- A graphic user interface (GUI) or menu-driven structure designed around loss prevention concerns and issues
- The organization’s hierarchal structures for stores, districts, regional, and divisional reporting
- Data feeds from online POS, sales audit, human resources systems, payroll, store demographics, and any other information that can be analyzed for fraud
- Predefined business rules, queries, and reports that can be run on a regular basis to identify high-risk transaction and associates
- “Drill-down” capabilities allowing the user to start at a summary level and then go into deeper detail down to the transaction or even SKU level
- Ad-hoc reporting capabilities to allow users to define new queries against the available data
Increased Internal Theft Case ResolutionThe most immediate and obvious benefit from implementing an online POS exception reporting system is the improved ability to resolve internal theft cases. According to Cheryl Blake, vice president of loss prevention services for Aspect Loss Prevention, their clients experience:
- An increase in dishonest associates cases of up to 50 percent over the previous year
- Identification of issues an average of 23 percent earlier
- An increase in average case dollars for POS-related cases, anywhere from 20 to 70 percent
- Increased restitution due to better documentation
Prevention of Internal TheftDue to the success of POS exception report systems in increasing internal theft resolution, many users find that it quickly becomes a prevention tool. In fact, while case results initially go up, many organizations find that over time, case results actually start to go down. By looking at criminology theory, the reason this occurs is clear. Classic deterrence theory, as discussed in Crime & Human Nature by James Q. Wilson and Richard J. Herrnstein, identifies three necessary components that must be in place to deter an individual from criminal activity: • Severity, or what are the consequences if I get caught? • Certainty, or how likely is it that I will be caught? • Celerity, or how quickly will I becaught and punished? While we often focus on the severity of punishment, the other two factors are just as important, if not more so, in affecting people’s behavior. Clearly, online POS exception reporting systems have a dramatic, positive impact on both certainty and celerity, thereby increasing deterrence and prevention. In fact, many retailers “advertise” the capabilities of their online POS system to educate associates and, hopefully, keep them from making a bad decision. Mike Smith, senior vice president of loss prevention at Finish Line, ensures that associates know about their exception reporting systems from new-hire orientation to regular meetings to bold lettering on the border of each register that reminds associates that every transaction is monitored. “We clearly don’t hide the fact that we scrutinize all transactions,” says Smith. “We’d much rather deter fraud than lose profits, engage in confrontations, and spend time investigating people.”
Overall Reduction of LossShrink Results. Based on the increased apprehension rates and improved prevention, one would expect overall retail shrinkage to decrease after the implementation of a online POS exception reporting system. While it is often hard to isolate how much this system contributes to a decrease in inventory shrink numbers, there does appear to be a correlation. “We are having customers tell us they are seeing a 10 to 30 percent decrease in shrinkage that they attribute to our system,” says Aspect’s Blake. Addison Chan, vice president of business development for Triversity’s Fraud Watch system, relates how one client installed their system in fifty stores out of 160 on a test basis. When store by-store shrinkage results were analyzed eight months later, the stores using Fraud Watch had 50 percent better results than the rest of the chain versus previous inventory results. Cash Shortages. While most retail organizations already have some level of reporting on cash shortages, online POS exception system users reported decreases in this area as well. This represents potential savings of hundreds of thousands of dollars, since one study showed cash shortages alone were 0.37 percent of sales in 2002. Why the decrease in this area when reporting already existed? Often, it is because existing reporting did not have the depth necessary to improve performance. For instance, the ability to see cash shortages by cashier, or by register drawer, over a period of time is critical for follow up and remediation. Additionally, the ability to associate other transaction data, such as no sales and voids, gives additional insight. Credit and Gift Card Losses. Not only do credit card write-offs go down due to lower internal fraud and better compliance, but external credit card fraud can be impacted, as well. Bud Adrion, executive vice president for Retail Expert, says that several of their clients have used their Navi Stor system to identify, track, and prosecute external fraudsters. “One of our clients had a group using fraudulent cards up and down the east coast and was able to track them and have them arrested through the use of the exception reporting system,” says Adrion. “In fact, the FBI thought the reports alone constituted significant evidence in the case.” At Circuit City, they have used their system from Aspect Loss Prevention to reduce losses where fraudulent credit card transactions are used to purchase gift cards. “By using ad hoc reports on a daily basis, we have been able to freeze gift cards purchased this way before they can be redeemed,” explains Wayne Davis, corporate investigator for Circuit City. “We’ve been so successful with this and the dollars are so significant that we’ve added a line in our management reporting to reflect these savings.”
Time Savings and EfficienciesA key issue for many users is the increased efficiency of POS exception reporting systems when compared to traditional methods they’ve used. In the past, investigations relied heavily on in-store media audit or time-consuming examination of detail or journal tapes. Once automated, these processes are streamlined in a dramatic manner. One specialty chain that recently implemented an online POS exception reporting system is experiencing a total savings of 54 hours a week in payroll from the efficiency of the reporting. Initially, that may not sound like a lot, but with a total payroll of only twelve positions in the loss prevention group, it is a significant savings of time that can be reinvested into key activities, not “busy work.” Datavantage echoes that sentiment when they say their XBR system “eliminates hours of tedious manual review.” In fact, one study shows that only 8 percent of internal theft cases were identified in less than two weeks with their clients prior to implementation of the XBR system. However, that figure jumps to 35 percent of all cases after installation of the system. “After all, isn’t this the rationale for exception report systems?” muses Jim O’Connor, director of loss prevention for Bed Bath & Beyond. “When we implemented XBR, one of my driving forces was to make my staff more effective by freeing them up to focus on the people, not the data.”
Training and Operational ImprovementsIn addition to the loss prevention results these systems generate, many users cite training and operational improvements as key wins from the implementation of these systems. “Your employees are where it all starts…and ends,” says Larry Miller, president of Trax Retail Solutions. “Permanently changing their behavior is the ultimate key in preventing shrink and improving profitability.” Among retailers who use the Shrink Trax® system is Dan Faketty, vice president of loss prevention for Harris Teeter supermarkets. “Of course we use the system for loss prevention issues, but one of our biggest wins has been utilizing the same platform for operational issues and behavior modification.” Faketty explains, “Our store management teams get weekly reports showing their lowest performing cashiers on a number of key performance indicators (KPIs). But even more importantly, they also receive a list of their three top performing cashiers.” This information is then used to recognize and reward these top performers in a public forum, creating a positive environment where other cashiers strive for improved performance.
Calculating the ROI for Online POS Exception ReportingGiven all of the possible benefits that can be realized, how would one go about putting together a return-on investment summary for one of these systems? Identify Total Cost of Implementation. The first step to calculating ROI is to identify the total costs of implementing online POS exception reporting. If developing a system internally, it would include the following:
- Resource costs for the loss prevention team in developing the business and technical requirements necessary. This includes what queries, reports, and outputs are required from the system.
- Resource costs for IT personnel to develop the technical requirements based on the above and the management of the project plan.
- Equipment costs for servers, PCs, and data lines
- Costs for programming and development of the application, data migration and integration from external data streams, database administration and maintenance, quality assurance and testing, and technical support
- The price of the software application, whether a one-time purchase, an annual license, an application server provider (ASP) model, or another purchase model.
- Annual maintenance or support contracts.
- Installation costs and training fees.