There Are No Honest Mistakes; DSD Fraud is Real

Anyone who works in the retail world, especially in the grocery industry will tell you that the risk for vendor fraud is high.?DSD (Direct Store Deliveries) if not properly controlled and managed can become a black hole to shrink.?Retail companies are constantly at risk of vendor fraud, which can occur through a variety of methods, including bogus returns, not giving credit for returns, shorting inventory, and stealing from the store.?My brother who retired from one of the largest beverage companies in the world once told me, that if you see a vendor in personal possession of his company’s product there is a strong likelihood it was stolen…stolen from a retailer for whom it was intended for.???To reduce this risk, retailers need to have strict receiving processes in place, with copious security thresholds and analytics, and continuously hold vendors to high standards.

One step retailer can take is to implement a thorough vendor onboarding process. This should include background checks and references, as well as a review of the vendor's history of fraud or compliance issues. Retailers should also have clear terms and conditions in place for vendors, including guidelines for returns and credits, and consequences for noncompliance. ?Severe consequences.?

When I was first assigned to the position of director for Walmart Supercenters, we were suffering an extremely high DSD shrink.??It caused our grocery shrink to be some of the highest in the industry. Job number 1 upon taking this role was to reduce our grocery shrink to below industry average. Quite the undertaking. Once we reviewed the entire supercenter procedures, we isolated vendor theft and fraud as one of the largest contributors to this loss.? We immediately several proactive and reactive tools to isolate and eliminate the threat. One such tool implemented was a controversial yet effective 3-Strike program that changed the course of our loss history.?? The theory was simple.? On top of increasing our awareness and inspection into vendor fraud, we created the program which outlined a 3-strike policy for all vendors.? The 3rd time an “honest mistake” or vendor error occurred, either on delivery, or during the return process of goods the delivery agent for that vendor was no longer allowed to serve that Walmart store, or any Walmart store in our chain.? This caused quite the stir, and remarkably after tossing a few non-compliance vendors, word spread, and our DSD shrink improved dramatically. Vendors retrained their delivery force and essentially laid down the law. We didn't give 2 more strikes when outright theft was discovered, in those situations we took aggressive action against the vendor, and filed criminal charges against the delivery person.

Another important step we took was ensuring that our dedicated receiving area had cameras that were audited for receiving audits, after the fact, to ensure our vendors and our receiving team were following proper protocol when checking in goods.? We invested in technology focused strictly on third-party deliveries to deter theft and fraud. It's essential that delivery personnel are always checked-in and escorted during their visit in the receiving area. Our receiving associates were retrained trained to inspect deliveries for damages and discrepancies, and to document any issues. During the receiving reset, and DSD shrink focus, we determined that several receiving managers were working in conjunction with vendors to defraud our company.?We developed the tracks of a thief and trained our loss prevention team on spotting signs that needed further investigation regarding collusion and potential theft.

Retailers can also take steps to ensure that inventory is properly tracked and accounted for. This may include implementing a barcode or RFID system, which can help retailers to track inventory and identify any discrepancies more easily. In addition, retailers should regularly conduct audits of vendor invoices, returns, and credits. Another step is to establish an open communication channel with vendors. Retailers should actively reach out to vendors to provide updates on the inventory and the received products, so vendors can keep track of their own inventory and returns. This will also help retailers identify potential issues early on and allow them to address any problems promptly.

Furthermore, Retailers can also use a fraud detection software, which can help to identify patterns of suspicious behavior and flag potential issues for further investigation. This kind of software uses advanced algorithms and machine learning techniques to analyze large amounts of data, such as transaction records and invoices, and can help retailers to identify potential fraud quickly and accurately. Partnering this with an open platform VMS like Salient enables retailers to manage a host of 3rd party analytics to keep the receiving area free of shrink.

Grocery retailers, and those retailers reliant on DSD need to be proactive to reduce the risk of vendor fraud. Reaction only identifies loss; it won’t necessarily stop it or recover the loss.? Proactivity will work to prevent the loss from occurring. This includes implementing strict receiving processes on the front side, like the 3-strike policy and having a thorough vendor onboarding process, dedicating a receiving area for third-party deliveries, tracking, and accounting inventory, establishing open communication channel, and using fraud detection software. By taking these steps, retailers can protect themselves from losses and damage to their reputation caused by vendor fraud and keep the DSD part of the business profitable and shrink resistant.?

By implementing a strong proactive program combating DSD shrink and fraud, and corralling many other gaps in our fresh departments, we were able to bring Walmarts grocery shrink to the lowest in the history of the company and make one CEO, Mr. David Glass, a happy man. My team of driven supercenter loss prevention associates and leaders made things happen and the results meant profit that could be reinvested into the growth of Walmarts grocery business.