The Critical Role That Scan-Based Trading Plays In Shrink Reduction

Scan-based trading has traditionally been a preferred means for retailers to reduce their on-hand inventory - and the carrying costs associated with it. Suppliers have also found benefits with this process as it eliminates store check-ins while enabling greater control over inventory and orders. Both trading partners realize savings, and advancements in industry-leading technologies that support scan based trading have led to more collaborative and proactive approaches to an area that can offset any gains in profitability: inventory shrink reduction.

What is Shrink Reduction?

Shrink can take many forms. Perhaps the most common is "inventory shrink", which includes product that is lost, stolen or damaged. A second form is "paper shrink", which is a term used to refer to book inventory that is unaccounted for due to paperwork errors such as:

• Inaccurate delivery and credit quantities or costs
• Erroneous inventory count records
• Incorrect invoice and payment processing

Retailers are all too familiar with the impact that shrink can have on sales, profits and customer satisfaction. Suppliers that have embraced scan-based trading and the ownership of inventory at stores are also acutely aware of these same effects. 

5 Ways Technology Promotes Shrink Reduction

It's time to examine how new scan-based trading technology can help trading partners promote shrink reduction through proactive collaboration, increased supply chain transparency and better access to advanced analytics.

SEE ALSO: Top 5 Ways to Embrace the New Scan-Based Trading

Synchronizing Data Between the Retailer and Supplier

The key to successful shrink reduction through scan-based trading is having all trading partners on the same page about what's occurring with everything, from invoices to inventory levels. If both are still relying on paper-based systems, or working in silos using multiple software platforms to manage a fragmented SBT process, confusion can occur.

Data synchronization is the most fundamental component of this alignment. Scan-based trading is an ideal arrangement for progressive retailers and suppliers who identify the need to fully synchronize critical trading data such as: 

• Item costs
• Promotional activity
• Distribution changes
• Inventory levels. 

Advanced data sync solutions ensure all supply chain data is consistent between trading partners. All data becomes available in a centralized platform, and automatic daily audits identify and correct exceptions before they hit an invoice or affect payment and eventually cause paper shrink.

2. Maintaining Data Integrity

Shrink reduction cannot be optimized without establishing data integrity processes to maintain the accuracy of data on a daily basis, and at the most granular level possible. This includes a daily comparison of retailer and supplier pricebooks to ensure all variances are identified and corrected.

Selecting a scan-based trading platform that offers gatekeeper functionality for supplier requests submitted for retailer approval can provide a more proactive approach to maintaining this data integrity and synchronization. Additional benefits include:

• Both parties having access to the status of requests and approvals
• Having a record of each request for verification and research purposes
• The ability for both parties to process these data-sharing transactions more quickly and efficiently

These types of proactive data integrity measures have a significant impact on reducing paper shrink, which minimizes the need for accounting and financial audits to research potential causes of shrink and reconcile any errors or other issues discovered.

3. Eliminating Invoice Discrepancies

In a scan-based trading partnership, supplier payments are based on retailer point-of-sale data - which eliminates the need for delivery receiving, paper invoice generation and payments. By eliminating these steps in the supply chain, and replacing them with fully automated and electronic payment process, supply chain partners can significantly reduce paper shrink caused by:

• Invoice discrepancies
• Inventory receiving count errors
• Payment processing oversights

Access to all invoices and payments is made available electronically in a centralized, online portal where both retailers and suppliers can view, sort, filter, download and store all records pertaining to their joint scan-based trading business. In the event that shrink does occur and requires additional research, it can be conducted transparently in a centralized, user-friendly portal.

4. Better Visibility to Inventory Management

Industry-leading supply chain technology promotes shrink reduction by tracking both expected and actual inventory dollars and units - and the difference between the two comprising inventory shrink. This can be analyzed at a store/UPC level and can be filtered by region, delivery route or driver to identify possible patterns of shrink occurrences and establish greater accountability for shrink throughout the supply chain.

With enhanced inventory visibility, scan-based trading takes your shrink reduction management to a new level.  

SEE ALSO: How Scan-Based Trading Can Improve Inventory Management

5. Improving Shrink Reconciliation

Traditionally, retailers participating in a shared shrink arrangement with their suppliers receive an invoice for their portion of shrink liability incurred during the course of a scan-based trading partnership. Without scan-based trading technology, retailers are often not able to verify the details of these invoices or the calculations that were used to determine the amount billed. 

With more advanced shrink reconciliation, the expected and actual inventory dollars and units are used to calculate shrink by store and by UPC within a centralized portal. This software can then generate a shrink reconciliation report that is reviewed by the supplier and submitted to the retailer for final approval. Once that approval is granted, the portal can then apply the terms of the shared shrink arrangement to generate a shrink settlement invoice.

This technology provides better visibility to shrink calculations and greater transparency throughout the shrink settlement process. This collaborative approach takes full advantage of the benefits of scan-based trading from data sharing and synchronization to inventory management and shrink calculation.  

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