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RETAIL Risk and High Technology

Gone are the days when retail losses were primarily caused by a few malicious individuals who stole company merchandise. In the more complex modem world, losses can be attributed to operational snafus, tracking errors, sophisticated theft rings and technological errors, all of which can result in millions of dollars of lost income. Ironically, technology designed to enhance and improve retail businesses can also subject them to new areas of risk. Retailers who focus only on traditional problem areas are missing a sizeable opportunity to identify and address more significant loss areas. The following best practices will help retailers use technology to reduce loss in their operations, while minimizing their exposure when integrating these new technologies.

Creating New Opportunities for Loss

If businesses implement a new technology but do not know how to correctly operate it, temporary losses may result. However, entirely new areas of loss may also be created due to a fundamental shift in the way business is conducted. In other cases, technologies increase the risks associated with certain types of transactions that were previously considered normal course of business. The following are just a few examples of how new technologies expose retailers to new areas of loss.

Progressing through the learning curve. Any time there is a shift to a new technology, retail executives and associates must progress through a learning curve, losing time, money and other resources along the way. While there is generally a lot of optimism surrounding the implementation of new technologies, not all integrate smoothly.


Upgrading point-of-sale (POS) technology is an event during which most retailers experience increased losses. While corporate decision-makers focus on productivity gains, streamlined processes and other benefits associated with upgrading the system, one area that is rarely considered is exposure to loss. Retailers have covered many miles with their legacy systems and are extremely comfortable with them-moreso than they may realize. For as long as a company used its existing POS system, it had educated itself on conditions under which loss could occur and knew how to identify and track losses.

The reporting capabilities of a new POS system may be less understood, meaning that the regular loss reports are not run and managed for several days or weeks while users progress through the learning curve. New processes also carry risks. For example, if a new system grants override privileges to all cashiers, as opposed to giving them exclusively to managers, there is an opportunity for more associates to conduct high-risk or potentially fraudulent activities. For these reasons, the transition to an upgraded system can be expected to generate a short-lived increase in loss.

Altogether new risks. Some technologies may present entirely new areas of loss by changing the way business is conducted. Access control is a prime example. Previously deployed as a standalone system that was owned and managed exclusively by physical security professionals within a company, access control is now exposed to entirely new risks and operational uses, due in part to the proliferation of IP technology. The value of IP is in the convergence of diverse data sources with access control data being a key component that can now be collaborated with data from other systems. But with easy access comes increased problems if a business fails to properly plan for deployment and control data generated by the new systems.

As new data from access control systems arrives in the network environment, the risk of that information being inappropriately accessed, manipulated or even deleted greatly increases. The key to deploying any new technology is to understand there are inherent risks associated with the form in which the data will now be available, as well as new risks from malicious individuals.

New meaning to old risks. Some new technologies simply elevate the risks associated with certain types of transactions that were previously not a problem. Whereas suspended transactions were neither common nor important at traditional, operator-run registers, they are much more significant at self-checkout kiosks. Suspended transactions at the cashier stand generally happen because of a price check or a customer going back to pick up a few forgotten items in the store. However, at the self-checkout kiosks, suspended transactions are often indicative of a problem, such as a customer not knowing which produce code to enter or how to complete a payment after scanning all the desired items. This could lead to frustration and, ultimately, abandoned shopping carts at the point of sale.

Another possible explanation is unethical behavior on the part of the customer or the monitoring associate. A customer may approach the selfcheckout with multiple products for appearances, scan several less valuable items, slip the desired product in a bag and then walk out of the store without ever completing the transaction. Suspended transactions did not pose a risk at traditional registers given the involvement of the cashier and were therefore not flagged as risky behavior. However, failure to elevate this kind of transaction in today's retail environment may result in significant losses.

Minimizing Exposure

While there are risks associated with change, retailers should take a few, basic precautions when implementing technology to minimize their exposure to new areas of loss.

Develop key expectations for performance. Prior to implementation in a beta environment, it is critical for retailers to outline expected results from the new technology. Consideration should be given to end-user interaction and how the new technology may impact current user roles. One question to ask is whether the new technology will broaden the number of users or reduce it from those that are currently involved with legacy systems. Specific focus should always be given to evaluating how the new technology can be best deployed from the aspect of training and oversight and how the system can be used to maximize productivity.

The best preparation for minimizing risks associated with deployment is to work through as many "what if scenarios as possible. The manufacturer may provide you access to other customers who have recently implemented the same solution. This opportunity should not be overlooked, as it is an invaluable source of information. Previous adopters can provide information about hurdles, unexpected challenges, major impacts on the business and a list of things they would do differently. By clearly evaluating risks up front, it will be much easier for the retailer to put measures in place to avoid problems before they install the technology.

Never underestimate the value of beta testing. The implementation of any new technology should include a beta test with limited rollout to a single store or small group of stores. The value of the beta test is that it allows the organization to experience the transition in an actual scenario without having to worry about it impacting operations across the entire organization. It is much easier and less expensive to address issues and adjust processes on a limited scope, versus enterprisewide.

Keep an open mind and be willing to compromise. Any technology will impact some aspect of the business-customer service, operational processes, functionality or operability. A system that improves one area may necessarily compromise another.

For example, a legacy system may have controlled access to a limited number and type of users. New systems may give more privileges to associates. While this gives them an ability to better serve the customer quickly, it may also increase risk of loss due to errors or poor judgment. The system must ensure that priorities are met and that the technology is configured to meet the needs of the organization. No matter the capabilities, not all systems will be a perfect fit.

Technologies to Track Losses

The same technologies that can increase losses, however, can also help reduce them. Properly used, these systems can provide valuable information to support loss prevention efforts. POS systems track key information about a product: when it left the store, how it was paid for, how much was paid for it and who completed the transaction. Good POS systems provide functionality beyond the basic, calculator-type capabilities of totaling, adding taxes and generating receipts.

More sophisticated systems interface with other data-capture solutions, so that reporting can include valuable information from inventory management, loss prevention and even video surveillance technologies. Retailers should select systems that offer flexibility and enable export of transactional data into a database for review and analysis. These features ensure robust reporting capabilities that make the information accessible to retail managers for loss prevention efforts. Key performance indicators pulled from the POS can provide managers with critical information about loss: the number of price overrides and voids, how many were attributed to each cashier, receipts over a certain dollar amount and multiple purchases with a single credit card number.

Inventory management systems provide valuable information about products while they are in the retailer's possession. Significant losses can occur during the receiving and warehousing process, making information collected by inventory management systems important to retailers. These systems should be able to provide reports that include basic information such as inventor)' turns, stock to sales ratios, and dollars and units in inventory at any particular time, as well as more detailed information such as items that have not moved in more than four weeks. If an item is not moving, a retailer should investigate whether it is simply not being selected by customers, if it was warehoused in the wrong location, if it was damaged or if it was stolen.

Retailers that leverage technology to streamline their businesses stand to gain tremendous operational and financial benefits. By also understanding how these new systems alter some of the operational aspects of the business, and by evolving their loss prevention measures to take these new systems into account, retailers will be in a great position to look for loss in all the right places.

Joe Davis serves as director of loss prevention and operations strategy at Encapsulon, a leading provider of loss prevention technology for retailers.

Copyright Risk Management Society Publishing, Inc. Jun 2006
Provided by ProQuest Information and Learning Company. All rights Reserved

Source:  Davis, Joe "RETAIL Risk and High Technology". Risk Management. . 09 Apr. 2008., RETAIL Risk and High Technology, Risk Management,  Jun 2006  by Davis, Joe

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