Counters And Managers

     During my days with Quantum, I remember hearing talk about the concept of little "c" and Big "C". This is the idea that there exists two conceptions of who the client is an inventory audit. On one hand you have Big “C” who represents the top level or corporate interests in the audit, and on the other hand you have little “c” who represent the store level or district level management who usually are the subjects of an audit. This idea seems to exist for practically any company, the notion that you have a set of corporate officers with goals and desires, making decisions about the company that have an impact on the workers who represent the company at the ground level. This concept certainly exists for inventory services as well. It's not hard to see the corporate desires of a company like RGIS. Their desires cascade down through the levels of middle management so well intact, that they can effect the way people literally count the merchandise and perform their job. In this case small “i” can represent not just counters, but anybody in an organizational unit (district or division) responsible for doing the work required for the client. The responsibility of “C” seems to be to make sure that “c” is doing their best to meet their corporate needs (in most cases that means generating profits). In order to do this “C” are required to analyze the performance of “c” to ensure that these corporate needs are being meet, and will continue to be meet in the future. A part of their analysis includes performing inventory audits on the stores managed by “c”, and this is where “I”, and “i” come into play.


     In cases where bad audits occur, the person responsible is ultimately going to be “c”. While "C" may be tasked with making sure little "c" is meeting their goals, an inventory audit is ultimately about "c", whatever happens at the store, the local manager is responsible. It is the goal than of c to keep their corporate counterparts happy and content with their work, and to hopefully avoid any negative attention from "C" something a bad audit would likely bring. Similarly “i” also wants to keep “I” happy as well. Thus you have a environment where all “c” wants to do is to be on C’s good side by generating profits, performing well, and by having good audits, and all “i” wants to do is to generate profits for “I”, by posting good averages, and keeping costs down. The aims of c and “i” are definitely not mutually exclusive, in fact in many cases they can both be simultaneously achieved very easily. When we look an inventory audit perhaps it would be interesting to analyze the roles and parts that each of the participants plays namely, “I”, “i”, C and c.

     You may read about all types of stories of audit fraud from Jack Henry or from anti-RGIS blogs and after awhile you have to start to wonder how some of these people are able to get away with some of this stuff. How are people able to get away with just counting one shelf, or one checkout stand and estimating the rest? How are people able to get away with all sort of counting shortcuts, and with systematic padding of inventories that occurs over a period of time? The easy answer is that they are allowed to get away with it. I spent a year and a half working internally for a convenience store company traveling all over Illinois during inventory audits at their stores. The one thing I noticed was how important shrink numbers meant to the managers I worked alongside. My goal with this position was to do high quality work, to be extremely accurate, and through, and to perform my duties with some integrity, (something some of my predecessors did not have much of). While I’m sure the managers did respect the way I performed my job, and the effort I put into it, at the end of the audit, only one thing mattered and that was the shrink percentage. The company goal was to have audits under 1%, and one manager summed up it best, he said in regards to the shrink percentage, “As long as the first number is 0, I’m happy”. (Note that shrink percentages were expressed to 2 decimal places, ex: -0.74%) To illustrate how important these numbers meant, one day I tallied the shrink percentage that was less than 1%, and this caused the manager to literally throw her arms around me and give me a bear hug saying “Thank you”. On the flip side of this, I once tallied a shrink number so bad, it brought another manager to tears. Another great story involved a district manager; I had done 2 of his stores on 2 consecutive days. The audit on the first day was over 2% which was not very good, I was on the phone with the DM on the next day, telling him that day’s audit was under 1%, which made him happy, he said to me “Greg, have I ever told you how good of a job you do?”. Half-joking I replied, “Well you didn’t say that to me yesterday”. Such is the life of an inventory counter, the court of public opinion will rise and fall with those shrink numbers. There are probably some managers out there who believe that any bad audit they get is the result of bad counters, (regardless of the validity of such a claim). A lot of managers will still dread an inventory audit, and there are a lot that don't care for inventory counters and what they do. Still others may turn towards a counter for some help, a little boost here and there to help make their audit look a little better. At the root of a lot of collusion cases is the desire for the manager to make themselves look good for corporate, and when the inventory counter has a similiar aim in mind, that's when you have the recipe for collusion.

     What c wants out of an inventory audit more than any other thing is a good shrink number. Granted this is not to say that c doesn’t care completely about inventory counting accuracy or inventory counting integrity. The thing is when there's an audit with a bad shrink number, this is usually the time when a manager will question the accuracy of the count. A manager questioning a counter’s accuracy when the shrink number is good, is rare, and I mean really rare. Confronted with a good audit, most managers will not think too hard about how an auditor actually counts certain things in a store, or about how good the counts really are. A good audit means they will escape the scrutiny of corporate, and live to see another day. Why would any manager argue that a count should actually be worse than it actually is? And just as there will be counters who try to cheat a little to boost their average and make their performance look better for corporate, don’t think that there don’t exist managers who try to tip the scales in their favor during an audit. I’ve seen managers move stuff around during an audit, keep invoices off the book before an audit, post date invoices, attempt to get credit for writing off merchandise multiple times, all sorts of wonderful things. One of my favorites was this one manager, who had received a bad audit in his eyes, and asked for another count. In both instances the manager knew the date and time of the count, and before the second count he went around his store and priced everything up to absolutely ridiculous levels. I think an 8.3oz can of Red Bull got marked at like $3.99. The audit crew at this store didn’t believe some of these prices and were scanning the product with a price gun much to the manager’s dismay. When the crew leader called me to tell me what had happened, I instructed her to take the price off the gun. I’ve also have heard plenty of stories of “off the book transfers” of merchandise between stores when there’s audits taking place, one time I even witnessed a manager from another store drive up to an audit that was taking place and dump 4 totes of merchandise for us to count saying that this stuff had already been transferred and that we needed to count it. Another story involved a grocery store chain, that we counted during my days with RGIS. For this client we would do numberous recounts for practically every store that we did. At each store we would hand our recounts to a DM, who would go through and choose which count to take. Every single time the DM would circle the higher number. It didn't matter to him wheather the higher number came on the recount (which would indicate growing shelf stock) or on the original count, all that mattered to him was getting the higher number. There are a lot of situations where managers need higher numbers, and they will do a little more than nudge counters citing mantras like "count it high or go home". Perhaps though for inventory counters higher numbers aren't necessarily a bad thing either.

     Counters are trained, and for the most part conditioned, by audit companies to be above all else fast. This training includes not just being able to handkey and cut a few corners here and there, but also having a quick wrap up to end the count. And this will include avioding conflicts with managers and avoiding trouble that could arise from miscounts and bad variances. Even though counters are supposed to be neutral and indifferent to the shrink percentages, it’s hard not to want good numbers to come about. No matter how long one spends doing audits, seeing someone get hit with bad audit is something you never get used to, nor is it something you can ever really enjoy. You might as well tell people that they have cancer (in a figurative sense that may be close to the truth at times). A bad shrink result can be very emotional, it can cause a lot of grief and headaches for the manager, but more than that it leads to the concept of further analysis. For the counter this may include recounts, and time spent researching why there exists such a variance. These types of things can bring down the productivity of a counter. A good shrink number conversely will be very agreeable for the manager, and can lead to a quick wrap up of the count. In these cases there's very little for anyone to complain about. A good shrink number makes everyone look good, both the manager and the counter, and everybody is happy. But from the counter's standpoint a good shrink number will be more productive because less time is spent researching possible mistakes, with either the count or with the book values. A counter has some reason to favor a good audit over a bad audit, other than favoring hugs over tears. While counters may be somewhat neutral or possibly indifferent to the shrink number, they may not go out of their way to nail a manager with bad shrink. A smart manager can use this idea to their advantage. One of easiest ways a manger can cheat on their inventory counts is to utilize pre-count sheets, either pre-listed or pre-counted figures that represent actual merchandise stored somewhere in a store. An honest counter in theory would check the accuracy of such sheets before including these data figures into their count. A productivity-conscious counter will not. In some companies I’ve worked for, it’s quite common to input pre-count sheets without giving any thought at all about the accuracy of the numbers on the list, or if the sheets even represent any real merchandise at all. A lot of counters will just view it as something else to “do” to complete a count. Merchandise stored in cases could also give the manager an opportunity for a small boost on his audit. With merchandise packed away in boxes that are out of sight, a manager can make things seem fuller and more dense than they actually are. It would make sense to assume that the cases on the bottom of a stack are full right? Well from my experience that's not always true. A supervisor I once worked for had a term called "fake outs". He used this for anything in a store that looked like it contained more merchandise than it actually did. The productivity-conscious counter is not going to tear down the stacks of Gatorade or cases of beer to make sure that they are all full, they generally won't move much product about in order to actually “count it”, there not going to grind it out for better accuracy, for them if a case looks full it is full. In fact the general way the manager maintains the merchandise in a store can be to his advantage as well. The things I hear audit companies and counters complain about more than anything is the disorganized, messy way in which some stores stock is maintained, especially in backrooms and storage areas. Audit companies talk a lot about having stores clean and organized, and well prepped for their arrival, in order for them to do their jobs easier and better. And I’m sure that to some extent an audit is more accurate the more organized a store is, but the thing is a more accurate audit, isn’t necessarily a better one in terms of the shrink percentage. During the time I spent working internally I produced plenty of evidence of this notion over and over again. There exists too many factors that go into a shrink percentage that a counter simply can’t control regardless of how they go about counting the merchandise. The counter’s main job really is not to control or even reduce shrink, it’s to measure it. A more disorganized store may increase the overall error of this measure. A measurement error that benefits the manager are exactly what they would want, given that they are not too excessive to the point, where it would eventually bounce back. Another way to cheat if you’re a manager is with the price gun. While most counters will raise an eyebrow at an 8.3 can of Red Bull marked at $4, few might bat an eyelash if something were inflated by smaller amounts of money say 10, 25, maybe 50 cents. If the price seems reasonable enough, the productivity-conscious counter will count items the way they are marked, and for items that aren’t marked, the productivity-conscious counter is trained to use “standard-industry pricing”. In other words they take a stab at it based on their counting experience, some people invariably are better at this then others. Of course the use of barcode scanning in inventories will pretty much eliminate this type of measurement error.

     The other player in this drama is big “C”. And with ”C”, we get the concept of the client in this process. Some would say that the client is both “C” and “c”, and in some ways a store manager can reap some benefit by the results of an inventory audit, either good or bad. An inventory audit is an opportunity to learn about things that may be taking place at a store, it offers a manager a chance to determine what needs to change about the way things are run. But ultimately a manager is the subject of an inventory audit, they are the ones being measured. In a larger sense the true recipents of this measure is “C” the corporate management, most notably the accounting and loss prevention departments. "C" is the entity that commissions an audit, and what they want out of an audit can differ drastically from that of a manager. To illustrate what “C” wants out of an audit I turn to Jack Henry for this exert:



“…I was told that at the end of their last inventory cycle, one store needed to be recounted. When the crew arrived for the second count, the crew chief asked, “How much difference are you looking for?” The loss-prevention manager replied, “That’s none of your business.” Rephrasing his question, the crew chief asked, “Then what should the last count have been?” Again, the loss-prevention manager said, “I told you that’s none of your business. All I want from you is an accurate count!” The loss-prevention manager told me, “When the crew chief learned that I was not the store manager, that I was from corporate, you should have seen his face….”


     This exert brings to light two points. One is that it’s “C” that most needs accuracy from an inventory count. This is no more true then it is for Loss Prevention. From a Loss Prevention perspective the inventory audit is done to determine if there’s any theft taking place. This is one of the biggest reasons that audits get done in the first place. I can’t forget spending a weekend at Quantum's headquarters and hearing some corporate officer ask why we do this, why are we in this business, only to exclaim “Because people steal!” I also can’t forget when I worked internally, hearing my boss actually confess that I really work for LP more than anyone else at our company. My old boss was right, inventory counters are doing work that most serves LP. The ‘data’ that inventory counts collect helps LP determine if they need to investigate a store more, or spend their time on more pressing issues elsewhere. Inaccurate counts, can make things tough for LP in their quest, which is to ultimately save the company they work for money. An inaccurate count could either give a signal to non-existent trouble where there may be no theft issues at all, or more dangerously mask or conceal issues that don't appear in the shrink results. It’s easy working internally to see the deeper impact and the importance of inventory counting on the other people who work for the company; decisions get made based on inventory counts. Yet the idea of how important an inventory count is for "C" doesn't get across very well for people who work externally. Part of the reason, likely is the interference that comes from “I”, who desires for an inventory count differ a lot from “C”. The other point made by the exert from above, is that “C” is not much of a presence for most inventory counters during an inventory count. Most members of “i” aren’t aware of “C”, or what they want. Apparently “C” at times takes on such a ghostly force that “i” doesn’t even realize when they are talking to them. For the average member of “i” they interact with their own co-workers, agents of “I” (usually their superiors), not to mention store associates and members of store management, interactions with people above the store level, like LP are rare. When “C” does show up for an audit, “i” probably doesn’t even notice, nor would the two ever really be formally introduced. The whole audit process starts with “C” coming to “I” wanting counts to be done in order to accumulate information about their own company, but eventually the actual act of performing inventory counts comes down to a process being acted out through “c” and “i”, with little oversight from their corporate counterparts. When you consider this scenario it’s not hard to understand how fraud can occur in inventory counting. What’s also worth noting is the different forces at work for an inventory counter stuck in the middle of all this. “C” needs “i” to produce high quality work, that’s accurate and though and complete, but “c” needs “i” to produce work that will reflect well on themselves and their store, while “I” needs “i” to produce work that’s efficient and productive, and most notably profitable for their company. These 3 aims for “i”, do not mix very well, often the needs of those closest to “i” will win out, the loser in this battle most of the time is “C”, their influence on "i" is the least direct. Take accuracy for example, the LP manager wants a highly accurate count that essentially reflects exactly what is in a store at a given time, but the store manager only wants a count to be accurate in so much as to not affect them negatively, while the auditing company wants the counters to be accurate to a point not to affect the profitability of the process. With this in mind consider how much the counters who work for an auditing company worry about accuracy, and then ask yourself who's winning this battle? But what about “i”? What exactly is their aim in all of this? Do they have any interests in regards to an audit? Or are they just pawns in this game, mere counters who show up and count according to the way people want them to. In many cases they are there to provide a “service” for many different sets of people. But if the needs of “C”, “c”, and “I” are in conflict whose needs should “i” give preference to? Who’s service is of the greatest importance dictating how counters should count. This could be a gigantic area for disagreement.