Process Failures and Shrinkage

6/1/2008 | Palmer, W., RILA Report

(Originally published in RILA Report – Asset Protection – Volume 2 – Issue 4, June 2008)

During the benchmarking session that Adrian Beck and I did at the Loss Prevention conference in Dallas last month, there was a piece of data generated by the audience that was very striking. We asked the audience of 200+ loss prevention personnel the following question, “Over the last 12 months, what has been the biggest problem your business has faced in terms of financial cost?” The choices for response were:

  • Internal theft
  • External theft
  • Process failures
  • Vendor fraud

Based on the historical results from the National Retail Security Survey, one would expect the audience to respond with internal theft since that category is typically assigned 45-49% of total shrinkage in the survey results. However, using an interactive keypad system, most respondents identified process failures as their response. Here is how the results broke down by retail segment:

Retail Segment Internal Theft External Theft Process Failures Vendor Fraud
Mass Merchandisers 24% 21% 52% 3%
Dept. Stores 30% 20% 50% 0%
Grocery 38% 0% 47% 15%
Big Box Specialty 31% 19% 50% 0%
Small Box Specialty 46% 25% 29% 0%

Keep in mind, these responses represent what the respondents viewed as their single biggest problem, not how much shrinkage they attribute to the various causes. What is remarkable is how every segment identified process failures as their number one problem with the exception of small box specialty retailers where it came in as the second biggest problem.

When we asked this same question in the U.K. last October, we received a similar result with 53% of the audience identifying process failures as their biggest problem. The U.K. results are slightly less startling in that European Loss Prevention surveys have consistently ranked process failure as a larger cause of shrinkage than the Americans do with the most recent result in Europe identifying “Process Failure” as contributing to 27% of total shrinkage (versus 17% from the most recent NRSS study in the U.S.).

What are we to make of these results? First, a disclaimer about the method in which these results were generated. This session did not have the type of statistical or scientific rigor that Dr. Hollinger uses when compiling the NRSS. For instance, it is clear that multiple personnel from the same company responded to the survey which could cause one company’s experience or viewpoint to have a disparate impact on the results. Also, the sample population was not controlled and was simply comprised of those who showed up for the session and participated in the responses. That being said, it would seem that the responses can be used as a broad indicator of the direction of sentiment from the RILA attendees.

Second, the manner in which respondents interpreted the question could have an impact on the results. A respondent could respond in this session that process failures were their biggest problem but could also report internal theft as the largest component of shrinkage if they view internal theft as a result of process failure.

Those disclaimers aside, it is an interesting result that begs for further inquiry. We would be interested in hearing from you in regards to how you interpret these results and what your viewpoint is relative to process failures and the impact on your business. You can contact us at:


Originally published in RILA Report – Asset Protection – Volume 2 – Issue 4, June 2008

© 2008, Walter E. Palmer, PCG Solutions, Inc., All Rights Reserved