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Finance 2012 Retail Huddle

Using procedural review audits to tackle loss

By Andrew Wren, andrew.wren@wrensolutions.com

The year is quickly drawing to a close. With the final quarter upon us, retailers are tabulating the score for 2011 and building their game plan for 2012. Unfortunately for the retail industry, there was no economic rebound in 2011 and the economic malaise will likely continue. Surviving – and certainly winning – in this challenging economic environment will depend on retailers’ ability to maintain complete control and awareness over their business, and streamlining operations to achieve greater profitability and complete customer satisfaction.
 
Procedural review audits (PRAs) are an excellent way for retailers to do this. PRAs are designed to audit critical areas of retail operations in order to identify failures and enable managers to address them before they begin to cause significant losses. These audits help retailers move toward their goal, scoring better profits and customer satisfaction critical to their survival. Here are some things to keep in mind when reviewing your plays for 2012.

Start the 2012 Line-up Now
Economists are sending clear signals that an economic recovery will take longer than anticipated, painting a gray outlook for retailers in 2012. Higher gas prices continue to eat into discretionary income and also trigger increases in online sales, causing many brick and mortar stores to lose footing.

Savvy retailers will use the remainder of this year to begin mapping out their game plan for 2012: making the most of limited resources, focusing on known areas of loss, and putting measures in place to keep a close eye on what is going on in the field. PRAs are a critical part of this process. Retailers can begin identifying areas that require monitoring and create and issue audits in those areas so they can start off the new year with full awareness. Retailers can use this final quarter of the year to test audits in local stores to see what works and what doesn’t work, train employees on the audit process and to learn from the greatest loss-causing problems in 2011.

Strengthen Offense and Defense
Retailers’ efforts should be focused on two strategic areas in 2012:
1)    Defending every penny of profitability by preventing losses and streamlining operations; and
2)    Proactively achieving the best possible customer satisfaction.

Customers have a wealth of choices when it comes to where they shop. They expect and prefer clean, safe shopping environments where items are available, easy to find, and competitively priced. They want their experience to be pleasant. They want good service and short lines. A bad experience could lead the customer to go elsewhere, never to return, and walking away with the retailer’s current and future revenue stream. PRAs should evaluate customer service to ensure that the experience is optimal for every customer, every time.

This could mean auditing merchandising to ensure that displays and promotions are properly and safely displayed, that shelves are stocked so that customers can easily find the products they want and need. Or it could involve checking front-end operations: conducting randomized audits to monitor wait times at checkout, determining if employees are asking customers if they found everything they needed, and ensuring the exits are clear of carts, boxes, debris. It’s a good idea for store managers to conduct an exercise to walk in the customer’s shoes all the way through the store, noting areas where frustration might occur and building those areas into audits.

Profitability depends on an enormous range of variables. From shrink, to streamlined operations, to labor efficiency – the list is virtually endless. Auditing profitability means conducting PRAs in areas including ordering, receiving, processing, mark downs, point-of-sale, security and risk management, shrink and theft, transportation and distribution, invoicing, DSD, employee awareness and hundreds of other key drivers in the retail environment.  PRAs are a great way to build awareness of loss-causing problems in the field so that the retailer can defend profitability.

Search for Root Cause
The best PRAs will not only identify key risk areas, but will also reveal the root cause of the problem. Instead of asking exclusively if food storage areas are maintained at the correct hot or cold temperature, the better audit will ask additional questions about if all new employees have been trained on how to operate the equipment and if the equipment has been properly maintained. This allows the audit to point to the possible reason for the failure, enabling the retailer to address the root of the problem more quickly.

Don’t Fumble
Many retailers fumble when it comes time to take action on the findings of the audit. No PRA is successful if findings are ignored. Retailers must have processes in place to take immediate action based on PRA findings. The goal is to work through the point of failure and address it to strengthen the overall performance of the company. Companies must have processes and culture in place to assign accountability for someone to carry the ball to the end zone. PRAs can identify important and alarming trends and failures that the corporate office should be aware of to determine if lessons can be learned and problems prevented in other locations or company-wide.

Executives should support audits and create a culture that values them and gives them the importance they deserve. This also means valuing the results from the audits, taking time to review them, and building incentives for stores and managers around completing audits.

In a tough struggle against a stagnant economy in 2012, PRAs will help retailers block and tackle their way through another challenging year in retail. With this type of game plan, retailers in even the toughest retail segments can avoid getting hit on their blind side.

Andrew Wren is CEO of Wren (wrensolutions.com), a company founded by his father, Clifford Wren, in 1983. Wren is responsible for corporate and product strategy, leveraging his more than two decades of security technology expertise provider. He can be contacted at andrew.wren@wrensolutions.com.

© 2014