Illustrative retail diagnostic: a food and grocery chain wrote off shrinkage every stocktake at a steady rate without knowing cause or location. The diagnostic found variance was never attributed — so the same loss patterns repeated and no store could be held accountable.
Illustrative scenario — not a specific client.
This chain had forty-one stores and two regional distribution centres. Twice a year the stores counted stock; the DCs counted quarterly. Every time, group shrinkage came in between 1.8 and 2.1 percent of retail sales — steady enough that the board almost stopped asking questions. The commentary in the pack was always some version of “broadly in line with last year.” Under the surface, though, nobody could defend the number. Category managers blamed fresh and perishables. Store managers pointed at suppliers shorting deliveries. Loss prevention had a list of stores that “felt” wrong. None of it showed up in the accounts as anything other than a single lump.
What leadership wanted was ordinary: split the loss by cause — supplier short-ship, damage, till error, theft, spoilage — and by place, so they could see which stores and which categories were bleeding. Operations and finance tried. They could not produce it. The diagnostic was asked to find out whether the gap was a reporting problem or whether the organisation had simply never asked for the right detail when it still mattered.
The stocktake process told most of the story. When counted quantity and system quantity disagreed, the difference was posted in big buckets — by department or category — and cause was optional. Handhelds had reason codes, but when the count ran late and everyone wanted to go home, people picked “unknown” or left the field empty. Head office rolled everything into one shrinkage line for the month. After that, you could not honestly say whether the gap was someone walking out with stock, a pallet that never made it from the DC, or yoghurt that went off in the fridge without being written down in time.
Supplier and DC behaviour made it worse. Short receipts at the DC sometimes turned into a claim against a vendor; sometimes they were absorbed as “operational variance” and never traced to a store that never received the goods. At store level, shrinkage did not separate “we never got it,” “we got the wrong thing,” and “we lost it after it hit the shelf.” So when fresh produce looked awful across a dozen stores, you could not tell if the problem was the supplier, the DC pick, or handling in-store — only that the category hurt everywhere.
Between full counts, the picture was even blurrier. Perpetual inventory was weak: markdowns, damages, and transfers between stores often landed in the system in batches days later. Loss stacked up invisibly until reconciliation, when it all poured into the same bucket. Operations had no early warning by store or category — just a periodic shock when the total variance landed.
None of that is fixed by putting cameras on the ceiling or trialling RFID if you never record why the number moved when you still have someone at the shelf who remembers.
The chain had been pitched loss-prevention platforms more than once. The diagnostic’s conclusion was blunter: tools cannot attribute what the process does not capture. So they started with process. Reason codes became required once variance crossed a threshold — at count and for adjustments during the month, not only at the big reconciliation. Ownership was clarified: store management for what happened after goods arrived, the DC for inbound, procurement for repeated supplier shorts. When a claim was settled, the supplier record actually got updated — lead times and fill rates — instead of living only in someone’s inbox. They added a lighter monthly variance review at store level so drift surfaced before the next full count. And management reporting finally split DC shrinkage from store shrinkage instead of blending them into one comforting percentage.
Nobody pretended shrinkage would disappear. The point was to stop writing off the same mystery every six months and calling it normal.