of people we meet. Usually, our initial impression of people changes once we get more information about them. It’s easy to be fooled by first impressions. People know how to dress for success and present a positive image when necessary. Similarly, most people have experience being treated differently when dressed up in nice clothes compared to when they looked unkempt. The critics of shoplifter profiling complain that first impressions gained by appearance alone may be incorrect or blinded by a biased stereotype.

Profiling as a Matter of Policy

Most corporate legal and human resource departments fear any mention of the words “shoplifter profiling,” let alone the practice of it. They are more likely to issue a policy prohibiting the use of customer profiling and forbid discussion of its benefits in training materials. To many in those protective professions, “shoplifter profiling” is synonymous with the words “bias” and “discrimination.” Although this fear is largely baseless, it is not totally unfounded. There have been some high-profile cases where misguided store security officers used poor judgment by harassing shoppers seemingly because of their race. In the past decade alone, several national retailers were embarrassed in the media after accusations of racial profiling were alleged by those wrongfully detained for shoplifting. These retailers further suffered from a series of multimillion dollar lawsuits alleging civil rights violations, false arrest, and negligence claims. After all this negative exposure, you would think that shoplifter profiling is dead … it isn’t.

Profiling Is a Naturally Occurring Act

All of us naturally profile the people we meet every day. We constantly make subliminal judgments about people based on their appearance, personality, and conduct. Refusing to talk about it or forbidding the practice in a corporate policy is a futile attempt to mask the exercise of human nature. There is no harm caused from the silent opinions that we all form or the judgments that we make about people we meet. The concept of customer profiling sounds like a valuable tool that every retail loss prevention professional should learn to hone. After all, profiling is a proven tactic used everyday by law enforcement as an efficient method for quickly identifying persons or places likely to be involved in crime. Virtually all investigative agencies use criminal profiling to narrow the field of possible suspects. Why shouldn’t retail loss prevention professionals be able to do the same?

Profiling by Another Name

Store inventory control is a common retail store practice used to capture data to track merchandise movement from receiving to sales. This includes a computer-aided system of monitoring physical inventory with point-of-sale and purchasing cross-checks that will keep a progressive store manager ahead of the shrinkage curve. We call this “inventory” and “sales analysis” rather than “inventory loss profiling.” These data, when analyzed, provide both a quantitative and qualitative basis for determining where, when, and how inventory shrinkage has occurred and provide a clue where to focus preventive efforts to curb future losses. So what’s wrong with loss prevention professionals applying a similar business profiling strategy to prevent shoplifting?

Shoplifter Profiling as a Strategy

Retail loss prevention professionals should be thoroughly familiar with store inventory loss data, as well as knowledge of shoplifter demographic data. Upon request, the best loss prevention professionals can tell you, with a good degree of accuracy, where the high-theft areas are located, what product lines are targeted, on what days of the week, the most active times of day, and who is committing the crime. In addition to objective data, experienced loss prevention agents have developed shoplifter profiles. This includes a list of shoplifters’ favorite theft tools of the trade, theft locations, and methods of operation. Profiling shoplifters in a business-like manner makes perfect sense. Without an organized plan, store security personnel will wander the store hoping to randomly spot a shoplifter in the act. This approach is not only highly inefficient, but it also puts pressure on the security officer to be productive. Undue pressure to make arrest quotas is what contributes to bad judgment and bad stops. As you can imagine, profiling shoplifters based on an objective business model using actual incident loss data is preferable to relying on unschooled officer instinct and emotional pre-judgment.

For shoplifter profiling to be used as a business model, store security officers should be trained to look beyond shopper appearance alone and focus on shoplifter behavior. Shoplifter profiles can be effective when compared to the behavior of other shoplifters observed in the past in similar circumstances. Obviously, the life experiences of the observer have an effect on his perception of the conduct of people with different backgrounds. Growing up or working in a prejudiced environment can color one’s perception of reality. An observer with more training and experience coupled with a more diverse background is more likely to categorize people broadly based on conduct rather than narrowly based on a single characteristic such as race.

You Can’t Manage What You Don’t Measure

Like anything else, the practice of shoplifter profiling can be abused by biased store security personnel, especially when exercising their power and authority to detain customers based merely on suspicion. For example, it should be considered a red flag if the store shoplifter photo gallery consists only of people of color or only of one sex or only of one age group. A prejudiced security officer might focus surveillance habitually on the race of a customer as an indicator of suspicion. When this occurs, there is a probability of having unreported bad stops as well. In the eyes of the law, racial profiling is considered disparate treatment of the public and can be the basis for a civil rights lawsuit alleging racial discrimination.

Racial profiling is the illegitimate practice that demands justification by store loss prevention agents who focus on ethnic appearance rather than conduct. During litigation or corporate investigation, a retail store might be required to justify a pattern of ethnic shoplifter detentions. This is usually done by studying prior incident reports, videotapes, and customer demographic data in an effort to prove or disprove that irregularities occurred. During this process, some retail store chains have been surprised to learn that their incident records and video surveillance tapes were either incomplete or corroborated the alleged discriminatory acts. In either case, the finding will prove that supervisors are not reviewing incident reports with a trained or unbiased eye. Mark Twain once said, “It ain’t what you don’t know that hurts you, it’s the things you think you know that really ain’t true.” Since store loss prevention departments are not considered profit centers, security departments may not be required to produce detailed incident reports and statistics for management scrutiny. It is a business reality that you can’t manage what you don’t measure. It is a litigation reality that you can’t defend what you are unable to prove.

Exclude Out as Well as Include In

Shoplifter profiling can further be enhanced and solidified by studying store apprehension demographics and inventory loss data. Armed with this knowledge, a loss prevention specialist can scan the store more efficiently by excluding possible theft suspects, certain store locations, under certain conditions, and behavior patterns. For example, one shoplifter profile suggests that people rarely shoplift while in the presence of their spouse, significant other, or parents. After these persons and their environment are scanned, their conduct might suggest that they have no intention of being dishonest.

Shoplifting is a crime of opportunity and desire. Trained loss prevention staff will spend most of their time observing those customers who demonstrate conduct where they ignore perfectly good opportunities to be dishonest. These customers would be excluded from consideration for the time being. However, a customer standing alone in a remote aisle, carrying a large shopping bag, and looking from side to side would be immediately suspicious until his conduct proves otherwise. Some areas of the store may never yield a theft due to high visibility, high traffic, or undesirable product lines. On the other hand, remote areas of the store may be very active theft locations as items are transported from other areas of the store. A customer walking in this area with a small concealable item may fit the profile of a potential shoplifter regardless of other traits.

A customer wearing tattered shoes might appear suspicious in a self-service shoe department until his conduct disproves a lack of desire to steal. A customer walking across a store carrying a small electronic item partially concealed in the palm of his hand might seem suspicious until several opportunities pass to conceal the product. In contrast, a customer wearing tailored shorts and a t-shirt may demonstrate the desire to steal but has no opportunity to conceal a large item under those clothes. Based on profiling and shopper conduct, the professional plainclothes security officer will scan thousands of customers a day and determine that 99% of them are legitimate shoppers. During this silent surveillance and profiling process, no customers are injured or wrongfully accused.

Surveillance Cannot Be Done Crudely

If trained loss prevention professionals perform shoplifter surveillance properly, most customers will never realize that they were being watched. Merchants don’t like monitoring their customers to prevent theft, but it is a matter of economic survival. The retail industry loses over $12 billion a year to shoplifters, and sometimes customer surveillance measures must be employed. No one likes being watched or made to feel untrustworthy. Knowing that you are under surveillance is an uneasy feeling and exacerbates customer relations. A problem arises when untrained store security staff undertake the task of customer surveillance and do so crudely. Common customer complaints about retail store security have to do with the perception of being stalked throughout the store in an effort to intimidate them.

Racial Profiling

Racial profiling is an improper and illegal practice based on the mistaken belief that certain ethnic minority groups are more likely to shoplift than others. Because of this misguided belief, store employees will focus their surveillance on the color of a customer rather than their conduct. Racial bias can blind store personnel and cause them to monitor only the ethic minorities and ignore the real source of inventory losses. Racial profiling eventually leads to a pattern of false theft accusations, wrongful detentions, and harassment when no real probable cause exists. The result is that a particular ethnic group will be made to feel as though they can’t be trusted and are unwelcome in the store. African Americans and Latinos have called it “shopping while black or brown.” Unless management corrects the wrongful conduct, civil rights violations will occur, and false arrest lawsuits will follow, along with the damaged reputation of the retailer.

Most retail inventory loss statistics have shown that the majority of shoplifters are of the Caucasian race. To concentrate surveillance on minority customers is not only improper, but also is an ineffective method of controlling shoplifting losses at most locations. The thought of racial profiling is distasteful. A 1999 Gallup poll confirmed that 81% of Americans disapprove of the practice. Despite this belief, the same poll indicated that &5% of African-American men said they had been victims of racial profiling while shopping. These polls and other media reports are what give the term “profiling” such a negative connotation. In some circles, any mention of the term “profiling” is tainted from the onset with distrust.

Written Policy May Not Be Enough

Most major retailers have published broad policies against discriminatory acts, but few have specifically addressed shoplifter racial profiling by its security personnel. Not surprisingly, incidents are occurring, which begs the question of how much racial profiling exists in retail stores? For example, in one major department store the security staff used radio codes (code-3) as an alert any time a Black shopper came into a sales area. In another store, 90% of the shoplifting apprehensions were of ethnic customers where the store demographic reports showed only a 15% minority customer base. And in still another store, security officers told sales associates to call them any time a minority shopper entered the sales area. Antidiscrimination policy needs to be put into practice and enforced at the security officer level for it to be effective.

Hiring, Training, and Supervision Are Critical

The only way to eliminate the illegal practice of racial profiling is to prohibit it from the top level of management. Retail stores need to have clearly defined and articulated policies to guide security staffers away from practicing racial profiling and must have a zero tolerance for abuse. The hiring process is a good time to screen out poor candidates who seem predisposed to prejudice. Comprehensive retail security training is absolutely necessary to assure that employees know how to perform the job objectively, lawfully, and with due care. Off-duty police officers working as store security need training too. You can’t assume that they understand the mechanics of shoplifting or that they will act appropriately and fairly toward all customers in the retail setting. Off-duty police officers must follow store rules when on the clock and not resort to conflicting street tactics when dealing with retail customer transactions. During the training phase, new loss prevention personnel should be taught how to observe customer conduct, use store loss data, and not base surveillance decisions solely on the race of the customer. Supervisors should always be on the lookout for signs of prejudice in day-to-day conversation and in written reports. Misconduct should be addressed swiftly. If racial profiling becomes routine in shoplifter surveillance and detentions, then it is because store management didn’t care enough to correct the problem or instead chose to ratify the behavior.

Conclusion

The concept of shoplifter profiling is a valuable tool that every retail loss prevention professional should learn to hone. Profiling shoplifters is not an evil undertaking in the hands of trained professionals. Shoplifter profiling can be an efficient way to focus on the sources of inventory shrinkage using a store business model that is supported by actual loss data, incident reports, and based on the behavior of other shoplifters observed in similar circumstances. Maintaining accurate business records will allow supervisors to monitor success. These same records will provide an adequate basis to investigate or defend claims of alleged misconduct.

Shoplifting

CAS, JHC

The subject of retail crime cannot be broached without mentioning shoplifting, which is generally recognized as responsible for over $10 billion in annual losses to retailers, which represents about one-third of all inventory shrinkage in this country. Shoplifting has been the subject of a number of books, the most current of which is Shoplifting: Managing the Problem, published by ASIS International in 2006. The book you’re presently reading, by its very nature, encompasses the broader topic of retail crime in general and must necessarily treat shoplifting with less depth. Those students, researchers, trainers, and practitioners who need to focus on the subject with more specificity should go to a book which devotes its full attention to the subject. Yet much information is nonetheless contained in this work, so let your fingers walk through the index. Whereas a single book has all the information packaged together, much of the same information may be found in this book. The term “shoplifting” itself tends to mean different things to different people; hence, a definition is in order.

Shoplifting is the theft of merchandise from displays, presentations, or otherwise available to the public, in a retail store, committed by a person who is or appears to be a customer, during the hours the store is open to the public.

A store employee who steals merchandise on the job is not a “shoplifter.” Nor is a vendor’s representative who steals merchandise while alone in the privacy of a stockroom while replenishing stock, or a person who breaks an exterior display window and takes merchandise, or a person who hides in the store at closing time and when the store is empty and void of people goes about and gathers up goods and then breaks out of the store. All these acts are forms of theft, but the perpetrator is not a shoplifter. Shoplifting, however, “steals the show” (no pun intended) because of the magnitude of the problem it causes. Retailers are beleaguered by an almost unending and creative mix of ways people engage in to steal. Commonly accepted and often repeated “statistics’ about this pernicious problem include

One in every 10 customers may shoplift.

60% of all juveniles have shoplifted or know someone who has.

Approximately 5,400 people are arrested for shoplifting each day of the year.

For every act of shoplifting, 35 to 50 probably go undetected.

It’s estimated 69,000,000 acts of shoplifting occur each year.

Annual shoplifting losses amount to over $10 billion.

The axiom “the best defense against shoplifting is good customer service” is as true today as when first enunciated. Recent research by a University of Florida master’s candidate has opined that a store’s design and merchandising standards can influence customer theft activity. “Wide, clear aisles, a clean, well maintained interior … with the cashier’s view unblocked by high shelves.” all contribute to minimizing shoplifting according to this research. These views have also been preached by loss prevention personnel for years but are now supported by recognized research.

Most store owners recognize that all sorts of people shoplift, and if steps are not taken to minimize the loss of profit from these thefts, they can jeopardize the very existence of the business. Thus, it is essential for profit protection that careful attention be paid not only to preventive steps but also to an analysis of where losses are occurring so that remedial action can be taken. Since shoplifting occurs on selling floors, from unsecured stockrooms, and from fitting rooms, employee awareness of the potential for loss and those steps which will minimize the temptation for customers to steal should become a major management objective.

Retailers should familiarize themselves with the various strategies and tactics for combating shoplifting. We mention various of these strategies here and suggest further interest in specifics should be directed toward any of the available resources, including books, security/loss prevention periodicals, national and local retail associations, and local loss prevention organizations. Areas which may impact shoplifting losses either positively or negatively are

Customer service levels;

Merchandise presentation;

Employee awareness;

Signage;

Display design;

Register locations;

Fitting room controls;

Stockroom controls;

Lock and key controls;

Use of CCTV;

Use of electronic article surveillance tags;

Use of other article benefit denial tags and/or techniques;

Use of uniformed and/or nonuniformed loss prevention personnel.

Management Attitudes Toward Shrinkage

We support the prevention-over-apprehension philosophy but recognize that some on-going level of shoplifting is inevitable, despite all preventative efforts. In those instances, the staff must be aware of company policy on how to deal with persons seen shoplifting. Company policy can follow one of a number of options:

1. Obtain a description of the shoplifter, write a report, and notify police.

2. Attempt to prevent the theft by making your presence known, causing the “shoplifter” to “dump” (discard) the merchandise.

3. Allow for legally detaining the shoplifter

Option 3 carries with it the necessity to make the detention legal to avoid potential civil liability and also presents a variety and/or combination of possible actions after the detention, including

Retrieve the merchandise, identify the offender, carefully document the incident, obtain a signed admission, caution the offender, and turn him loose; this procedure is known as “Warn and Release.”

Release the suspect under the condition that if he repeats the offense within 1 year, he will be prosecuted for both offenses.

Detain the suspect and after his arrest initiate criminal prosecution.

Ban the person from the store (or all company stores) for a period up to 1 year.

Initiate action to recover civil damages.

Negotiate the suspect’s enrollment in a rehabilitation/educational program designed to change the suspect’s behavior and prevent recidivism.

The necessity to make a legal detention cannot be overstated! Significant potential legal liability inures if a shoplifter suspect is wrongfully or improperly detained. The guidelines for meeting the legal requirements are contained in state criminal laws commonly known as “Merchants Detention Statutes.” These statutes, which vary from state to state, generally provide civil liability protection to the merchant if the merchant has what is legally known as “probable cause” for believing the person detained has, or has attempted to, illegally take the merchant’s property. These statutes also set other requirements and/or restrictions on the merchant’s behavior.

What Is Probable (Reasonable) Cause?

Probable cause is best defined as existing when the facts and circumstances (known to the arresting person) are sufficient in themselves to warrant a reasonable person to believe that an offense has been committed or is being committed by the person to be arrested. How can the merchant or his loss prevention operative establish probable cause? Does any degree of suspicion rise to the probable cause level? Is second-hand information sufficient to establish probable cause?

In an effort to make establishing probable cause uniform within the retail industry and remove individual interpretations and/or definitions of a complex legal concept, the industry has generally accepted the “six steps” as the standard for assuring that, to the extent humanly possible, the probable cause requirement has been met when the six steps have all been met. While the steps are not a legal requirement for establishing probable cause, they do provide an understandable, objective, and easily articulated standard easily understood by LP personnel, leaving no room for creativity in determining if probable cause exists and minimizing situations which may put the retailer at civil risk.

The “six steps” are

1. You must maintain an uninterrupted surveillance to ensure that the suspect doesn’t dispose of the merchandise.

2. You must see the suspect approach the merchandise.

3. You must see the suspect fail to pay for the merchandise

4. You must see the suspect take possession of the merchandise.

5. You must see where the suspect conceals the merchandise.

6. You should approach the suspect outside the store.

The establishment of probable cause does not mean the retailer is now out of the woods when detaining shoplifters. Merchant detention statutes, while permitting detention on probable cause of shoplifting, also set requirements for the conduct of the retailer after the detention is made. A breach of these requirements, or other conduct which is injurious to the suspect, also makes the retailer vulnerable to a civil suit for damages. What are these restrictions on the retailer’s conduct?

Merchant detention statutes generally permit detention for the purpose of conducting an investigation into the ownership of the merchandise in question, and such investigation must be conducted in a reasonable manner and for a reasonable time. The merchant’s ability to search the suspect for stolen property is either prohibited or limited by these statutes, as may be the retailer’s ability to photograph and/or positively identify the suspect.

With regard to the arrest of the suspect, once it has been positively established a shoplift has occurred, we suggest you consult the appropriate state law and/or an attorney. Some states permit a “citizen’s arrest” under these circumstances, whereas others permit only detaining the shoplifter until the arrival of the police, who actually make the arrest.

There are still more areas of potential grief for the retailer when detaining shoplifters, including committing (either intentionally or unintentionally) the following torts (civil wrongs):

False Imprisonment/Arrest: The intentional, unjustified detention or confinement of a person (imprisonment); unlawful restraint of another’s person’s liberty or freedom of locomotion (arrest). Note: This may also be a criminal offense.

Assault/Battery: Unconsented to or unprivileged physical contact or privileged contact which become unreasonable. Note: This may also be a criminal offense.

Malicious Prosecution: Prosecution (civil or criminal) with malice (evil intent). To succeed, prosecution must have resulted in verdict for defendant and prosecution initiated without probable cause.

Invasion of Privacy: Invading someone’s reasonable expectation of privacy.

Defamation (Libel-Slander): Written or spoken words that tend to damage another’s reputation. Defenses: Truth, privileges (qualified and absolute)

Tortious Infliction of Emotional Distress: Intentionally and maliciously inflicting emotional distress on another.

In torts, the element of “reasonableness” is a key factor. Just what is this concept of reasonableness? Essentially, actions which are reasonable are those which a hypothetically prudent, reasonably intelligent person would consider to meet the judgment that society requires of its members for the protection of their own interests and the interests of others. Conversely, actions which outrage, vex, appear malicious or excessive, or tend to make a person angry when considering the alternatives available may be considered “unreasonable.”

Since the test of negligence or appropriate behavior when reviewing intentional torts is reasonableness, the ability to avoid unreasonableness is essential. How does someone avoid being unreasonable? Since the question of reasonable behavior is one of fact for a jury to decide, no black-and-white answer can be given. However, if a person knows the concept and limits his behavior to actions that are demonstratively necessary and prudent, and which do not exceed the bounds of propriety, and which would not be offensive to the average person under the circumstances, then chances are those actions, if reviewed, will be considered reasonable.

Malice, as mentioned earlier, is something done solely to annoy or vex; something that is done out of ill will with no justification and in wanton and willful disregard of the likelihood that harm will result. Malicious acts can never be reasonable.

May we suggest that, for a fuller understanding of the implications of these legal aspects of a shoplifting detention, you review the section “Legal Considerations” for more details.

As stated elsewhere, what may appear to be a simple process (catching a shoplifter) is really quite legally complex. After probable cause for the detention is established and all the requirements (or prohibitions) of investigating the incident are met, properly executing other actions not specified in statutes is also essential to a subsequent successful prosecution. For example, the collection, documentation, and preservation of any evidence (e.g., the stolen merchandise) is extremely important. If the collection or preservation of evidence does not meet accepted legal standards, it may be excluded from admission into evidence at the criminal trial, resulting in the dismissal of the charges against the suspect, opening the door to a possible civil suit for false arrest or malicious prosecution. Careless publication of a suspect’s arrest may violate his privacy rights; the use of excessive force may negate an otherwise totally justified arrest and result in being sued.

Because the process of dealing with a shoplifter is fraught with so many dangers unless adroitly handled, documenting the details of how it was handled takes on a vital role. An unbiased, accurate, and detailed written report of all phases of a reasonably conducted detention/arrest is the retailer’s best friend if challenged as to the propriety of his actions. A well-written, complete report is a best friend to the defense of a civil suit.

Anything else which requires mention regarding shoplifting? You bet; we’re not quite finished yet.

Consider “questionable” stops (sometimes referred to as “bad stops” or a variety of euphemisms such as NPD or nonproductive detention). However they are referred to, they are shoplift detentions where no stolen merchandise is found. Such situations are invitations for civil suits for false arrest/imprisonment unless properly and adroitly handled. Questionable detentions may result from an agent’s carelessness in simply ignoring the six-step requirement or from a “customer” who intentionally sets up a situation to appear like a shoplift, hoping the store will make a detention and set the stage for a civil suit. In either event, how such situations are handled will go a long way toward determining the eventual outcome.

We suggest that. in questionable detention situations, the following rules be followed:

1. Avoid accusatory confrontations.

2. Avoid any further physical contact with the “shoplifter.”

3. Courteously admit your mistake.

4. Disengage quickly.

The store will normally know shortly after the event whether it will result in further action by the offended customer. We suggest that the store take the initiative after such an event and contact the customer, apologize again, and see what action the store might take to set the matter right. Perhaps sending a dozen red roses or offering to send a gift certificate (in an amount which is not overly large but which will also not offend by its meagerness). Letters of apology for the inconvenience caused the customer, if sincerely and properly written, are also often helpful. Remember, the objective is to avoid getting attorneys involved and to forestall the filing of a lawsuit.

A final note on the subject of potential lawsuits: Whenever a complaint is made against loss prevention personnel or the handling by them of a specific incident, it is incumbent on store management to thoroughly investigate that complaint. One would hope that by reviewing written reports and interviewing percipient witnesses, the complaint will be shown to be unfounded. Occasionally, however, a complaint will be determined to have merit. When this is the case, it is vital that not only is appropriate disciplinary action taken against offending personnel, but that every effort be made, within reason, to satisfy the aggrieved party.

See the index for “Litigation Control”; covered elsewhere herein is the use of civil remedy or civil demand.

Shoplifting, Definition

CAS, JHC

Shoplifting is the act of committing theft from a retailer by a person who is or purports to be a customer, during the hours the store is open for business. The seriousness or gravity of the act depends on the value of the goods stolen and the method used to commit the theft; e.g., if a person enters a store with certain “tools” or devices to be used in the theft, that may constitute a felonious crime, such as burglary (as opposed to simple theft or larceny). The value of the merchandise stolen is also used to determine if theft is a felony or a misdemeanor. Employees who steal merchandise are not engaged in “shoplifting” (unless off duty and engaging in shopping, which is rare, or are in a sister store, unknown to the employees and appearing to be a customer and while therein commit theft).

Burglars who hide in a store at closing time for purposes of committing theft are not “shoplifters,” nor are those criminals who break into a store while it’s closed and remove merchandise.

Shoplifting and Organized Retail Theft

Karl Langhorst

All retailers, large and small, regardless of the type of merchandise they sell, are faced with the same problem: shoplifting. This is the theft of product by customers or supposed customers who either don’t want to pay for it or in some cases cannot afford to pay for the items they are stealing.

Shoplifting has most likely been around since about one minute after the first retail store opened. The temptation to steal is too great for some people, and the reasons they give are many. But at the end of the day, shoplifters, like employees, steal for one of three reasons: need/greed, justification, or opportunity.

Everyone has need for food, shelter, and clothing. Sometimes shoplifters steal because they simply cannot meet the needs for themselves or their family. Many times, though, people think they need something when, in fact, they just “greed” something. Maybe it is a new pair of designer sunglasses or the latest video that they can’t afford or simply just don’t want to pay for. Shoplifters will sometimes try to justify their actions to themselves and others by saying that the store can afford to take the loss. “After all, retailers make a lot of money right? What’s one less leather jacket going to hurt?” Or “Besides, last time I was in here they overcharged me on something I bought.” A very popular line from shoplifters who are trying to justify their actions when caught is “I was in a hurry and they did not have enough check stands open.”

Retailers’ best defense against controlling shoplifting is by not giving shoplifters the opportunity to steal something from them in the first place. That does not mean that all the merchandise in a store can or should be locked up. After all, customers in many cases want to see and touch what they are buying. For customers to do this, the majority of merchandise cannot be locked up in display cases or merchandised behind a sales counter.

Most shoplifters will tell you that if they are denied privacy in a store, they cannot have the opportunity to steal. One of the best defenses retailers have to combat shoplifters is attentive sales associates. Deterring shoplifters is a much more productive and cost-effective methodology in preventing shoplifting in a retail establishment than simply relying on apprehending them. Well-trained sales associates can deter shoplifters through direct eye contact and by way of positive verbal communication skills. Simply approaching shoplifters and asking them if they need assistance and letting them know that you will be in the area if they need anything can go a long way in helping to prevent theft from occurring in the first place. The simple fact is that shoplifters hate to be noticed and customers do. Through the implementation of a strong customer service program, retailers can increase their customer satisfaction ratings while at the same time reduce the amount of their losses due to shoplifting. It can be a win/win situation.

Much research has been conducted on trying to develop a stereotypical profile of the type of person who shoplifts. And for the most part, the research has reflected that anyone can be a potential shoplifter regardless of socioeconomic status, gender, age, race, or cultural background. For a retailer to develop a profile of a stereotypical shoplifter is to do a disservice to not only their patrons, but to their shareholders as well. This philosophy not only could be deemed prejudicial and result in unwanted civil litigation, but could also improperly direct the apprehension or deterrence efforts of a retailer toward the wrong group or groups of people, thereby increasing the risk of losses.

Retailers should also have in place a very well-defined set of guidelines on how to address situations in which shoplifters become physically confrontational. As the likelihood of civil litigation and physical harm to employees increases, it is becoming even more important to make sure that associates are well educated and trained on how to deal with physical altercations with shoplifters. Over the years many retailers have transitioned away from the traditional approach of detaining shoplifters “at any cost” and replaced it with a more nonconfrontational, verbal-force-only approach. The likelihood of physical assaults at the hands of shoplifters seems to be a growing trend. Many would argue that this is as a result of the evolving of shoplifters from what has been perceived as the stereotypical person who has fallen on bad times and is just trying to support his family to a much more modern and realistic portrayal of shoplifters who are known criminals, drug users, and in some cases are actually members of organized retail theft rings. Regardless of the reason why a nonphysical confrontational methodology is being adopted by many retailers, the positive outcome is that the industry is starting to realize that these types of situations have an increased propensity for violence, and that at the end of the day there is absolutely nothing inside any retail establishment that is worth someone’s life.

However, retailers cannot afford to avoid taking an aggressive stance toward shoplifters. A relatively new and growing trend in shoplifting is the emergence of organized theft rings. For years, most shoplifters have worked independently of each other or in loosely knit groups. This is no longer the case. Organized retail theft today is becoming an increasingly growing problem that is starting to unite the retail industry. Estimates vary on the losses to the industry, but most sources indicate that it is at least $30 billion annually. Whatever the amount, most retailers have determined that the traditional communication barriers that have been in place in the past between retailers have allowed theft of this type to continually grow to the extent that those barriers are now being slowly dismantled. Professional shoplifters or “boosters” have grown increasingly organized in their efforts to shoplift merchandise from retailers. Much like a retailer’s regular customers, boosters enter into stores with a shopping list of goods to steal. They obtain these lists from the individual or individuals called “fences” who buy the stolen property from them. Fences understand what commodities are most desired by the consumer market and as such will give detailed instructions to boosters on what they will buy from them and how much they will give them for the product. Once the fence receives the product, he will dispose of it in several different manners. Flea markets and Internet websites are two popular locations to dispose of stolen merchandise.

Additionally, some fences are sophisticated enough that they have developed a distribution network to repackage the stolen product so that it appears to have come from the original manufacturer. Then they resell it on what is called a “diverter” market. This market is a legitimate means in which retailers buy product from other retailers who have overstocked on a particular item. However, it also provides an easy avenue to dispose of stolen product as well, and sometimes unsuspecting merchants buy product from an illegitimate diverter that was stolen from their own stores. Boosters typically work in a team when they target a retail establishment. Usually, there is a driver waiting in the parking lot for the team that goes inside. This driver is in constant communication via cell phone with the team “lookout” whose job is to spot the product in the store to be stolen and look for any security devices and store personnel who might prove to be a hindrance to the theft. Once the lookout determines that it is safe for the booster or boosters to steal the product, he will signal them as well as signal a “blocker.” The blocker acts as a legitimate customer and will usually position himself between the booster and any detected obstacles to the theft such as a CCTV camera or store personnel so that they act as a visual screen. The booster will then load the product to be stolen into his clothing, purse, backpack, or even a legitimate store bag he brought in with him.

Sometimes boosters will even utilize aluminum foil to line a purse or backpack because it prevents electronic article surveillance systems that many retailers use from detecting the radio frequency tags that are typically placed on high-theft products. These tags are deactivated at the register when the product is purchased and, when not deactivated, cause an audible alarm to go off at the store exit, alerting management that merchandise that still has an active tag on it is being removed from the store.

If boosters believe they have been detected by store personnel they will typically abandon the stolen product and leave the store. However, some boosters, because of gang affiliations, drug use, and/or lengthy criminal histories, are becoming increasingly violent in their response when approached by store personnel. This is another reason why retailers should have trained staff who understand the risks that are inherent in dealing with shoplifters and this type of criminal activity.

Because of the increase of shoplifting and the damage that it can cause to the profitability of a company, many retailers have sought out assistance from law enforcement agencies to help in combating this problem. By continuing to educate and communicate with law enforcement about the problems of shoplifting, retailers increase the likelihood that a cooperative partnership can be formed that will help to reduce the occurrence of this crime in their businesses.

Shortage Awareness Programs

CAS, JHC

Employee awareness of shortage (shrinkage)—its causes and what can be done to minimize it—is generally agreed to be an essential part of shortage reduction efforts. Indeed, without employee awareness and involvement, an effective effort to reduce inventory shrinkage would be impotent.

Shortage awareness programs exist to increase and heighten employee shortage awareness and encourage their active participation in store shortage reduction. The best shortage reduction programs should be entertaining and informative, encourage participation, and offer “rewards” to participating employees. We believe the thrust of any program should be grounded on the answer to the employees’ unspoken but ever present question, “What’s in it for me?” Put another way, the store leaders who create and lead shortage awareness programs must address the issue of why store associates should care about inventory shrinkage. Too many retail employees have no understanding or clue as to profitability and have a distorted understanding as to the profit margin of their employer.

There is no “best” or “recommended” shortage reduction program as long as it includes answers to “What’s in it for me?” and a clear understanding of profit and what mistakes and thefts mean in relationship to profit.

For example, with respect to “what’s in it for me?” the message or theme can be “Profit builds more stores and more stores means more supervisors and managers.”

Here’s an example with respect to understanding the significance of thefts: If a $100 item of merchandise is stolen and the store works on a 5% profit margin, the employee must be educated to understand the store must sell 20 more of the $100 items to recover the loss. There are different ways that can be done. What is done will be depend on the extent of the problem, size of the store, history of prior programs, age and tenure of employees, and ability of the program leader to establish enthusiasm.

It’s a fact that successful shortage reduction starts at the top of the management ladder with participation in and enthusiastic endorsement of reduction programs. Senior management must become active participants in such programs and demonstrate their commitment to these efforts.

The format of shortage reduction programs can be as varied as the imagination is creative. Among those ideas which have proven successful are

Shortage trivia questions;

Shortage clue games;

Shortage crossword puzzles, which may be included in a specific program or in a monthly “Shrinkage Alert” newsletter;

Morning PA announcements regarding shortage reduction;

Periodic storewide shortage meetings which should recognize specific employees who prevented a theft or discovered a serious oversight or shortage in an interstore transfer;

Formation of a shortage committee, with photos of employees on the committee posted in the break room;

Use of shortage-control-related posters (e.g., new stores are built on profits, not losses) in employee break/lunch room;

Inventory “message of the day,”, which can be posted at the employee’s entrance or announced over the store’s PA system before opening. During the day, the manager randomly asks any associate what that message is. If the employee remembers the message, he receives a $5 gift card.

The specific program or idea used is not the most important aspect of shortage reduction; rather, the program is the vehicle to generate interest, resulting in broad participation and increased awareness. While a store may have a shortage awareness week or month, the real secret to shortage reduction is a consistent emphasis on monitoring and immediately correcting those things which create shortage, such as failure to

Recognize and acknowledge customers in their areas;

Reticket mispriced items;

Account for and properly record markdowns;

Record breakage and RTV merchandise;

Record all merchandise during inventory counts;

Keep a neat and organized selling floor;

Immediately acknowledge all customers;

Control access to stockrooms;

Note and record found tickets or other indicia of theft;

Properly monitor fitting rooms;

Keep price lookup systems up-to-date;

Control markdown pens;

Properly account for interstore transfers;

Properly train new hires regarding shortage;

Control access to small, expensive, high-pilferage merchandise;

Exercise proper key control.

The ultimate goal is to achieve a storewide interest in and concern about inventory and how the collective effort of everyone will benefit the company and, in return, their role and future in the company.

Shrinkage Reduction: A Plan that Actually Reduces Shrink

David Gorman

Senior Management Sets the Tone

The tools that have generally been accepted by retailers to reduce shrinkage losses, such as EAS and CCTV, are widely available and extensively deployed. Likewise, the formation of a loss prevention or assets protection division charged with the establishment and execution of shrinkage reduction initiatives is a very common aspect of any retailer’s organizational chart. If you accept these statements as accurate, then a question is necessarily raised regarding how the wide variances in shrinkage losses between one retailer and another can be explained. If the same solutions are applied, how can the results achieved be so dissimilar? As is true with any particular aspect of a successful business enterprise, the level of involvement and support that senior management gives to the control of shrinkage is critical to the success of those efforts. Losses attributable to shrinkage, if not closely monitored and controlled, will have a significantly negative impact on the profitability and sustainability of any company in much the same way as declining revenues or escalating expenses will. Each element must be continuously evaluated with appropriate actions taken whenever results do not match expectations.

You would be hard pressed to find any member of senior management who would not respond in the affirmative if asked whether the control of shrinkage losses was critical to their business. Likewise, most would feel that their level of involvement in these efforts was adequate to establish the priority level needed to achieve the expected results. Unfortunately, this many times is simply not the case.

The key role of senior management, as relates to shrinkage, is threefold. First of all, they must be well versed in the current shrinkage trends, as well as understand the overall elements and objectives of the shrinkage reduction program. Second, they must be seen as advocates of the process. This can be accomplished by their regularly taking the opportunity to discuss specific aspects of the program which may or may not be receiving the required attention or execution level, and offering their assistance if needed. Last, they must acknowledge the results of newly completed store inventories, both positive and negative, and provide the leadership required to reestablish the commitment to necessary programs and goals.

This personal involvement by senior management in the process will place the control of shrinkage losses in its proper place along with the other challenges facing the business and clearly demonstrate that it is a priority for the management group as a whole.

Communicate Results: Both Successes and Failures

Retailers generally perform store inventories on a cycle basis between the months of January through October. This process provides the best opportunity to communicate the results of those during each of the weeks in which inventories are taken. Exactly how this communication takes place depends on each individual company.

Many companies have regularly scheduled weekly meetings which are attended by operations, merchandising, and other headquarters personnel. While the main purpose of these meetings will generally be sales and sales-related topics, they also offer the best opportunity to review both weekly and year-to-date shrinkage results, as well as analyze specific shrinkage issues and solutions. Properly formatted, each week’s inventory results can be summarized to provide a clear understanding of overall loss trends as compared to previous years. Depending on the level of detail provided by the physical inventory process itself, similar trends could possibly also be reviewed for key merchandise departments or even specific items (SKUs).

Presentations of the type described will inevitably generate comments and discussions among those present and provide an excellent opportunity for senior management and others to weigh in on the progress being made in the shrinkage effort, or the lack of it. While this type of discussion will certainly generate some level of discomfort during the meetings, it will also squarely establish shrinkage reduction as an important goal which everyone is expected to be attentive to. Where the meeting process described here is not available, the information should be provided in a report format and distributed at the end of each week. In this circumstance, consideration must be given to providing a summary (2 pages maximum) which is both informative and actionable. The first page of the summary might include bullet points of specific highlights from that week’s results. Copies of the report should be forwarded to executive management and all department heads. Executives wishing more information on specific inventories shown in this summary can then refer to the more detailed reports available. Again, this provides senior management with an opportunity to acknowledge positive results or raise questions regarding results which did not meet goals.

While the benefits of regularly communicating inventory results are fairly obvious, there is another major benefit that is not. A weekly analysis of shrinkage results, against last year, provides a continuous measurement of the effectiveness of current shrinkage initiatives. As a result, the opportunity exists for adjustments to be made where specific parts of the program are not having the desired impact, or where areas of shrinkage are identified which are not addressed by the current program. It will generally fall to the loss prevention/assets protection group to identify these opportunities and appropriate solutions. Along with this will come the need for LP/AP to coordinate with other areas of the company (such as operations or ISD) and secure their support and participation in the new initiatives.

Shrinkage—Controllable Versus Noncontrollable

Shrinkage losses for any retail organization will ultimately become a line item on the company’s Profit and Loss (P&L) statement. While these losses clearly represent an expense, they are unlike most other expense categories which can usually be tracked and monitored on a daily basis. There would be little disagreement that some shrinkage loss occurs each day during the normal course of business. However, the exact amount of that loss can only be known, and properly expensed, following a physical inventory.

Additionally, it is important to recognize that regular and detailed information for other expense items such as payroll allow store management to make appropriate adjustments in the level of spending, and thereby avoid an over-budget result. The reality is that very little can be done to avoid a shrinkage loss which has already occurred by the time it is identified. This circumstance can easily create a sense that shrinkage losses represent an expense which is really noncontrollable. Nothing could be further from the truth.

In a very broad sense, the whole discussion of shrinkage, and a programmed response to it, really starts with a company culture that believes that such losses are completely controllable; furthermore, that the progression of losses must be monitored and dealt with like any other controllable expense on the P&L. If that attitude is part of the belief system within a company, then all the things that would normally be done to keep that expense under control become clearer. If that attitude exists, management at all levels will understand the importance of their daily involvement and their personal accountability for failing to do so. If it is not, then there can be little expectation that any shrinkage reduction program will actually affect the results.

It is here that senior management plays a critical role in establishing the correct thought process.

Know Your Company’s Shrinkage Tolerance Level

It is very unlikely that a member of senior management within any retail organization would state that the company does not have a very low tolerance level for shrinkage losses. This would seem to be especially logical if you consider that losses due to shrinkage represent one of the few P&L line items for which a company receives absolutely no benefit.

At this point, however, if senior management is not setting the tone relative to shrinkage response, if inventory results are not widely communicated, and if it is not made clear whether these losses are considered controllable or noncontrollable, then it will not really matter what is said about the tolerance level. In this situation, what is really communicated is that a low shrinkage is hoped for, but a higher result is understood and tolerated.

To determine what a company’s true level of shrinkage tolerance is, you must merely observe what amount of shrinkage is required before a concern or sense of urgency is expressed. Put another way, what happens when a specific shrinkage goal is not achieved by a store, a district, or a region? In practice, if the stated goal is 1.00%, but specific concerns are voiced only in those instances in which results reach 1.70% or higher, then the true tolerance level is something just under 1.70%. This tolerance level will also more closely represent the actual shrinkage result achieved by the company than either past history or stated goals.

Changing a tolerance level within a company which has previously provided somewhat conflicting messages will require a serious commitment to do so. It is human nature to resist change. To implement a new thought process about something as potentially involved as shrinkage prevention will require an aggressive and determined effort.

Poor Performance Should Require Heightened Effort

Any effective shrinkage reduction program contains a number of elements that generally apply to all operating locations, as well as other key aspects of the business enterprise. These elements represent the basic parts of the program that are proven to reduce shrinkage, and that members of management throughout the company are expected to execute.

However, if you adhere to the business philosophy that 80% of the problems impacting the business are caused by 20% of the operation, then it would follow that those problem aspects should receive more attention than the group as a whole. Another motivation for taking this additional step is that a focus on your biggest opportunities should also provide the largest return on investment (ROI) for your efforts. As sound as this logic appears, the development of specific program elements to address high shrinkage locations and functions is not necessarily a common practice within the retail industry. In fact, it is not at all uncommon to find companies that will continue to approach solving their shrinkage problems in the same way as they always have, but somehow expect different results to occur.

Carrying on with this thought process, it is important to structure a High Shrinkage Response Plan that can be implemented whenever inventory results do not meet goal. While the construction of this plan will depend somewhat on the culture of each company and how things are best accomplished within that environment, an effective plan would normally contain the following elements. While these particular elements relate to a store location, the same thought processes could be used in a distribution center or other operation.

Executive Shrinkage Committee

One of the most effective processes any company can put in place to bring attention and change to shrinkage losses is to establish an Executive Shrinkage Committee. Members should include the CEO, COO, CFO, Head of Merchandising, and the Heads of Distribution, Internal Audit, and Loss Prevention/Asset Protection. The purpose of this committee would be to evaluate the results of, and provide support and leadership for, all aspects of the shrinkage reduction program.

This committee generally meets on a monthly schedule and reviews updated shrinkage information as presented by internal audit and LP/AP, as well as make decisions as needed to strengthen the overall effort.

Thorough Audit of the Location

The best approach to this audit would be for it to involve a combined effort between the internal audit and loss prevention/assets protection departments. The purpose of this exercise is to conduct a detailed review of all store procedures and systems which could possibly have contributed to the loss that occurred. The results must be widely communicated and used as a roadmap in the development of specific action plans for the store during the coming inventory period.

Another important aspect would be holding informal discussions with small groups of store personnel throughout the location. The exercise of asking their views of specific issues which they feel contributed to the loss will not only uncover valuable information, but will also ensure that these individuals understand their critical role in the correction going forward. In circumstances in which it is felt that personnel might be uncomfortable in sharing their views openly, a confidential survey can be administered and summarized to achieve the feedback needed.

The internal audit and loss prevention departments should also maintain a list of the common shrinkage-causing factors identified during the course of these audits. These shrinkage commonalities can then be communicated to all operating locations in an effort to correct those issues prior to future inventories and also to identify enterprisewide solutions which can easily be implemented.

An example of an enterprisewide solution would include a processing error which is commonly found as occurring during the checkin of received merchandise. Can the identified process be altered or systemized to eliminate or dramatically reduce the error’s occurrence? If so, the correction will continue to pay dividends year after year.

Action Plans Developed for Store Personnel

It is important that key personnel throughout the store understand the overall store shrinkage results as well as those specific to their area of responsibility. For example, a department manager should know the shrinkage result for his department and have specific plans to address those issues which contributed to the losses within his area. These plans are developed in conjunction with store management and are intended to keep each department focused on the specific actions needed during the coming year to improve the shrinkage performance.

Store management not only must ensure the existence of these plans, but must follow up during the course of the year to verify that the agreed-upon actions are taking place. Issues and solutions which are common to all departments should be raised on a regular basis during store meetings. These discussions serve to reinforce the importance of shrinkage reduction to the profitability of the store.

Specific Shrinkage Training for Store Management

It should not be assumed that all members of store management understand the potential areas for shrinkage within their store or how to identify and correct those issues. To provide them with the tools they will need to reduce the losses in the coming year, management should give serious consideration to providing shrinkage-related training to all management personnel who suffered losses above a specified level.

It must always be remembered that the most critical objective of any shrinkage meeting is to leave the management in attendance with an overall sense of responsibility for fixing the problem. They must also leave with a level of confidence that the things that have been covered with them during the course of the meeting will, if properly executed, improve their losses dramatically.

The manager’s sense of responsibility will come only if he perceives that his leadership agrees that he should have it. This is easily accomplished by having several senior members of management help start the meeting and address its purpose as well as the benefits that can come from the training. It is also a good idea to test the attendees on the material to be covered, both at the beginning and at the end of the training. This will provide some data as to management’s overall level of understanding of basic processes when they arrived, as well as following the training.

Time should be allotted to provide for a review of the managers’ High Shrinkage Response Plan that was developed after the inventory was completed but prior to arrival for training. This will place an additional emphasis on the seriousness of the circumstance and provide the management staff an opportunity to address any concerns they have relative to having the tools they will need to carry out their plan. It must also be understood that these meetings must be conducted in a positive and constructive manner. While it is good business practice to deal with shrinkage problems in a straightforward manner, there will certainly be managers present who arrived at the store in question either just prior to or just after the inventory. Having them feel that their abilities are being questioned over a problem that they did not create is not appropriate. They must see their responsibility as taking a problem that exists and fixing it.

Have Broad Accountability

Like many other aspects of the business, real success in shrinkage reduction is dependent on the concerted effort of a number of different areas of the company—not the least of which is the loss prevention/assets protection division, which plays a critical role that is clearly understood. For the purpose of our discussion here, however, we are going to concentrate on three other key areas: operations, merchandising, and distribution. Senior management must understand the critical role each of these areas plays and ensure that the control of shrinkage is a fundamental part of the thought process employed by each in the daily performance of responsibilities.

Operations

The operations group has the main responsibility for the overall management, control of expenses, and profitability of the stores. As has been discussed previously, a store’s shrinkage performance will directly impact profitability and, as a result, must be of paramount concern.

Operations, then, must take the leadership role in the execution of any shrinkage reduction program, including the day-to-day communication relative to this issue with all involved store personnel. While it must certainly be handled with care, the discussion of employee theft should occasionally be part of this communication. If you assume that the majority of the store’s workforce is made up of honest people, then it follows that those individuals would want to work with others who were also honest. If the management staff make it clear that they are interested in knowing about issues of employee theft and that they will protect the confidence of all individuals who provide information, then it is very likely that information will be revealed as incidents occur. Equally as important, store management must also provide constant guidance on areas of observed shrinkage that are not being addressed by the company as a whole. To accomplish this latter responsibility, store managers must feel that they are not only empowered, but also duty bound to bring these issues to the surface. Likewise, senior management must actively encourage the analysis of any issue that could potentially be contributing to loss, irrespective of departmental boundaries.

This being said, it cannot be assumed that operations should be in any way solely responsible for the success of company shrinkage initiatives.

Merchandising

While the role that operations and loss prevention play in controlling shrinkage losses cannot be overstated, there are clearly other areas that can significantly contribute to the achievement of corporate shrinkage goals. For example, an involved and supportive merchandising division can substantially enhance shrinkage performance at both the store and distribution center level. However, this can be achieved only if the senior management staff set the expectation that a portion of a buyer’s overall performance criteria will be the shortage losses within his department.

What is important to understand in this whole discussion is not that each buyer somehow must develop his own shrinkage initiatives, but that the efforts which he makes contribute to the overall shrinkage reduction plan of the corporation. In other words, the solutions which the buyer assists with should provide answers to issues which are creating loss at the store and distribution center level. The biggest opportunity for merchandising to assist in this way really centers on packaging improvements, source tagging initiatives, and display design for the specific products within the departments which are highly theft prone.

To achieve this objective, it is important that loss prevention have a close working relationship with the buyers involved in high-shrinkage departments, for them to be able to provide assistance in the identification of high-loss products and in coordinating with product suppliers to enhance packaging or to implement source tagging. The buyers, in turn, must fully support the shrinkage initiatives and serve as the company’s representative with the appropriate suppliers to ensure the initiatives are implemented.

Distribution

As has been discussed, it is critical to the success of any shrinkage reduction program that store management personnel recognize and accepts their responsibility for their inventory result completely and without reservation. They must believe that it is totally within their power to effect a positive result, which would include the identification and correction of any issues which could create shrinkage.

With many retailers, a large percentage of store shipments arrive through the company’s own distribution center network. As a result, this process must be seen as accurate to the extent that there can be no measurable impact of errors on store inventory results. To support this, there should be a process for correcting significant errors or incorrect shipments once found and verified. Only in this way can the issue be identified and dealt with at its source and provide the confidence that stores must have in the process.

Distribution management personnel must accept their responsibility to provide accurate deliveries and take ownership for errors which occur that should not be charged to the store. Even though the correction of these errors will not affect the total losses for the corporation, it will place the loss on the appropriate P&L.

Set Higher Expectations Every Year

Just as sales and profits are expected to improve each year, shrinkage losses must also consistently improve. In an environment where this is not the case, it tends to become somewhat of a self-fulfilling prophecy. Following a year of acceptable shrinkage, where the history of a roller-coaster performance exists, it will generally increase the following year. Everyone expects it to happen, so no one is surprised when it does. This, of course, has less to do with bad luck and more to do with a lack of effort and focus. It is widely accepted that shrinkage results will follow effort by as much as 12 months. Therefore, a company which allows its focus and attention on shrinkage to wane following an acceptable year will very likely experience an increase in shrinkage the following year that will not be acceptable. As a result, it is critical to set challenging, yet obtainable, shrinkage goals every year. Senior management staff must remind everyone at the outset of each inventory period what the goal is and what their expectations are for its achievement. A truly effective shrinkage reduction program is one that produces positive results year after year.

Considerations for Cultural Change

In a perfect environment where the culture of your company will embrace the shrinkage reduction ideas described here, the only thing left to do is implement and execute. Where this is not the case, then, more work will need to be done. Where senior management staff are hesitant or unwilling to implement the admittedly aggressive elements of the shrinkage reduction program outlined in this section, then it falls to the loss prevention/asset protection executive to carefully address the concerns and secure the support of those individuals.

The best process to follow to achieve the desired end will vary somewhat depending on what specific concerns have been voiced by senior management. LP/AP must carefully listen to these concerns and establish an overall strategy to address them. Part of that strategy will certainly involve providing detailed information which clearly shows the shrinkage problems that the program is intended to resolve. Management must understand the size of the problem to clearly put into prospective the return on investment that will come from the effort being recommended.

In circumstances such as this, it is generally always appropriate to demonstrate the effectiveness of your program through a test in a specific area prior to requesting its implementation everywhere. Establish criteria that will show the success (i.e., heightened awareness of shrinkage problems and solutions, reduced losses in the test area, etc.) and ensure that these can be assessed during the course of the test. Make certain to keep the decision makers informed relative to preliminary results as the test is progressing and listen carefully for any suggestions as to how the test can be altered or improved. Quickly implement those changes that are right to do. Be prepared to demonstrate an achievable return on investment and be flexible as to how many capital resources are required to perform the test. One consideration should be to identify a member of operations (district manager or regional vice president) who would be willing to support the test within his respective area. It will be important to the success of this test to have the involvement of someone who can help describe the benefits he experienced as a result of his participation. Of special interest will be comments from affected store managers as to the impact of the program on their store employees. Again, did the increased training and awareness relative to shrinkage opportunities have a positive effect on both the overall operation of the store and the reduction of losses?

Always remember to prioritize the things you need in order to accomplish your goals. Effectively demonstrate how those things will add profit and value to the company. Build partnerships based on respect and trust, which can help you in your efforts to implement new processes within the corporation. Work to ensure that you and your group are viewed as students of the entire business, not just of your specific area of responsibility. Above all, enjoy what you do!

Small Claims Court

CAS, JHC

Small claims courts exist to provide citizens (and noncitizens) with a means of settling minor business and financial disputes without the necessity of hiring attorneys and filing full-blown lawsuits. In most instances, attorneys are barred from representing small claims litigants; the litigant appears personally to face his opposite number before a judge, who will normally render an immediate decision after listening to both sides and examining any documentary evidence or witnesses. In some venues there is an appeal process if the losing party feels particularly strongly that the case was improperly decided.

The small claims court is the venue for filing to collect civil remedy claims which are not paid (see “Civil Recovery” elsewhere in this book). Although the small claims court is recognized as the proper venue for suits involving shoplifting matters, the court can also be a vehicle for the collection of unpaid and ignored promissory notes signed by employees who admit to internal theft or other financial crimes committed against their employer. The caveat here is the amount owing must not exceed the small claims court’s limit, e.g., $5,000. We are of the opinion the industry has generally ignored or is unaware of the full potential of this court.

Bear in mind the civil courts (small claims is a division of the civil court system) address civil issues only; however, theft is not only a crime, but is also a tort (civil wrong). Perhaps the best example might be the fact that the criminal prosecution of O.J. Simpson for the crime of murder failed, whereas the civil prosecution of Simpson for the “wrongful death of his victim,” a tort, succeeded.

Special Police Powers for Security Officers: Issues for Consideration

Norman D. Bates

Thousands of security officers across the country exercise full police powers granted to them by a state agency or local community. A security officer who has been licensed as a special police officer can, in most locations, exercise authority equivalent to that of a regular police officer in the same jurisdiction. However, the security officer’s authority is limited to the geographical boundaries of his location, whereas public police officers are able to assert their authority throughout the community. Since the licensed security officer and the public police officer possess similar authority, both the private company and the municipality gain. However, a number of potential problems may be created when private citizens act like police officers.

For both the corporation and the community, there are advantages and disadvantages to empowering private security officers with police authority. Each entity should carefully weigh both sides of the issues before the authority, its inherent responsibilities, and the associated risks are assumed.

A private company gains several potential advantages when its security force has full police authority. The decision to license a private staff will depend on the company’s business, location, amount of crime experienced, corporate philosophy, and other factors. The arguments in favor of police powers include the following:

Increased Authority

With full police powers, the security staff becomes more than a guard force. Specially licensed security officers may make arrests that ordinary citizens are generally not allowed to make. The difference between the inherent authority of a private or citizen’s arrest and that of the licensed officer usually depends on whether the offense was a felony or misdemeanor.

In many states, citizens may arrest someone whom they have witnessed committing a felony. In some areas, this authority includes arrests based on probable cause if, in fact, the felony was committed.

Generally, a private citizen may not arrest someone who has committed a misdemeanor except where local legislatures have passed special provisions allowing such arrests. The most common example of this law is found in the merchant’s statutes which state that retail merchants or their employees may arrest for shoplifting, generally a misdemeanor offense.

With full police powers, security officers may arrest for felonies committed in their presence, felonies based on probable cause, and certain misdemeanors as provided by statute. In brief, their authority is enhanced considerably to include a wider range of criminal activity.

Authors’ Note: In some states (California, for example), a private person may arrest another for a public offense committed or attempted in their presence. CAS, JHC

Reduced Risk of Liability

Tort liability caused by arrests that are later ruled illegal because the officer did not possess the requisite authority can be reduced. A misdemeanor arrest made consistent with the officer’s special powers would be valid. The same arrest made by an unlicensed private security officer would be invalid and, hence, illegal.

Security Employee Morale

Security personnel who are entrusted with police powers may perceive themselves as being more professional. Although this factor is subjective, security officers who have positive attitudes about their work and employers are more likely to perform better and stay longer with a company. In an industry known for high employee turnover, any corporate action that reduces turnover and improves performance should be considered.

Quality of Staff

When prospective applicants are investigating employment opportunities as a security officer within a private company, they may favor a position that offers the greater level of authority. Further, since increased authority should be synonymous with greater responsibility, the position will, one hopes, pay more.

Relationship with Law Enforcement

If local law enforcement officers do not have to make arrests, conduct investigations, and testify in court for a private company, better relationships may develop between the two. Police officials often complain that their limited resources are burdened by having to handle the crime-related problems of private businesses.

Relations can be further strained when a company decides not to prosecute and instead pursues its own system of justice. Arrests made by police officers that result in dismissals because the company no longer wants to prosecute can cause unnecessary friction. Businesses may be able to operate without police support much of the time, but they will be unlikely to survive a major crime wave, labor dispute, or terrorist attack without police help.

Deterrence to Crime

The reputation of a security department, inside or outside an organization, will affect the level of crime it experiences. If shoplifters know they may be arrested in front of their peers, they may be less inclined to commit the act. If a private company has the reputation of arresting and prosecuting offenders, potential offenders will more likely be deterred.

Conversely, a private company faces a number of potential disadvantages by having a security staff with full police authority. Some of the arguments against private citizens having police powers include the following:

Negative image. Security officers may become too police-like if they have full arrest authority. In most businesses, the role of security is primarily prevention. Many security professionals take pride in the fact that they are able to control losses within their companies without having to resort to arrest and prosecution.

Further, many businesses would prefer to project a positive public relations image with their customers, guests, employees, and the community. The high frequency of arrests may not be the best means of accomplishing that goal.

Stockrooms and Other Back-of-the-Store Areas

CAS, JHC

An employee, absorbed in finding an item, comes out between rows of shelving to find a customer back in the stockroom. “Excuse me, sir. can I help you? I mean, what are you looking for back here?” “Oh, I’m looking for the restrooms.” That’s the common response by those thieves who prowl stock areas.

Stock areas are off-limits to customers, and the company has a duty to inform the public of that fact. Doors leading into stockrooms should be clearly marked “Restricted Area. Employees Only.” If the door faces the selling floor and such signage is deemed aesthetically unacceptable, the sign can be posted so it’s the first thing you see upon entering the area. The chronic prowler may be detained for trespassing only if the area is properly posted. That same prowler knows he is immune from arrest for trespassing if the area is not posted.

Note the difference between being “detained” and “challenged.” Anyone can “challenge” a stranger in a posted restricted area. A detention (read arrest) may be in order, depending on local and state laws, if the person in question has been observed prowling in the past, has been warned, and the area is posted.

If a prowler is detected more than once in a restricted area, loss prevention may warn the party that it’s a restricted area, and if he’s found again, he will be detained for trespassing and the police will be summoned. That warning must be made a matter of record.

If the opening into a stock area does not have a door, a simple chain draped across the opening on which a “restricted” sign is displayed will suffice. That’s a sufficient deterrent to discourage entering areas that do not contain small expensive items of merchandise. Some stockrooms simply don’t lend themselves to a door or any restriction of access because of constant traffic, such as a shoe department where every customer must be serviced by a sales associate coming and going repeatedly to and from the stock area. It’s the nature of the merchandise. Designing departments such that placing stockroom entrances adjacent or close to register stations, permitting entry to be easily seen, helps in maximizing, to the extent possible, security in shoe department stockrooms. We have also seen such entrances covered with a hanging curtain or hanging beads, which creates a more noticeable and visible and/or audible indication of entry.

In those stock areas which do contain expensive and easily portable items, the doors should be kept locked, despite the objections of the department manager who may opt more for convenience than security. Special procedures may be required for jewelry stockrooms.

Stock areas should be well illuminated and maintained in a clean and orderly manner. Dark and cluttered stockrooms tend to facilitate the hiding of goods which are being staged for possible theft by an employee, or are being held pending anticipated markdowns so the employee can purchase the goods at a bargain price.

High-security stock areas may be constructed within stockrooms (see “Fences and Fencing” in this book), and they should be kept locked at all times. “Other back-of-the-store areas” which require signage include, but are not limited to, the receiving and shipping dock, marking room, offices, display area, sign shop, carpenter shop, employee locker area, and break lounge.

Subliminal Messaging

CAS, JHC

One definition of the word “subliminal” is “existing or functioning outside the area of conscious awareness,” meaning, if it’s a “message,” it’s below the threshold of consciousness; i.e. you can’t consciously see or hear the message.

This phenomenon surfaced in the 1950s when a movie theater experimented with two messages: one “drink more Coke” and the other “I want popcorn.” Allegedly Coca-Cola sales increased over 18% and popcorn sales increased over 50%. Those messages were flashed on the screen at the speed of 1/3000th of a second every 5 seconds (with the use of an instrument called a tachistoscope), and no one could consciously “see” or remember seeing the message.

Some rock musicians were accused of introducing subliminal messages in their music by “back-masking,” i.e., recording messages promoting sex and drugs and flipping the messages backward and imbedding those messages in the music. If true, then clearly, this was an effective way to convey their message, whatever that message may have been.

After this messaging concept became known, interest surfaced in the retail industry regarding the possibility of imbedding positive messages in their “Muzak” music-playing PA systems, such as “Don’t steal” or “Use your credit card,” but there was a strong moral backlash at the prospect of this “mind-altering” technique, which had the potential of more dangerous and negative messages and influences. One expressed fear was that retailers would flash messages such as “Spend more money” or “Buy jewelry,” which would increase sales but could cause customers to spend more money than they could comfortably afford to.

Today, the Federal Communication Commission (FCC) will revoke a company’s broadcasting license if the use of subliminal messages can be proven. Needless to say, subliminal messaging will never see the light of day in our industry, nor should it.

Subpoenas

CAS, JHC

A subpoena is a writ by a court or other judicial or political tribunal commanding a person to appear as a witness in a trial or other adversarial proceeding. The person subpoenaed is compelled by law to appear. Failure to appear may result in a contempt of court charge. Fines and/or imprisonment may be the consequence of not appearing, as commanded by the subpoena. When loss prevent agents refer a detainee to the criminal justice system—i.e., arrest, police involvement, issuance of a criminal complaint, and judicial proceedings—the agent and other witnesses are required to appear in court for trial (or preliminary hearing if a felony) should the defendant plead “Not Guilty” and request a trial.

The subpoena specifies the location where the person must appear (the name of the court, room, department, or division in which the matter is being held), the street address and city in which the court is located, and the date and time of appearance.

Invariably, ample lead time is factored into the delivery or presentation of the subpoena to the witness and the time appearance is required. In the language of the industry, subpoenas are “served” (delivered or presented to the witness), and the date of “service” is noted by the person who serves the document, i.e., a law enforcement officer, officer or representative of the court, a professional “process server,” a member of the prosecutor’s office or, indeed, anyone so appointed to deliver the instrument.

Some subpoenas are specifically designated as “personal service required” or words to that effect, and the “server” must present the writ to that designee only. Typically personal service is not required in the kinds of cases involving loss prevention people. Hence, a police officer, for example, can arrive at the store with a subpoena for the agent who made the detention and is the key witness, and that agent may not be present. The officer may leave the subpoena with some other employee with the understanding it will be passed to the named party when he returns to work. This has inherent problems because, from time to time, the agent subpoenaed doesn’t receive the document and, thus, doesn’t appear as required. This can and does prove catastrophic because more often than not, if the store’s witness isn’t present at time of trial, the court dismisses the criminal complaint, and the store is subject to a civil action because the matter was dismissed by the criminal court.

To preclude this problem, the store should maintain a “subpoena log” in which each subpoena, received in person or by someone other than the named party, is duly recorded in terms of (1) date, (2) time, (3) name of person serving the subpoena, (4) name of person for whom the subpoena was issued, (5) signature of person accepting the subpoena,(6) signature of person for whom the subpoena was intended, with date, as evidence the subpoena is in the hands of the proper person, and, lastl (7) a disposition column with date.

Other complications tend to arise. One is the turnover of loss prevention personnel with matters still pending in the criminal justice system. Should an agent leave the employ of the store, every effort should be made to obtain and secure his next position and new address in the event a subpoena arrives for his presence in your behalf. Sometimes this might be a delicate matter and must be addressed by the ranking LP personnel.

Another problem has to do with the difficulty in tracking court cases; e.g., a subpoena is issued for the appearance of LP Agent John Doe who properly responds. Upon arrival at the court, Agent Doe learns the matter is being continued. Continuances and repeated issuances of subpoenas sometimes get lost in the bureaucracy of it all and no subpoena appears; consequently, unless store tracking is in place, no witness appears and the matter is dismissed. Hence, some tracking or ongoing follow-up by the loss prevention department must occur in a well-managed organization. Every shoplifter whose case is logged in the criminal justice system must be followed on a regularly scheduled basis until the matter is adjudicated.

Should a person receive a subpoena requiring his appearance on a date that conflicts with travel or important personal plans, the only recourse would be for the prosecutor to request the court to reschedule the trial. More often than not, a change won’t occur, and the wheels of justice will slowly grind on without regard to anyone’s private affairs.

In civil cases, subpoenas may be issued for depositions, a discovery process in which a witness’s testimony, under oath, is taken and recorded by a court reporter. In those civil cases where a witness dies or for other acceptable reasons cannot be in court for trial, the transcript of his deposition may be read and used in lieu of his court testimony.

Some subpoenas are issued to parties to an action or witnesses with specific instructions (in addition to simply requiring the presence of the person subpoenaed). A subpoena duces tecum (Latin meaning “bring with you”) means you are required to produce specified items. The subpoenaed person having under his control documents or other things specified in the subpoena and relevant to the controversy is enjoined to bring such items to court during the trial or to his deposition. For example, an LP agent may be required to produce all his reports; an expert witness may be required to produce copies of his writings or a list of all the cases in which he has testified during a specific period of time.

Sudden in Custody Death

Patrick M. Patton

“Sudden in custody death” is a term rarely heard and almost never heard in the loss prevention community. The term refers to any time a subject dies suddenly during an apprehension or shortly after apprehension. “In custody” refers to the point at which a subject feels that he is not free to leave. The term covers a broad list of causes, whether it be a subject who has heart disease which causes a severe heart attack when initially confronted about a crime to what the primary topic of this section is—agitated delirium (AD).

If you think that this occurs only in the sworn law enforcement field, then you need to think again. Wal-Mart has fallen victim to cases filed against it in which agents were even charged with homicide for their part in what appears to be a case of death due to agitated delirium.

Agitated delirium is not a new phenomenon; it was, in fact, first thoroughly noted and researched in the 1840s. More current and up-to-date research began in the 1980s and still continues today. Agitated delirium, in short, occurs when a subject begins bizarre behavior in combination with extremely violent struggle while attempts are made to restrain the subject.

Anyone who has worked in loss prevention can remember a time at which initial contact was made with a subject exiting a store with unpaid-for merchandise and the subject could be described as “flipping out.” Perhaps the subject fought for what seemed like forever, or the subject had what could be described as super-human strength. Or possibly, you, along with four other agents, went out to stop the subject, and the subject didn’t care how many people he was up against and still fought. This is what is generally coined as agitated delirium.

Generally, agitated delirium occurs following the use of illicit drugs such as cocaine, methamphetamine, Ecstasy, or LSD. It is often seen in subjects who have a past history of mental illness. And in the majority of cases in which AD has proved to be fatal, the subject had been suffering from a combination of mental illness, drug usage, along with alcohol usage prior to the incident.

Four steps take place during AD, and if not treated immediately by medical professionals by the fourth step, imminent death will occur, and the subject cannot be brought back by CPR.

Step 1: Hyperthermia: The body overheats, causing radiating body temperature and profuse sweating.

Step 2: Delirium with agitation: The subject will show symptoms described with a sudden onset. Many times body limbs will become rigid.

Step 3: Respiratory Distress/Arrest: The subject may or may not complain of not being able to breathe, followed by the subject’s breathing stopping.

Step 4: Cardiac Arrest: Following respiratory arrest, the heart will stop, which will cause the subject’s death.

If a subject is being detained and shows any signs or symptoms such as this, police should be notified immediately, and police dispatch should be told that a medical emergency might be taking place as well.

One other important point to remember to prevent “sudden in custody death” is to pay attention that positional asphyxia is not occurring. Positional asphyxia occurs when a subject is in a position which restricts his ability to breathe. To understand this, try lying on your stomach sometime with your arms pulled behind your back where handcuffs place them. Then imagine attempting to breathe like this if you just had a 5-minute foot pursuit. Then try to imagine this if you are also under the influence of drugs.

The majority of “sudden in custody deaths” which have occurred across the United States have been due to positional asphyxia. Subjects placed in handcuffs in the prone position should immediately be stood up or, at the very least, placed in a sitting position. If the subject needs to be kept lying down, place him in the recovery position, which is on his side. If the subject states he is having trouble breathing, this should be taken seriously. And no matter what, if a subject is in the prone position and LP personnel had to place weight on his back to get him into handcuffs, the second that the cuffs are on, the LP personnel need to get off his back. Applying pressure in this way places weight onto the subject’s diaphragm, and if the subject has a large stomach, it adds even more pressure, making it harder to breathe.

The best policy is to follow your instincts, and if you feel that the situation could take a turn for the worse, call for medical assistance before it is too late. It is better to have made the call and have it not be a medical emergency than to not make the call and end up with a “sudden in custody death.”

Supply Chain Security Overview for Retailing

David A. Jones

Introduction to the “Supply Chain”

The supply chain … what is it, and how does it affect the retail loss prevention professional? Many in our profession have little or no experience in supply chain security. For many years it has not been a focus of attention. For most retail loss prevention executives, the emphasis has always been on store-line shortage control. The question has always been, “How do we reduce store shrink by implementing physical security controls, procedural controls, and investigative follow-up?” To varying degrees, companies placed some emphasis on distribution center controls, but for the most part these controls paled in comparison to those implemented store-line.

This section will try to bring the retail supply chain to life by showing you how it works, where losses occur, why those losses are important to your company, and last, steps you can take to address those losses and thereby enhance your overall loss prevention program.

Before we can discuss supply chain loss control issues, we must first take a look at the base definition of a supply chain. The International Cargo Security Council defines “supply chain” as follows:

The network created amongst different companies producing, handling, and/or distributing a specific product. Supply chains include every company that comes into contact with a particular product. For example, the supply chain for most products will encompass all the companies manufacturing parts for the product, assembling it, delivering it and selling it.

The one thing you must remember is that your supply chain is your company’s lifeline to the products you sell.

As a loss prevention professional, you must remember that addressing the security needs of your supply chain will greatly enhance your overall corporate loss reduction efforts.

Individual companies’ supply chains differ depending on the products they offer for sale. For companies with “private label” merchandise, the supply chain starts at the supplier and manufacturing points. These manufacturing points can be anywhere in the world. A typical supply chain diagram would look like this:

Supplier → Manufacturer → Distribution/Consolidation point → Intermodal Shipping (Marine/Air/Truck/Rail) → Your Distribution Center → Retail Store

Retail companies that exclusively sell third-party goods have a supply chain that is much reduced in scope. For these companies, the control of the goods starts when the merchandise hits the loading docks in their own distribution centers. Their supply chain can be as simple as this:

Intermodal Shipping → Your Distribution Center → Your Retail Stores

The Start of the Supply Chain

The supply chains for companies that produce “private label” or “proprietary products” are more elaborate in that more steps are taken to bring a product to market. The process starts with the design and prototype sample being developed. Once the design is accepted, the product is passed onto the “production” area. The name may vary from company to company, but the function is the same: This department is charged with bringing the product to market. The first step in bringing the product to market is for the production area to source material suppliers. Once they are sourced, factories need to be located that can manufacture the product. Factories are selected based on their production capability, area of specialization, manufacturing cost proposal, and ability to address “social compliance” issues such as pay scale, good work environment, and nonexploitation of children. All companies that utilize overseas manufacturers have some level of “social compliance” regulations and use auditing firms to ensure adherence to those regulations.

Since 9/11, the U.S. government has tightened import controls and added cooperative government/private industry security programs such as Customs Trade Partnership Against Terrorism (C-TPAT). The inception of these types of programs has added an additional security requirement layer on top of the normal “social compliance” regulations standards that overseas factories must maintain. We will talk more about this issue later in this section.

Once a factory is selected and production begins on the “private label” item, the physical supply chain has started and so too has the possibility for losses to occur. When the product is ready for shipping, one of two events will happen, depending on how much product is produced. The ideal situation, from a loss control perspective, is to have enough product manufactured to fill an entire container. This would allow the container to be sealed and locked until the product reaches the United States and (unless it is opened and inspected by Customs) the safety of your own distribution center. If the container is “LTL” (Less than a full load), the container would be brought either to another manufacturer, where it will be opened and more product added; or to a consolidation/distribution point, where the container will be offloaded, temporarily stored, and reloaded with other merchandise to make a full container. Conversely, once an LTL container arrives in the United States, it will again be offloaded and repacked at a third-party consolidation facility for final delivery to your distribution center.

The fewer times merchandise is touched, the less likely it is for loss to occur.

Supply Chain Loss Vulnerabilities

Once the goods leave the point of manufacture, where are the major areas of vulnerability or “choke points” that loss can occur? There are many of them, all of them when the cargo is not in motion. As a general rule, remember this adage “Cargo at Rest is Cargo at Risk.” When merchandise is sitting, whether in a container, truck trailer, or a warehouse, that’s when loss is most likely to occur.

In general, the major supply chain “choke points” of concern for loss prevention professionals are as follows:

Import Flow (vendor to port, port to consolidation center, consolidation center to DC):

Vendor to DC;

DC to Store;

Vendor to Store;

DC to DC;

Store to DC;

Store to Store;

Store to Return Goods Center;

Return Goods Center to Vendor;

Return Goods Center to Third-Party Salvage;

Third-Party Salvage to Customer;

Store to Vendor;

Export Flow (DC to Port, Port to Stores)

E-commerce (DC to Fulfillment House, Fulfillment House to Customer, Customer to Store, Store to Return Goods Center)

Vendor to Third Party (Overruns, Cancelled POs)

The Cost of Supply Chain Loss: Insurance and Beyond

The FBI has stated, “The theft of cargo has become so widespread that it constitutes a serious threat to the flow of commerce in the U.S.” These are powerful words; however, we need to dissect them to be able to put them into proper perspective. What is the cost of supply chain theft to the U.S. economy?

Insurance to Cover Supply Chain Losses?

The cost of losses that occur within the supply chain is enormous. Many of the costs are hidden and are not accounted for in your store “shrink” statistics. One of the main reasons they are often overlooked or not counted by companies stems from the term “risk transfer.” In most cases, companies transfer the risk to an insurance classification. Under this scenario, the loss is not viewed as a “real” loss because it is covered by an insurance policy.

In many cases, this thought process is akin to an ostrich sticking his head in the sand. The losses are still very real; your company just chooses not to notice them. What do we mean by this statement? The answer is simple: Insurance is a moving target at best. Insurance coverage varies greatly from company to company, and it is important that loss prevention executives be aware of the extent of your company’s insurance coverage. Many companies maintain high deductibles to keep insurance costs down, and others are “self-insured” for the same reason.

When you really drill down for your actual level of coverage, you will likely find that insurance claims are paid at the “cost value” of the product. So, that means no loss, right? Wrong. The loss is realized in several different ways:

1. The deductible becomes part of the loss.

2. The company loses the profit margin value of the product.

3. The company more than likely loses full value on any “deductible” amounts.

4. Most importantly, the company loses the availability of offering the product for sale.

This translates into disappointed customers. On a wholesale side, the loss means you cannot fulfill an order that has already been placed. On the retail side, your product is not on the shelf generating sales. Customers may then purchase another company’s goods, switching loyalties and causing residual negative sales impact.

Business Impact of Supply Chain Losses

Where do the stolen goods go after a crime is perpetrated, and how does the loss affect your company? The answer to this question is similar to how you would respond to the same question in the arena of organized retail crime.

Stolen bulk merchandise is generally disposed of in two main ways: (1) It is fenced, showing up in local shops, bodegas, flea markets, and cyber markets such as eBay, or (2) it is shipped out of the country, with Central or South America as primary destinations. When it is shipped out, there is a high probability that Miami and Houston are the two ports from which the merchandise will leave. Many times, the merchandise will be shipped in the same cartons and on the same pallets that they were on when stolen.

Whatever the method of disposition, the impact is the same—loss of business revenue. The victimized company essentially ends up trying to compete in a “no win” market. The stolen merchandise is sold at a much reduced price, while the victim has less merchandise to sell at a much higher price. Margin is hurt and profits are impacted.

The Iceberg Effect: The True Cost of Supply Chain Crime

If you view supply chain loss as an iceberg, the visible part above the waterline is the physical cost of the actual merchandise lost. Utilizing statistics from the FBI and the International Cargo Security Council, that U.S. dollar loss of supply chain crime is estimated at between $15 and 20 billion annually. That’s a large number; however, that number jumps to $75–80 billion annually when you factor in the submerged costs to U.S. companies of dealing with supply chain losses. Those factors include

Lost sales;

Lost reputation;

Fraudulent refunds;

Insurance costs;

Investigative costs;

Re-order costs;

Paying claims;

Administrative costs;

Product diversion.

These figures do not include the significant added costs associated with security controls or law enforcement!

Container and Trailer Security

Any supply chain loss control program has to begin with container and trailer security. This is where your cargo spends much of its time while in transit. This is also where your cargo is most vulnerable.

According to statistics from the U.S. Merchant Marine Academy’s Cargo Security School, 60% of all cargo thefts are the result of carton pilferage, 25% from pallet/quantity theft, 10% from hijackings, and 5% from burglary.

Other interesting factoids involving cargo crime highlight why supply chain theft has become such a problem:

The average value of a single cargo theft is $500,000.

Trucking companies and their facilities (warehouses, etc.) experience the majority of all reported losses (85%), followed by maritime, rail, and air.

Approximately 80% of cargo thefts are perpetrated by internal employees or involve some level of internal collusion.

Pilferage is the most common form of cargo theft.

The FBI estimates that most stolen cargo remains in the possession of those who stole it for less than 24 hours.

Cargo theft is not in the public spotlight; it is regarded as a victimless crime and therefore it does not carry severe sentencing.

A kilo of heroin is worth the same as a kilo of Pentium chips. Organized crime is going after the chips and other cargo because the criminal penalties are less severe.

Today, you can knock off a truck with $1 million worth of cargo, and the courts can treat it as a misdemeanor, but if you rob a bank for $10, it’s a major felony.

New York/New Jersey; Southern California; Atlanta, Georgia; and Miami, Florida, are the four regions where 75% of the nation’s cargo theft occurs.

“When the freight is moving, no problem; when it stops, that is when the problems start.”

“Cargo at Rest is a Cargo at Risk.”

The question becomes, “What steps can we take, as retail loss prevention professionals, to prevent and otherwise minimize our losses when our cargo is in route?” The answer is that there any many steps we can take to address this issue. See the following descriptions.

Container/Trailer Inspections

One of the first steps to minimizing your risks is to set up a program to inspect any trailer and/or container that will be used to move your goods. These inspections can provide valuable information about the integrity of the container that will be housing your merchandise and allow you to take steps to counter any noted deficiencies.

Inbound Overseas Shipments

For incoming cargo, if your company owns its own container/trailer fleet, corporate loss prevention or logistics personnel can perform inspections. If you do not own your own fleet or do not possess the personnel resources needed, overseas agents or brokers can perform these inspections.

Outbound Shipments

Checks of outbound containers/trailers leaving your distribution center should be incorporated as part of your security inspection program. These inspections should be documented and maintained on file for quick reference should the consignee report any problems with the load.

How to Inspect

To maximize the effectiveness of any container inspection program, the container/trailer should be inspected prior to “stuffing” (loading). Both the outside and inside of the trailer should be inspected. The following points need to be part of the inspection process:

Check all sides of the container for holes or other openings. Remember, water damage to goods being transported can also be a loss for the company.

Check for false walls and/or flooring/ceiling. Containers used to move contraband will often use false walls to conceal unmanifested (smuggled) items. This will be discussed in more detail later in this section. In a sense, the container is used as a giant “booster box.”

Check for signs that the container was modified or altered in any way. Signs of alteration can be fresh paint, new welds, or new locking systems. Remember, if any of these conditions are found, they may be due to normal repairs and not for any vicarious reason.

Check the rear doors and locking bars. The welds on the lock hasps and any bolted lock plates should be secure to the body.

How Break-Ins Occur

Just how do the bad guys do it? How can it be so easy to break into a locked and sealed container or trailer? The answer is simple. As with any other type of crime, professionals study the dynamics of moving cargo, experiment with finding unique ways to defeat the system, and then practice until it becomes a sort of art form.

The professional cargo thief most likely began his career as a professional shoplifter and graduated to cargo crime because it is more lucrative with a lower risk of being caught. Additionally, teams that perpetrate cargo crime may actually still be active in organized retail crime (ORC). It is not uncommon for these professional groups to move their “resources” from one area to another. If a particular group or individual is identified in ORC circles, gang leaders will move that group or individual into the cargo crime sector and vice versa. Although they are polished and adept at the more sophisticated methods of breaking into a container, cargo thieves are no different from other types of criminals in that they always like to go first for “low-hanging fruit.” They will generally opt for an easy score with moderate gains and low risk of detection over the more sophisticated break-in methods. All too often we make it very easy for them to be successful.

1. Cut the Seal: The mistake many companies make is believing that simply sealing a container or trailer will protect their goods. Additionally, many of those same companies use the least expensive seal they can find. Many times, these are plain plastic lock seals or thin metal strip seals. The bad guys know this, and they target these trailers. There are no barriers or obstacles to overcome. Of course, cargo thieves generally like to cover their tracks and not advertise the fact that they just broke into a truck. In this method, they will cut the strip seal with a razor so the cut is neat and clean. They then use a couple of drops of “crazy glue” to reconnect the seal. Unless the seal is closely inspected, the defeat will not be detected, and the shipper is charged with the loss. The net outcome is that the thieves took several dozen cartons and nobody is looking for them.

2. Defeating a Lock: When trailers are locked, the lock of choice is generally a padlock. The padlocks are of varying quality. Although they are not much more difficult to cut off than a simple seal, they are much more difficult to put back together if the perpetrator plans to hide the theft. The solution: Don’t cut the lock; rather, disassemble the lock mechanism. With this method, the perpetrator would take a hammer and chisel to shear off the bolt securing the lock hasp. This action will release the door handle, and the perpetrator is free to help himself to the contents of the trailer. He then replaces the sheared bolt by gluing it back in place or by using a replacement pin. Either way, the entry will go undetected.

3. Wall Cutting: In this technique, the perpetrator will actually cut through one of the sides of a container. This method is hard to cover up, so it is usually done after hours when the perpetrator has more time. It is usually accomplished by cutting into the container from the top, where it is less likely to be noticed until the next day. Particularly vulnerable to this type of break-ins are trailers equipped with fiberglass tops.

4. Slash and Grab: This method is similar to the “smash and grab” shoplifter. This method utilizes three or more people to commit the theft. One is the driver and the rest grab the goods. Thieves look for distribution centers or truck stops lacking any entry controls, such as fences or gatehouses. They will study the particular receiving habits of the building they are attacking so they can plan where and how long they have to make a hit. Once a driver leaves his cab, usually to enter a building and get a dock assignment, the thieves will back a vehicle up to the back of the trailer, slash (cut) off any lock or seal, and remove cartons from the load. They will then speed away, often not even taking the time to close the rear trailer doors. The success of this method lies in the speed. Thieves can cut the lock and load a small van in under 45 seconds.

Hijackings

Truck hijackings occur everyday in America and around the world. An accurate reporting of hijack statistics within the United States is difficult because statistics on cargo crime have never been kept as a specific UCR code but rather lumped in with all personal property thefts. Additionally, many hijackings go unreported because private companies and cargo haulers do not want this type of negative stigma attached to their companies. Insurance has always been looked upon as the main insulator for the victimized company, but as previously mentioned, that is no longer a given. High-loss deductible thresholds and self-insurance can make many a hijacking a total loss. Where insurance is paid, the company can still be hit with higher premiums.

How Do Hijackings Occur?

1. Insider Complicity: An interesting tidbit dealing with hijack situations is that most law enforcement personnel who deal with hijackings on a regular basis will tell you that the vast majority of the hijackings involve driver complicity. The percentage they give you will vary, but 70–80% seems to be an average statistic. Additionally, they will also tell you that in many cases involving high-value merchandise, complicity is also found with internal employees. Generally, this would involve a logistics operation person or dock supervisor who is aware of the specific items and value of a particular container/trailer. This information is passed along to outside accomplices who actually commit the crime.

2. Yard Break-Ins: Hauler storage/consolidation points and company distribution centers/warehouses are other likely targets for hijackers, especially those facilities that have little or no perimeter protection. It will take the average professional thief 5 minutes or less to steal a load from an unprotected yard. This includes cutting through perimeter fencing, opening a locked cab, jump-starting the cab, backing up the cab to a container, defeating any trailer collar lock, hooking up truck cables, and driving away with the load. Of course, these types of thieves bring all the proper equipment that makes committing the crime much easier.

3. Street Jacks: Street hijackings tend to be the most violent form of hijacking. They generally involve two or more thieves and also likely involve firearms or other weapons. This method is utilized when storage yard controls are tightly controlled and not conducive to a “yard break-in.” Street hijacking may or may not involve internal or driver complicity, although this factor should always be investigated as a possibility. Street jacks can occur in many ways: for example, a truck is jumped when stopped at a traffic light, a truck is jumped at a truck stop just as the driver starts to pull out, a truck is jumped at highway rest areas, or a truck is actually pulled over or run off the road. This last example is actually the method of choice for gangs in the United States. In many foreign countries, it is not unusual for the thieves to steal police cars and police uniforms to pull over unsuspecting drivers.

4. Truck Stops: Truck stops provide ideal covers for hijackings. As a general rule, drivers will pull into a stop and immediately refuel. They then leave their truck to eat and/or clean up. Many modern stops are equipped with showers, gyms, game rooms, and bunkhouses that the drivers can use. Thieves know the average time a truck will be left and will wait for their opportunity. All too often, drivers make it easy for the hijackers by leaving their keys in the truck and, in some cases, even leave the truck running.

5. Fraudulent Paperwork: In this method, a thief uses fraudulent documentation to enter a gatehouse controlled yard and steal a trailer. This method generally involves some level of complicity between the thief and either someone in corporate operations or yard security. Once in the yard, the driver is free to hook up and drive away.

If you are the victim of a hijacking, don’t rely on law enforcement to make a recovery. More often than not, empty trailers are found rather than cargo. Thieves are smart and, chances are, have already made plans to offload the trailer in short order. The common rule of thumb is, if your cargo has not been recovered within 24 hours, your chances of effecting any level of recovery are extremely poor.

How to Prevent Hijackings

As with much in loss prevention, there is no “silver bullet” action you can take that will guarantee you will never be the victim of a hijacking. There are, however, many actions you can take that will help you reduce your company’s chances of being victimized by a hijacking event. Let’s look at a couple of these actions.

Ensure that you conduct pre-employment background checks on all employees hired into logistics operations and warehouse/distribution center operation departments. Every company’s culture is different, but you should strive to perform the most comprehensive check possible. Checks should include criminal and credit checks, as well as prior employment references. These checks will help weed out those who may be inclined to be complicit in passing along information that can aid hijackers.

Ensure all perimeter protection controls are functional and part of a daily audit. Walk fence lines and check gates and CCTV systems to make sure they have not been compromised. Make sure that any full containers/trailers in your yards are kept under constant surveillance. A key best practice is to have a policy that no loaded containers/trailers are left at a bay door location overnight.

If your company has its own truck fleet, make sure background checks are performed on all drivers and that you have an established set of driver protocols and policies detailing how they drive their routes; when, where, and for how long they are permitted to stop; driving with windows up and doors locked. Supply drivers with cell phones and trucks with GPS. Whenever possible, any GPS system should be covertly installed to reduce chances of its being detected and disabled by the hijackers.

If your company contracts out delivery functions, make sure that all the preceding items are included as part of the contractual obligations for doing business.

Seals

Seals … perhaps one of the more boring topics of discussion in the arena of supply chain security. Boring, maybe, but absolutely essential. Understanding the different types of seals and the best application for utilization of each is critical in the development of a well-rounded supply chain security program.

How good are seals at preventing theft from the supply chain? U.S. government tests showed an average defeat time of typically used seals to be 4.3 minutes using tools readily concealed in a pocket or hand. Some were defeated in seconds. This gives cause for concern, but it is important to note that seals are generally not intended to “prevent” theft, but rather to record that an event took place. It is really not a question of whether or not a seal can be defeated, given time and tools, all seals and locks are vulnerable. The real question is “Can it be defeated and tampered with in such a way that it can avoid detection?”

Here, we will discuss some of the major types of seals, the proper application for each type, and how to develop a sound working program for your company.

Types of Seals

No two types of seals are alike. Each type is developed with a specific target use in mind. The effectiveness of any seal is compromised when someone tries to use the wrong product for a specific application. All too often this is done simply because of cost. “Why use a $5 bolt seal to secure a trailer door when I can just as easily spend only a couple of cents and use a band or light wire seal?” To understand why that’s a bad idea, you first have to understand the ins and outs of each type of seal.

The International Cargo Security Council defines a “seal: as “a product designed to leave non-erasable, unambiguous evidence of entry.” Unlike locks, seals may offer little or no resistance to unauthorized access. Unlike intrusion alarms, seals report entry after the fact. They must be inspected, either manually or electronically, to determine if unauthorized access has taken place. All seals have some kind of unique identifier or “fingerprint,” such as a serial number or random pattern.”

This definition needs to be narrowed in order to fully discuss the proper applications for each type of seal. As a general rule, seals are classified under two main headings: indicative and barrier. Indicative seals provide no resistance or hindrance against intrusion. Their sole purpose is to tell the end user if the container being protected has been violated. Barrier seals are security devices that function both as a lock and seal, providing all the aspects of the indicative seal, plus some element of physical deterrence against unauthorized entry.

Let’s discuss a few of the more common types of seals used for the protection of the supply chain.

Indicative Seals

Metal Ribbon Seal: A light-duty seal made from sheet metal. One end of the ribbon snaps irreversibly into a head at the other end. It is generally stronger than a plastic strap seal but still not considered a barrier seal. Also know as a “car-box” or “car-ball” seal.

Padlock Seal: A “self-locking” seal that looks like a padlock. The seal-locking body is often made of plastic, with the shackle being made of metal. The head usually has a serial number and sometimes a logo or company name. Despite the term, padlock seals are usually not intended to function as locks. Padlock seals are often used on commercial and residential utility meters and are one-time-use seals.

Plastic Strap Seal: A one-piece plastic-molded strap with one end that snaps irreversibly into a head or housing on the other end; it is also known as a plastic ribbon seal. These seals come in a variety of sizes and types, depending on the manufacturer. They are very popular for use on containers/trailers because they are typically very inexpensive. A major weakness of this type of seal is the ease with which it can be cut by a straight-edge razor or knife and glued back together, often without detection.

Wire Loop Seal: A seal consisting of one wire twisted around one or more other wires with a metal or plastic head or housing that crimps, traps, or holds the ends of the wires. This light-duty seal is used for hampers and small bins.

Barrier Seals

Bar Lock: A barrier lock that secures the door bars in place on a container or trailer. These locks are produced in both a reusable and one-time-use variety. Some have an integrated cable seal that serves as both a bar lock and integrity seal. This type of integrated locking/sealing system is typically a one-time-use item. Bar locks arguably provide the highest level of antipilferage protection. Being a “key” operated devise, they are by no means immune from the possibility of tampering or being defeated. Proper key control is essential to maximizing their effectiveness.

Bolt Seal: Possibly the most popular of all barrier seals, it consists of a strong bolt with one end larger than the hasp and the other end designed to snap irreversibly into a cylindrical head or housing. Bolt seals come in both one-time-use and reusable designs. Reusable seals are removed with the aid of a seal remover devise, similar to EAS removers. Bolt seals are used mainly on truck and container doors. As with all seals, the designs, effectiveness, and unique applications vary depending on the manufacturer, so understand both before making any commitment with a particular manufacturer.

Since 9/11, new government regulation makes the use of bolt seals a requirement on containers being imported into the United States. The International Organization for Standardization (ISO) has developed standards for bolt seals that U.S. Customs has adapted. Therefore, it is important that any bolt seal you decide on meets or exceeds PAS ISO 17712 standards. Ensure the manufacturer provides details of compliancy testing.

Despite being viewed as “acceptable” theft-deterrent seals, bolt seals can and have been defeated. Common defeating techniques include the following:

Bolt seals come in two parts: the shank/bolt and the locking head/locking mechanism. This characteristic makes any bolt seal vulnerable to manipulation. All the parts are interchangeable, which means there are countless ways the seal can be manipulated or defeated. All you need to do is retain the locking head with the seal number. The shank can be cut and replaced easily. Makers like to push double numbering (numbering on the shank and the locking mechanism) as a means for making the seal more secure. This solution is good in theory perhaps but not in practice. The B/L has no area in which to detail that the bolt is double numbered, and few people will look for it or note it. They check that the seal is okay and that the number is correct. They never know that the seal has been tampered with.

Spinning usually happens with inside employee collusion, but it is not required because spinning has also been done in the field. In as much as shanks are ubiquitous, all it takes is an employee to take a few home or an employee to purchase them in the market. The shank is then “prepared” for spinning in any machine shop. The bolt/shank is cut in half below the bolt head, and the two pieces are then prepared to have a male end with threads and a female end to accept them. The two ends are then screwed back together tightly so as not to show the preparation. The bolt/shank is then married with a numbered locking head and put to use on a container of choice. This method is also used by distribution center shipping personnel who have access to genuine seals. Seals are removed from the premises, modified, and returned. Accomplices then follow the truck, and when it is left unattended, they strike. Spinning is also used as a method of collusion with truck drivers.

Once the container is in the field, the prepared shank can be unscrewed and the seal removed. After the cargo is stolen or contraband is inserted, the seal is screwed back together. Upon inspection, the seal number is correct and the seal appears to be fine. The prepared part of the shank is nothing more than a fine line which usually lies unseen within the door hasp. After you have signed off on the seal, you have bought a big problem.

Bolt seals applied only to the door-rod handles can be circumvented and the doors opened and reclosed. The bolt seal remains intact with no apparent evidence of tampering. This is the same method as used in defeating a lock.

Cable Seal: A barrier seal made from aircraft cable with each end crimped or irreversibly clamped onto the head, housing or “locking” body. The cable is both heavy duty and adjustable. The cable portion of the seal imitates the bar lock by securing the doors in a similar manner. Cable locks can be an effective alternative to bolt seals and also meet PAS ISO 17712 standards.

All cable seals are not created equal, however, and care should be taken when selecting the proper product. Cheaper generally never means better. Three common methods of defeating cable seals are as follows:

Twisting the cable out (ratcheting). If the cable is twisted and pulled at the same time in opposite directions, the ball and cable together create a pull strength, which can remove the cable. The only tool needed is a pair of pliers. The seal remains fully functional and is then used to reseal the trailer after intrusion.

Picking the lock to release the mechanism. In this method, a pin is inserted into the aperture holding the cable. The pin releases the pressure of the holding ball inside the seal, allowing the cable to be backed out. Once the cable is released, the trailer door can be opened, and the same seal can then be used to resecure the door. The intrusion goes totally undetected.

Freezing the seal. Seals with empty interior space can be filled with water by using a syringe and frozen with a fire extinguisher. When the water freezes, it forces the internal ball mechanism to retract, releasing pressure on the cable, thereby allowing the cable to be pulled out. In the winter, no extinguisher is needed. Just fill the seal with water and wait 10–15 minutes.

Electronic Seal: A seal that contains electronics and is electrically powered by batteries. Electronic seals typically check continuously for signs of tampering, and some report back to the end user in “real time.” Electronic seals can utilize RF and GPS technology that allows the end user to track cargo. Encrypted electronic seals are permanently attached to the rear door of a trailer or truck. These seals automatically generate a new seal number when reset. This type of seal is generally used by companies that own and operate their own fleet of trucks.

Developing Seal Control Protocols

Whatever type of seal you choose to control your supply chain, you must develop a procedural protocol to control the purchase, distribution, and storage of the seals. This would include a methodology for attaching the seal, removing the seal, filing the seal after use, and auditing compliance. Without such controls, the effectiveness of any seal is compromised. Components of the program should include

Types of seals you need for all applications.

Who will purchase the seal, because one-source purchasing is a best practice. This source ensures proper order sequencing of seal numbers.

How seals will be inventoried and stored once they are delivered. Seals should always be maintained under lock and key.

Who will be responsible for control of the seals. Seal logs should be maintained by the caretaker detailing when seals were received, number sequencing, and distribution of seals.

How seals are to be applied to outgoing vehicles and how seals are to be removed from incoming vehicles. This procedure must include checking of all seals for evidence of defects and/or tampering, as well as what to do with those defective seals or seals suspected of tampering.

The setup of a filing system that requires used seals to be maintained on file for a defined period of time.

Development of a monthly auditing program to ensure adherence to your seal control procedures.

Distribution Centers

Any review of supply chain security must include a discussion of distribution center security protocols. A company could have extremely tight controls on its supply chain and still have high losses if it ignores its own backyard, the distribution center.

In this section we will examine the distribution center. We will look at some of the many ways losses occur in this environment and the steps we can take to minimize the risk of loss by utilizing physical security controls and auditing protocols.

How Losses Occur

It would take a book dedicated to this subject alone to truly discuss the variety of ways that theft and losses can occur in a distribution center/warehouse environment. Space does not permit such a discussion, so we will look at a few of the more common ways that losses can occur.

As in all sectors of the retail business, internal dishonesty poses a huge challenge for the loss prevention professional. These risks can be even more pronounced than those encountered on a store-line level due to a different set of circumstances. Distribution centers and warehouses are large facilities with many unsecured locations where theft can take place in relative seclusion. Cameras can’t be placed everywhere, and security officer resources are generally limited, which leaves plenty of secluded areas where loss can occur.

One of the biggest differences that separates store-line and distribution center theft is the growing trend by many companies to outsource their warehouse operations. “Outsourcing” is when a company hires a third party to run its day-to-day warehouse operations. The workers are employees of the third-party company, not the retail company. Outsourcing may be beneficial to the company in that often it reduces operating expenses, but it also reduces an important mitigating factor that can help reduce a company’s vulnerability to loss: That factor is company loyalty.

All companies want “quality” personnel to work in their facility. The quality of the workers goes a long way toward determining productivity and how efficiently the warehouse operates. When a company hires its own workers, it controls the quality issue. When the company outsources, it loses that control. When a company decides to outsource, generally the reason is that it wants to reduce expenses. As a normal course of events, the final selection of a service provider comes through a bidding process. All too often, the low bidder is awarded the contract. To be profitable, the third-party provider needs to keep its expenses as low as possible. Because its main expense is in worker salaries, these tend to be lower paying jobs. Even in union environments, the salary structure and benefits of the contract workers are generally well below what the company that contracted for the services would have paid to its own proprietary staff. To keep costs down, the company does not perform any type of background check on employee candidates. Companies could add that as a contractual requirement before awarding a bid to a third-party provider but seldom do because that would drive up the cost of service and reduce the realized operating expense savings. All this helps drive down the common denominator of “worker quality.” When the quality goes down, exposure and risk of loss goes up.

Most outsource companies do not utilize the same hiring practices as the companies that hired them. Screening processes are brief, with an “any warm body will do” mentality. The workforce fluctuates in size depending on the workload, so layoffs are frequent and sudden. Workers know this and act accordingly. The combination of low wages, poor benefits, and uncertain term of employment can add up to trouble for loss prevention personnel. Combine this with the temptation of the merchandise itself and the opportunities for theft afforded by a large distribution center, and you have a formula for real shortage issues.

Understanding how thefts occur means you also need to understand the makeup of your workforce. Just as gangs can “attack” a retail store, they also can attack a distribution center. The difference is the gangs that attack a retail store usually come from the outside, as opposed to the distribution center, where the gangs are part of the actual workforce. It is not unusual for multiple gangs to be working in a single location. The “gangs” that operate in a warehouse, however, differ somewhat from the usual image that the term “gang” normally brings to mind. We are not talking about violent street gangs such as the Bloods and Crips, but rather groupings of individuals who work together in a planned manner to steal merchandise. Often these groups are ethnically or racially bound. These “gangs” know of the existence of the other gangs, but they do not generally operate in a cooperative effort, but rather divide up the distribution center by “turf.” Traditionally, they recognize each other’s turf and will steal merchandise only from their own areas. Each gang will have a leader who is generally a longer term employee who “knows the ropes.” The leader will direct his operatives, collect the stolen items, and arrange compensation for the other gang members.

“Muling” is a term associated with theft of small amounts of merchandise, from the warehouse, on a continual basis over a long period of time. In this method, an individual gang member (the “mule”) would hide one or two items of merchandise on his person every time he physically leaves the facility. Body straps are used around the midriff or upper leg, which is a common area where merchandise can be hidden. Restrooms or hidden corners are the prime areas where merchandise is taken, and just as in a retail store, a “lookout” is almost always utilized. These items are then brought to a central collection area manned by a gang leader. The gang leaders are responsible for disposing of the merchandise, either through fencing operations or operation of their own store. The leaders will compensate the “mules” by the piece. Compensation can take the form of either money or goods.

“Short-ship” is a term denoting a shipment from the warehouse that arrives at a destination location missing pieces. All too often, short-ships are not merely mistakes. More and more retailers are reducing store-line staff, leaving fewer people to do the same amount of work. One of the areas that companies look at when they want to reduce in-store work requirements is in the receiving of goods. Reducing or even eliminating the need to detail receiving has given warehouse gangs the freedom to steal almost at will. On a wholesale level, warehouse gangs have become very adept at knowing which clients do and do not perform detail receiving checks of all incoming goods. Likewise, on an in-house warehouse operation, employees know what the corporate rules are for checking in merchandise. When these checks are reduced or eliminated, warehouse gangs can “short-ship” cartons being prepared for shipping. If an order calls for 12 items, they make pack only 10 or 11. The shortage can go undetected because the paperwork piece count is correct leaving the distribution center, and unless the shortage is noted upon arrival at the destination store, it is the store that will be stuck with the shortage.

In “pallet stuffing” or “carton stuffing” an extra pallet or carton is placed on an outbound trailer. Here, collusion is usually in play. The truck driver, dock supervisor, and possibly security personnel may be working together. The truck pulls away from the warehouse and is followed by another vehicle. The truck diver makes an unauthorized stop, where the “extra merchandise” is then divided up.

Delivery “miscounts” most often occur when the delivering driver has become “friendly” with the dock supervisor who is in charge of accounting for incoming deliveries. Oddly enough, this scenario does not usually involve internal collusion. A delivery driver who frequents specific warehouses can become a “trusted” figure with the dock supervisor. When a rush occurs and the dock becomes a hectic place, this “trusted” figure may “help out” by unloading his own truck. The driver takes advantage of the situation by leaving one or two cartons in the truck. The driver then asks the supervisor to sign the bill of lading. If the supervisor does not double count the cartons, he just bought a shortage. If he does double count and finds the discrepancy, the driver then “double-checks” the truck and conveniently finds the missing cartons. The dock supervisor does not detect any foul play.

Preventing Warehouse Theft

The best way to defeat any the methods previously discussed is to have a plan. As with any preventative plan, the extent of your preventative measures is almost always tied into and controlled by budgetary concerns. This is especially true with physical security control methods. A good plan, however, will be a combination of physical security controls, auditing functions, collusion, and internal theft deterrents. Most of elements require little or no funding. Let’s look at some best practices for each of these areas.

Physical Security Controls

Use of CCTV: A monitored system utilizing both PTZ and fixed-location technology:

image Fixed cameras should be used on those areas that require constant monitoring.
image Multiple monitoring stations are needed to maximize efficiency.
image Multiplexed or digitally recorded: A 31-day library should be maintained for investigative follow-up.
image A video image printer and/or CD burner should be used for event documentation.
image An Auto-Tour option on all PTZ locations ensures cameras are always directed at critical areas.

Use of uniformed security personnel either “contract” or “proprietary.”

Guard tour controls—both inside and outside the building.

Use of perimeter fencing.

Proper exterior yard lighting: 1 to 3 candlepower is generally sufficient.

Parking controls: Private vehicles should never be allowed to park in or around truck bay door areas.

Use of yard gates or gate houses.

Access control: Use of proximity or other card access control system to limit movement liability:

image Use of delayed egress/audible crash bars to control fire exits.
image Truck driver entry cages to control warehouse access; truck drivers should not be able to walk directly into a warehouse proper.
image Barrier lines taped or painted on the loading dock to psychologically limit a driver’s access to the building.
image Use of day/screen gates on bay doors for use in warm weather.
image Locking of bay doors when not in active use.

Auditing and Inspection Program

Provide random escorts of containers from entry ports or depots to your warehouse.

Perform random audits of goods shipped and received:

image Have weekly minimum requirements of shipments to be audited.
image Use in-house and independent outside auditors.
image Document all audits.

Ensure opening and closing controls for warehouse access; should be a minimum of two people, one a member of security and the other management.

Set up security inspections to address the following areas:

image Key and lock maintenance.
image Fire door alarms.
image Parking lot/perimeter checks.
image Burglar alarms.
image CCTV maintenance.

Maintain cargo container lock/seal program:

image Establishment of container/truck locking standards.
image Establishment of container seal standards.
image Locking of “in transit” trailers/containers.
image Use of “king pin” locks on trailers parked in yard.
image Logging controls for all incoming and outgoing seals and locks.
image Storage and distribution controls for all seals and locks.

Establish auditing and follow-up controls of all noted discrepancies.

Collusion Deterrents

Ensure random guard post rotation: Never leave a security guard in a permanent assigned post; it reduces your flexibility and invites collusion.

Rotate dock assignments for shipping/receiving teams.

Rotate assigned bay/dock locations for regular drivers.

Internal Theft Deterrents

Establish a single point of access and egress for all employees. This facilitates inspection controls.

Establish a “dress code.” The wearing of jackets, coats, baggy clothes, and “own” brand merchandise while in the warehouse proper should be prohibited.

Establish exiting security inspection of all parcels, packages, briefcases, etc.

Establish random inspection of exiting personnel.

Establish an employee “hotline” for the reporting of dishonest activity along with a reward program.

Use pre-employment background screening for all warehouse employees.

A Post 9/11 World

Like it or not, 9/11 changed the way we will conduct our business for many years to come. Prior to 9/11, security expenditures for securing the supply chain were predicated mainly on financial ROI versus actual cost of losses due to theft. Post 9/11, government regulations and liability concerns were added in as an additional component in determining supply chain security costs. Several available forums enable security professionals to reach out and make connections with their counterparts in the international supply chain community. A global economy and the need for security in the international supply chain creates the need for such forums. Why? Since 9/11, corporate security executives now have

More visibility, authority, and often more responsibility within their corporations. It might be said that in many companies, supply chain security has moved up from the basement to the boardroom.

Increased responsibility for the international supply chain and increased interaction with new areas within their companies, their trading partners, and government agencies.

The need for reviewing the correct balance of corporate security, cargo security, and homeland security (which itself is a moving target at best) impacted by the latest intelligence or terrorist event.

The impact of the 9/11 Commission Report was to create a renewed sense of urgency in the U.S. Congress to adopt many of the Commission’s recommendations:

Private-sector preparedness is not a luxury; it is a cost of doing business in the post-9/11 world. It is ignored at a tremendous potential cost in lives, money and national security. (Quote from the 9/11 Commission Report)

Over 80 congressional committees have jurisdiction over some aspect of homeland security. This creates funding and turf battles among those committees and among federal agencies. All are trying to do the right thing, but opinions vary. This creates problems for private industry because this segment is never quite certain of what new requirements or regulations may be coming down the pike.

All this poses a real challenge for the retail loss prevention professional. That challenge is how best to balance the cost for loss prevention, security, and safety against the need to conduct day to day business. Most private companies would agree that this is best achieved through voluntary, cooperative efforts between private industry and government rather than mandated regulation. Congress has already authorized several voluntary programs to foster cooperation between private industry and the government. Programs that currently impact U.S. and international cargo security professionals include

Customs Trade Partnership Against Terrorism (C-TPAT)

U.S. Customs and Border Protection’s Container Security Initiative (CSI)

Custom’s prenotification requirements for shipments to the United States

Electronic advanced manifest requirements

Operation Safe Commerce (OSC)

The impact of these government initiatives is that importers and transportation carriers are enhancing their security posture and obligating source manufacturers, freight forwarders, and carriers to do likewise. The result has been that many importers have found that the benefits of making the expenditures needed to participate in these programs outweigh the costs because they have enjoyed large reductions in supply chain losses, and at the same time, the government now has thousands of additional soldiers in the war against terrorism.

For retail loss professional executives, all these provide new challenges for the retail community. Many of these challenges come from trying to plan for the unknown:

What new rules will come from the U.S. government (100% screening, new recordkeeping requirements, new background inspection requirements for employees handling cargo, ANSI standards, etc.)?

Will business continuity plans address heightened threat levels or a terrorist event?

How will other governments respond to these U.S. trade initiatives?

Will other countries impose harsher, retaliatory regulations in response to U.S. requirements?

Which rules will take precedence, and will there be multiple sets of rules with which our companies need to comply?

The United States and other governments recognize these pitfalls and are attempting to reach international security standards that are both reasonable and effective.

The balancing of sometimes-conflicting security requirements of our companies and those of government bodies will always be a challenge. The need to stay involved in supply chain issues is imperative if we are to see the big picture and make informed decisions. The importance of being able to represent our companies’ positions and concerns and making our expertise available without being seen as a threat to other stakeholders cannot be understated if the loss prevention community is to work together to help shape these debates in a way that assures security measures are both appropriate and effective.

We need to be aware of all this if we are to successfully navigate the growing tendency to blend logistics operation, security, cargo theft, loss prevention, and antiterror measures. If we are not careful, we run the risk of misallocating limited resources and ignoring the traditional responsibilities and role of retail loss prevention professionals. Neither serves our companies or our profession well.

International Cargo Security Council

Based in Washington DC, the International Cargo Security Council was commissioned by the Johnson administration to be an advisory council to the Department of Transportation. It was spun off as a private council during the Reagan administration. The ICSC is dedicated to combating cargo crime and, since 9/11, terrorism. ICSC is the only association that reaches across all layers of supply chain security and includes security professionals in transportation and from the entire spectrum of the supply chain; that includes manufacturers, air, truck, maritime, rail, intermodal, law enforcement (local, state, federal, international), and government.

ICSC has but one single agenda: the safe and secure movement of the world’s commerce. Membership is open to anyone who deals with the secure movement of cargo, anywhere in the world.

ICSC’s objective is to improve cargo transportation security through voluntary government/industry efforts and act as a central clearinghouse for information relating to trends, techniques, and efforts to prevent cargo-related crimes and terrorism. In addition, the association provides a platform to educate the transportation industry, law enforcement, and private industry on matters relating to security of cargo and support government and transportation center initiatives that lead to the development of more effective programs to combat cargo loss and defend against terrorism.

You can learn more about the International Cargo Security Council and how to become involved in securing the retail communities supply chain by visiting its website at www.CargoSecurity.com.

Surveillance

CAS, JHC

A surveillance is an investigative technique involving the surreptitious observation of a person or place. There are two types of surveillance: fixed and moving.

A fixed surveillance, also known as a “stakeout,” is the surreptitious observation of a fixed location conducted for the purpose of gathering evidence of a crime or to apprehend persons who have or are committing a crime. For example, a fixed surveillance of a house may be conducted when information is received that a person on whom an arrest warrant has been issued will visit that location during the surveillance, thus providing an opportunity to perform an arrest. Another example of a fixed surveillance is the stakeout of a distribution center or store in the belief that merchandise is being illegally removed through an emergency exit or over the dock, and a surveillance will establish this fact and the perpetrators can be identified and arrested. Fixed surveillances can be conducted from other fixed locations (such a nearby houses) but most commonly are conducted from automobiles and/or minivans or panel trucks, containing observation positions frequently behind tinted windows. Such vehicles are often disguised as commercial vehicles (painting companies, for example) so their static presence on the street will not attract undue attention.

A moving surveillance can either be a foot or vehicle surveillance, and often is a mixture of both. Such surveillances are normally conducted to follow the movements of suspects for the purpose of identifying other persons contacted or places visited.

In both the fixed and moving surveillances, portable radios are used to maintain contact and communication between the surveilling agents and surveillance vehicles. Photographic equipment, including cameras with telephoto lenses and camcorders similarly equipped, are used to obtain documentary evidence of the suspect’s activities. Under specific circumstances as allowed by law, tracking devices may be surreptitiously attached to the suspect’s vehicle to assist in keeping its location known, thus permitting a more discreet surveillance.

(1) Information about Pay By Touch taken from Pay By Touch official website (www.paybytouch.com).

..................Content has been hidden....................

You can't read the all page of ebook, please click here login for view all page.
Reset
3.143.4.181