It’s estimated that the cost of business crime in the United States now exceeds $100 billion a year and is responsible for nearly 1/3 of all corporate bankruptcies. In a survey taken by a national accounting firm, nearly 25% of the respondents reported that theft related losses in their respective firms exceeded $1 million.
Most wholesalers, consolidators, freight forwarders and distributors that find themselves victimized by internal theft share a common denominator: They have usually committed one or more of what I refer to as The 7 Deadly Sins of Logistics Security.
Is your company guilty of making any of these costly mistakes?
1. Are you relying on safeguards that simply don’t work?
Ask most executives how they protect their inventory and they’ll answer “alarms, guards and closed circuit television.” If these security solutions are effective, then why is it that so many companies that sustain loss have these controls in place?
Alarms are designed to protect against break and entry, not theft committed by insiders – which is how inventory loss usually occurs. Most uniformed guards are not adequately trained to recognize internal theft and collusion. Closed circuit television will only be effective if it has been strategically designed and consistently monitored, which is typically not the case.
2. Do you make it easy for dock personnel to work in collusion with truckers?
Because they don’t know how to prevent internal theft, many companies inadvertently make it too easy for drivers to work in unison with shippers, receivers, checkers and loaders. These theft schemes are silent, with no bells or whistles going off to alert anyone that they are taking place, which is why they oftentimes add up to a small fortune.
3. Is your company too reactive?
A large percentage of companies that incur shrinkage do little to prevent it from happening in the first place. By the time they decide to take action, they’ve already incurred a substantial loss and the missing inventory is never recovered.
It’s been repeatedly proven that preventing loss is far less expensive then reacting to it.
4. Do you have an efficient way for concerned employees to report security problems?
A confidential hotline can be an invaluable tool to learn about individual theft, collusion, fraud, workplace substance abuse, arson, product tampering, harassment or discrimination. Yet, many companies still rely on methods of communication that don’t work for security sensitive issues like these, such as open door policies or in-house tiplines. As a result, employees who become aware of unethical or illegal activity tend to remain silent.
In order for a tipline program to be successful it should be outsourced so workers can speak to people who won’t recognize their voices. Employees are more likely to confide in someone outside their company, rather than using an in-house system for tips.
Equally important, callers should never have to provide their name. The best response comes when you offer complete anonymity. The way we accomplish this with the Danbee Hotline for example, is to provide every caller with a code number, which is one reason why we’ve received information that has exposed millions of dollars of losses.
5. Are you checking your checkers?
Too many companies have made the mistake of not keeping their checkers accountable. Because of this lack of oversight, a percentage of checkers become negligent or dishonest over time, and that’s when companies can rack up substantial losses.
One effective way to control the accuracy and integrity of your checkers is by having loss prevention audits regularly performed. These can be done numerous ways.
One method would be to have a security representative arrive (without any advance notification) during the time your trucks are being loaded, select one (or several) and reconcile the product found on the trucks to the shipping manifests.
Another technique would be having surprise audits performed on your trucks as drivers begin their route deliveries. We refer to these as non-covert surveillances. By having an investigator meet a driver at their first stop and performing a verification of each piece delivered throughout the course of the day, you will uncover product that has been over-loaded.
Both of these security techniques are excellent ways to not only detect collusion or gross negligence, but they will also prevent it from taking place.
6. Does your company effectively weed out on-the-job substance abusers and distributors?
Nearly 90% of all employee drug users either deal or steal to support their addiction. As many distribution executives have learned, if you have a drug problem inside your company, you can expect to have a theft problem as well.
Two of the best ways to identify drug users and distributors on your payroll is through the use of a tipline program or by inserting an undercover investigator into your operation.
7. Do you provide meaningful training for your key personnel?
All too often, losses occur because managers and supervisors are not educated on how to recognize the subtle, ingenious ways that theft takes place in a distribution center. Keep in mind that much of this theft and collusion looks exactly like standard operating procedure. The reality is that if your key people don’t know what they’re looking for, they probably won’t see it.