From Wall Street companies to street-corner convenience stores, no business is ever immune from theft and fraud – least of all supply chains. From flat-out bribes to rigging supplier selection to pilferage of goods during transit, supply chains experience every possible level of theft and fraud, and as with any business organization, even the smallest theft or fraud instance can disrupt a supply chain or cause monetary loss.
If your business supply chain experiences theft and fraud, it is time to take corrective measures. Here are some top recommendations.
A fulfillment partner takes care of inventory management, order processing, packaging and shipping the package or consignment to the customer location. In other words, they are responsible for a large chunk of the supply chain activity. As a result, it is also at the fulfillment partner’s end where the theft and fraud is most likely to happen.
For example, loose packing of food items can result in pilferage. How can you identify if your fulfillment partner is engaging in theft or pilferage? Every supply chain will suffer some amount of loss during transit. These are predictable in nature and can be considered as normal losses. Anything over and above these losses is a hint that the fulfillment partner is engaging in theft or fraud. If the supply chain deals with physical goods with a definite number of SKUs, the best way to identify this malpractice would be by checking the difference between goods dispatched from their origin and those received in this end.
Therefore, it makes sense to have the right fulfillment partner who can help you minimize these discrepancies.
Theft and fraud mount in volume when there is excessive reliance on manual processes. A good way to prevent this would be by leveraging technology. In the supply chain, technology can act as a gatekeeper to prevent any form of manual malpractice.
A good example would be the use of barcode scanners for inventory management. Usually, physical verification of inventory is carried out manually where personnel count the number of items and update the physical count in a ledger or written record. Since the manual record can be manipulated easily, there is room for error, if not outright fraud.
If the manual process of inventory verification can be automated, by using an RFID scanner for scanning the bar code of the SKU and updating its count in a cloud-based inventory management software, the risk of manual error or fraud is minimized. It also simplifies overall inventory management since the warehouse personnel does not have to re-key the data for inventory planning.
However, even with technology, it is not assured that theft and fraud can be completely uprooted. This is where personnel accountability comes into play.
Even with the use of inventory management software and other high-tech supply chain management, things can go for a toss if the personnel do not have accountability for the process. When you make a specific person accountable for an operation or a metric, they are bound to become vigilant at ensuring that things run smoothly.
In a factory, production volumes are achieved because a foreman exercises proper control over production schedules, labor productivity, and inventory usage. Similarly, in a supply chain, fraud and theft can be reduced if specific people are entrusted to ensure inventory control, keep shrinkage below a specific rate and so on. This also calls for an org-wide cultural leadership where personal values like integrity are advocated.
Theft and fraud happen primarily in operations where process controls are weak. Yes, it is true that some supply chains are very complex, but skipping certain processes is a sure shot way to increase theft and fraud. Can such a situation be remedied?
Surprise checks and inspection rounds can act as remedies to lethargy towards following standard processes. Let’s take the example of an inventory count. As a process, warehouse personnel might be required to carry out physical verification of inventory and update them in the system on a weekly basis. Any variance thereof between actual stock and book stock should also be investigated and documented.
But, is this process followed to the T? A surprise check by independent personnel who are not involved in the day-to-day operations of the warehouse can help establish better control. It might also bring to notice any other process shortcomings or malpractices (including theft and fraud).
Supply chain is a huge process that is made up of numerous people and processes. Fraud and theft is inherent in the nature of the business, yet it can be mitigated by choosing the right fulfillment partner, establishing personal accountability among employees and vendors, and conducting surprise checks to insure everything is on track.
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