The Shrink Puzzle at a 1,200 sq ft Neighbourhood Supermarket
A 1,200 sq ft neighbourhood supermarket in a Haryana town records monthly sales of ₹18 lakh across four departments: staples (42% of sales, 18% margin), dairy and bakery (20% of sales, 12% margin), packaged snacks and beverages (26% of sales, 22% margin), and consumer electronics accessories such as earphones, chargers and memory cards (12% of sales, 38% margin). The owner's annual stock audit shows shrinkage of 1.8% of sales against a company target of 0.8%. The electronics accessories counter is open-plan, sits beside the rear staff door, and has never been cycle-counted. All deliveries arrive at a single rear door; the receiver signs the invoice without opening cartons when the tempo driver is in a hurry. Two staff members buy goods on employee discount, and their purchases are written in a notebook rather than billed. Staples are reordered whenever the shelf looks empty. Lead time on staples from the local mandi supplier is 4 days and average daily sale is 60 kg; the owner keeps no safety stock.
1. Rank the four departments for an immediate cycle count and justify the order using the data given.
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Rank by risk-weighted exposure, not by sales value alone.
Step 1 – value. Monthly sales of ₹18 lakh give: staples 0.42 × 18 = ₹7.56 lakh; snacks 0.26 × 18 = ₹4.68 lakh; dairy 0.20 × 18 = ₹3.60 lakh; electronics 0.12 × 18 = ₹2.16 lakh. By pure value, staples comes first.
Step 2 – adjust for risk. Electronics is small, high-value per unit, open-plan, next to the staff door and never counted. One missing ₹800 earphone destroys the margin on roughly ₹2,100 of staples (800 ÷ 0.38). Staples, though the largest by value, is bulky and hard to walk out with.
Order: (1) electronics accessories; (2) packaged snacks and beverages – pilferable, high margin, fast-moving; (3) dairy and bakery – count by batch and expiry, because here the loss is expiry, not theft; (4) staples – count to fix reorder accuracy, not to catch theft.
Scale: 1.8% of ₹18 lakh is ₹32,400 a month against a 0.8% target of ₹14,400 – an ₹18,000 monthly gap. Locate it before buying any control.
2. Calculate the reorder point for staples and explain what the owner's present reordering practice does to availability.
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Reorder point (ROP) = average daily demand × lead time + safety stock = 60 × 4 = 240 kg + safety stock.
With zero safety stock, any single day of supplier delay or a demand spike empties the bin. A one-day buffer adds 60 kg, giving 300 kg; a two-day buffer gives 360 kg. Recommend 300 kg to start, then review after three order cycles against actual daily sales variation – if Saturday sells 85 kg and Monday 40 kg, the buffer must cover the peak days, not the average.
Second fault: reordering when the shelf looks empty makes the display capacity the trigger. If the display holds 80 kg, the store starts ordering at about 80 kg – already deep inside the 240 kg needed to survive the lead time – so it stocks out for roughly three days in every cycle. Fix the trigger at 300 kg, record closing stock at the same hour daily, and set the order quantity to cover lead-time demand plus the review period, not merely to refill the shelf.
3. The owner has ₹25,000 to spend on loss prevention. Propose where it should go and why, covering receiving, display and employee purchase.
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Spend where the risk sits, not where it is easiest.
Receiving (highest return): a carton-count and seal-check rule costs nothing but discipline – sign only after counting, write shortages/damages on the invoice and get the driver's signature. Add a cheap counting table and a marked receiving area (about ₹3,000). Most shrinkage that is not theft is paperwork.
Display (about ₹15,000): a lockable glass case or a hanging pegboard with one empty display pack and stock behind the counter for the top 20 electronics SKUs, plus EAS tags on the rest. The counter is beside the staff door, so restrict that door to deliveries and keep it alarmed or locked.
Employee purchase (about ₹2,000): bill every staff purchase through the POS with a manager approval code; the notebook cannot be audited and creates suspicion of staff that is not evidence.
Balance: CCTV over the counter and rear door (about ₹15,000 if trimmed elsewhere) only pays if someone reviews footage; otherwise weekly cycle counts of the top 20 SKUs by value catch drift faster. Do the counts first – they are free and they measure whether any of the spending worked.