A Tale of 2 Cities & their Excessive Defectives

St. Louis vs. Kansas City? Miami vs. Des Moines?  Colorado Springs vs Coral Springs? Who are the Winners & Losers in these Battles over Excessive Defectives?  Boyd Evert & Al Frank explore various case studies, highlighting the impact of store management, employee training, local regulations, and environmental conditions on product quality and defectives claims. Ultimately, the conversation emphasizes the importance of data analysis in recovering revenue from invalid deductions claims.

Takeaways
* Same supplier, same products, different cities can yield different results.
* Store audits can reveal patterns of behavior affecting defectives.
* Manager philosophies can influence merchandising and defect rates.
* Shipping and transportation differences can impact product quality.
* Environmental conditions play a role in product defectiveness.
* High crime areas may correlate with higher defect rates.
* Employee training is crucial in managing inventory effectively.
* Local regulations may affect consumer protection and defect claims.
* Turnover can lead to training gaps and increased defectives.
* Data analysis is essential to uncover root causes of defects.

Chapters
00:00
The Tale of Two Cities: An Introduction
00:57
Understanding Defectives: Root Causes and Patterns
03:17
Case Studies: St. Louis vs. Kansas City and Beyond
05:29
Environmental Factors: The Impact of Conditions on Products
08:02
Shrink Issues: The Role of Self-Checkout and Employee Training
10:12
Regulations and Employee Turnover: Hidden Influences
11:51
Final Thoughts: Data-Driven Insights on Defectives

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"Wiser Decisions, Fewer Deductions"

Transcript

Same supplier with the same products at two stores in two cities, but one with a slew of excessive defectives in one city and in the other city, none. How? The tale of two cities next on the Savvy Supplier.

Al Frank (02:20.578)
Welcome into the Savvy Supplier where we save you time and money. I'm Al Frank. Boyd Evert the CEO of HRG is here with the story of suppliers with the same products in two different cities with two very different results. Boyd, that sounds really strange. What's the story behind this?

Boyd Evert (02:38.214)
Well, there's several stories actually as we dig into the detail. One particular city might have a store audit going on where they're going in and truing things up. And we've seen patterns of behavior where there's not a mod reset where they're changing the, you know, moving the products around to different aisles. It is simply just in the out of nowhere for two weeks. There's a bunch of defectives, know, nothing before, really nothing after.

So store audits one, sometimes equipment failure when you're dealing with frozen and refrigerated goods. Sometimes there's storm related where it knocks out all the power in area. But even there, you might have some stores behaving correctly, is filing claims and then other stores just defecting them out. So it might be a training issue. And then of course, there's always the...

the crime aspect of it too. We've done some analysis and we've found some stores in high crime areas and sometimes a high crime area is deceiving as it looks, some of the buildings might look really good, but it's just, there's some inside shenanigans going on in certain areas in suburbs and whatnot. But anyway, those are just the ones that come to mind I'm sure as we talk through, there'll be other root causes that emerge.

Al Frank (04:01.42)
Well, you caught my attention with St. Louis versus Kansas City. I'm from St. Louis. That's my hometown. We've got the I-70 rivalry with Kansas City. When you pit the same two cities, different stores, who came out on top on that one?

Boyd Evert (04:11.398)
Hey.

Boyd Evert (04:19.974)
Kansas City came in under the national average, right? I'm sorry to tell you, your team lost that interstate rivalry. And St. Louis, I believe, was a 3X over the national average. yeah, yeah, it's a wasn't even close.

Al Frank (04:40.238)
I'm just wondering, are there any differences in the contracts that would account for this? differences in regarding quality standards or acceptance criteria, return policies, those kinds of things?

Boyd Evert (04:54.778)
Great question. So I think there's a lot of potential root causes. when we're looking at the data, sometimes we'll track activity that there might be a regional manager that comes in and has a different philosophy in how they handle unsaleable merchandise versus you might have just maybe just a cultural difference in the sense of the values there are.

You know, have an hourly person that's really dedicated to learning how to process things versus somebody perhaps just being a little careless or maybe there wasn't the attention given to the training. So those are just a couple of potential root causes. We allow the data to tell us the story. And then sometimes when we start to overlay you know, crime statistics and we overlay who is the regional manager at the time or even store manager.

Sometimes even within a city, you might see some stores behaving just radically different and they're just maybe a mile or two apart.

Al Frank (05:57.454)
Did the difference lie in maybe shipping and transportation differences to two cities?

Boyd Evert (06:04.022)
Yeah, they could. Where you might end up having perhaps, let's say it's related to a DC and a DC is having an inventory. A lot of times what happens is the DC is given permission to push that inventory into the stores and the store is like, wait a minute, we don't want all this inventory. Congratulations, right? And then within those stores, some may put it on the clearance aisle, right? Which is the way you're supposed to get rid of when you're

excess inventory and then others stores again maybe training maybe just there's a lot going on inside those four walls they just end up just donating them and perhaps miscoding it as defective.

Al Frank (06:48.792)
Let's take a look at another case study. Miami versus Des Moines.

Boyd Evert (06:53.286)
Yeah, that's even more lopsided. So again, Des Moines was well under, I think it was like 20% under the national average. Miami was 5x. And we're talking about even, yeah, some stores were within the national average. So that means you have some stores that are probably closer to 7 or 8x over the national average. and then if you expand Des Moines out to all of Iowa, which we did in this particular case,

It was closer to right at the national average and there was the same number, roughly the same number of stores within all of Iowa and then Miami and the surrounding suburbs. But the numbers still held with Miami sitting at 5X.

Al Frank (07:37.976)
Well, let's let's give a rematch for Miami. I'm going to go up against Dallas who came out on top.

Boyd Evert (07:40.676)

well this time Miami wins because Dallas was 2X over with the excessive defectives. And in that case it was several different categories. We had a supplier that was in several different categories and we looked at it and it so it looked like there might be something going on at the store level or perhaps the district level or regional level. 

 So the root causes there perhaps were store manager, perhaps district manager, regional manager, different philosophy of operations. But in this particular case, we saw several different departments because this supplier was in multiple departments and it was the same stories, which led us to believe this wasn't at the departmental level, which it actually often is where a department manager

either isn't trained on how to process excess inventory or have the discipline of putting things into the clearance aisle. But in this particular case with Dallas versus Miami, Dallas had the better ground game. Or no, Miami had the better ground game, sorry.

Al Frank (09:13.166)
It makes me wonder about storing of products, maybe different conditions and different temperatures, different humidity, different security, those kinds of things. Could that account for differences sometimes?

Boyd Evert (09:29.048)
Absolutely. Several years ago, had a situation with a lawn and garden supplier. And so we had certain items that were exposed to the elements, even though they had an overhang. But it was just the humidity. It would end up impacting the packaging. In some cases, they had to rethink the way in which they were packaging the product. But you go to a drier climate,

we didn't see as many issues. So that's an excellent question. just, really depends in that case, it really depends upon the placement of the product. Where is it? And then what are the conditions in that placement?

Al Frank (10:09.73)
Yeah, you've taken me into some stores where we looked at the placement, maybe displays, endcap cap, those kinds of things, the way they put them on the sales floor. Sometimes that might account for some defectives.

Boyd Evert (10:23.366)
Yeah, no, that's an excellent point because you'll have certain areas where you have a lot of high traffic with the carts, right? Especially sometimes you have that random column right in the middle of a row and you've got to work it around. Well, I've been in stores and see the merchandise facing that column where that's getting pinched is forcing that cart closer to that aisle than otherwise would be the case. So yes, within the store itself, you can have issues.

Al Frank (10:54.2)
Well, let's take a look at another case study. Let's do maybe the New York City subway series between two New York City stores. How did that turn out?

Boyd Evert (11:02.15)
Wow, that was another eye opener. You had some stores that were close to 7x over the national average. And believe it or not, you had some stores that were under the national average. And so there again, I think it's really easy to draw some conclusions because you're talking just a few blocks away in some cases with some locations and just the radical nature of the departure in the trend of defectives versus

versus clearance items. yeah, I think that's one of the more compelling stories. And we have a few other cities like that. LA's got some other issues where we see similar things. But New York City, I think, has the broadest diversity. I mean, in the sense of you have the outliers on both directions, both good and bad.

Al Frank (11:56.888)
You know, lot of retailers are grappling with shrink issues right now and trying to figure out whether to have self checkout or not to have it. Is that one of those cases where self checkout is maybe part of the issue?

Boyd Evert (12:11.046)
Certainly, there's some stores where they don't have self-checkout, which really tells the story, or they have fewer aisles and there's usually multiple assistants there, store associates watching and monitoring. just to give it a sense of context, because I think this whole idea of shrink does factor into this in a large way. So we started looking at excessive defectives back in 2013.

2015 Walmart had a lot of fanfare made an announcement that they were gonna have a large initiative to take care of shrink, to bring that number down. It did come down, but defectives went up. Correlation isn't causality, but man, that's one heck of a coincidence, right? mean, I just, so I think there are some cases where you have that behavior driven by

Boyd Evert (13:07.898)
them not wanting to have shrink. And one of our auditors used to work in store operations and we were told when she joined us that they have a shrink school and you only go once. So if we, if we had that data point, how many managers that have been to shrink shrink school don't have a problem with a shrink, but have a big problem with defectives. think that might be an interesting story, but alas, we don't have that data point.

Al Frank (13:35.118)
Absolutely. Well, that would be good. Des Moines did pretty well in our previous case study. How about Vegas versus Des Moines?

Boyd Evert (13:44.358)
Well, Vegas is going to go up 2-0, their record, because it wasn't even close. Vegas at sub stores had like a 4x, 5x. In one particular case, I think it was like 20x, because this one time of the year, they had half a pallet that was at the end of a promotion, that suddenly the entire half pallet was defective.

Again, one of our auditors used to work in the Vegas area in store operations and she said routinely she would catch people in their dumpster looking for perfectly good product. So that's not all Vegas stores, but I would say that there's, I think more than half, a majority of Vegas stores have issues.

Al Frank (15:55.17)
I'm also wondering about employee turnover and the impact that that might have at certain stores.

Boyd Evert (16:03.236)
Yeah, I think so because a lot of this is training issues. one of the things when I'm speaking at conferences in this issue of excessive defectives come up is I remind everyone in the room that you have hundreds of millions of dollars each month falling under the purview of an hourly person who might even be in high school. And so you're at the mercy of an entry level person.

that is handling the coding of inventory. So sadly, there's so many locations and there's so many employees within those locations that I think inevitably training is always going to be on that list of top 10 root causes.

Al Frank (16:52.866)
Did you have another case study between two cities that you wanted to share with us?

Boyd Evert (16:59.014)
Yes, Colorado Springs versus Coral Springs, Florida. In that case, Colorado Springs came out ahead. Coral Springs, when doing the analysis, we noticed that they had equipment failure. And fortunately, because our client was dealing in frozen and refrigerated goods,

Boyd Evert (17:28.87)
they sent some auditors out into the stores just to ask about the equipment that was used as a home for the items for the supplier. And on the notes it said we had massive issues with the equipment. And we went back and that note was within a few months of when it was almost 2,000 items, 2,000 items in one day was defected out.

The reason we know it's equipment failure is because at the end of the day, they had zero quantities in the inventory. I don't know that, know, Coral Springs had a huge demand on one day of the week. Suddenly everyone wanted, I don't know, ice cream and dairy products, you know, to make shakes, get milk and ice cream and make some shakes. But anyway, yeah, so that's, that was definitely one of the issues.

Boyd Evert (19:27.056)
So when we started out this Odyssey that we were now on back in 2013, early on we thought, well, we know these cities are always going to have problems. And then the next year would come around and we searched under that bright light and didn't see anything. And so the takeaway that we've learned in the 12 years we've been doing this is allow the data to tell the story, right?

Try not to come to the data with presuppositions. mean, one example, we're talking about frozen and refrigerated goods. A couple of years ago, supplier reached out to us after a major hurricane in Florida, or at least a tropical storm, and said, I know, I know, I'm convinced that there's excessive defectives there. And team spent several days digging into it. We didn't find one example, but in the surrounding towns, we did find some examples, but it was in a different timeframe.

which we brought it back to our primary contact at the supplier and said, it's really better if you just say, what's going on in this region? And then we come back. But if you tell us to look somewhere, it's almost like the blindfold and you're throwing darts at the dartboard. I don't know that you're going to get a bullseye.

Al Frank (20:46.606)
Well, you know what, you should have a badge that says defectives detective because you, yeah, it's, it's quite a neck you have. And also the, all the experts at HRG to be able to discover the real cause, the real root causes behind these things.

Boyd Evert (21:08.314)
Well, I will. I'm going to go online right now. I love that defective detective. I had never thought of that before. I'll have the sheriff badge on next time we talk about defectives.

Al Frank (21:21.068)
Well, it's a great thing to have because many suppliers are telling us that they're receiving more excessive defective claims than ever before. And if you would like for HRG to help look at your particular situation to help you with your next steps, you can schedule a free strategy call with us by going to the HRG website at   HRG-audit.com or you can call HRG at 479-616-1600.

You can email us at info at info@HRG-Audit.com all these ways to reach HRG because we're ready and able to help you. And our wish for you is this wiser decisions, fewer deductions. See you next time on the Savvy Supplier.