Youâve heard of paper dragons and paper moons. But paper shrink?
Focus in on Joe, the produce manager at Store No. 24. Joe calls his buddy Steve, who manages a sister store for the chain a few miles away at Store No. 61. Joe needs 10 cases of bananas to get by until his next delivery, and wants to know if Steve can help.
Steve is willing and able to lend a hand. He has plenty of product and can still adjust his next order to compensate.
âNo problem,â Steve says.
When Joe arrives and loads up an hour later, Steve charges Joe what he paid for the bananas â $15 per case on a store-to-store transfer sheet. No big deal, right?
One problem: Good-hearted Steve just created some good old-fashioned âpaper shrinkâ for himself.
How so? The warehouse may have charged Steve $15 for the bananas, but accountingwise the company also holds him responsible to sell those bananas for 56 cents per pound, a 49% gross profit margin, or $22.40 per case. When Steve sold bananas to fellow produce manager Joe for $15, the difference between this and the potential retail is $7.40 per case of money not in the cashiersâ drawer at the end of the day.
With just 10 cases going out the back dock to Joeâs store, this equates to $74 in shrink.
Multiply this scene over the course of a period, with stores helping one another out. As the late Sen. Everett Dirksen, R-Ill., was fond of saying, âA billion here, a billion there, and pretty soon youâre talking about real money.â
OK, we arenât talking billions. However, it still adds up. You can order correctly and rotate faithfully, but if youâre on the wrong end of lop-sided store transfers as in the banana example, you could find yourself with excessive accounting or paper shrink.
This shouldnât discourage you from helping out your neighboring stores. No one is perfect with the order pencil. Besides helping a neighboring store prevent out-of-stocks, there will come a day when youâre short 10 cases of âbones,â too, and they can return the favor. Itâs sound business.
A produce manager only needs to recognize how to account for the retail. Most transfer logs have a retail column that produce managers typically donât fill it in. You need to do this â extend it as accountants would â so that when the transfers funnel through corporate, they hold the receiving store accountable for the retail, and deduct this accountability from you.
This is also why itâs usually not good business for a retailer to sell a case of anything (at cost) to a nearby business, such as a restaurant or competitor. Thereâs no accounting for where it will lead.
Armand Lobato works for the Idaho Potato Commission. His 30 years of experience in the produce business span a range of foodservice and retail positions. E-mail firstname.lastname@example.org.
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