MOS: Marked out of Stock or Missing out of Shrink?
Tim Casey, Executive Director, Operations, LP Innovations
Although the calculation of shrink is quite simple, the factors that determine
your shrink calculation may not be. Damages, known thefts, defective
merchandise, mismates, return to vendors and items 'marked out of stock' (MOS)
could be creating some "black holes" in your shrink percentage.
The MOS concept is fairly straight forward and used by most retailers. An item
that cannot be sold because it is damaged for example, is documented as such
allowing the merchants to replenish that item onto the sales floor. This affords
the retailer the opportunity to replace the non-saleable item as opposed to not
having that item available until the next physical inventory cycle.
The "black hole" as it relates to the MOS concept is in the process itself. The
tracking, authorization, verification and disposal of these items are where
shrink can be hidden, theft can occur or inventory padding can take place. Let's
take a look at some of the more common MOS "black holes" that can leave your
company exposed to hidden loss.
Damages, Defectives & RTV
(Return to Vendor)
Non-saleable merchandise due to damage or defect should be maintained and
recorded to properly receive credit from the vendor (RTV) or destroyed. A
retailer should not be responsible for poor manufacturing nor should a customer
be stuck with a damaged item.
When it comes to the process of handling damages, is your process set up to
reduce potential loss?
||Who is authorized to damage product?
||Who verifies that product is damaged or
||Who confirms the disposition of product?
Even if your process addresses and answers the above questions, additional
questions to ask are:
||When was the last time an audit was
completed on your damage process?
||Can you ensure that the process is actually
being followed in your locations?
Could an employee steal through your damage process or a manager "pad" their
inventory because they know a District Manager or Store Manager does not follow
Technically a known theft is not really known unless someone sees the person
steal the item. However, we as retailers assume that a theft has occurred if
certain indicators are present. Price tickets in a fitting room, an empty box,
or an empty hanger are possible indicators that an item was taken and not sold.
Some companies document known thefts to track potential theft. Others document
them for replenishment purposes. Some may even use documented known thefts to be
adjusted in their inventories (we hope this is not the case).
Read more here.