Monitor Workers to Stop Internal Product Theft

Unwatched, time and product walk away from supermarket and wholesale grocery distribution centers daily. This unmanaged loss, which can run into millions for the entire industry, does not go unnoticed. The obvious manifestation is lower-than-expected profit. In a low margin business, a $100,000 loss from theft or unproductive labor can require more than an additional $1 million in sales simply to break even.

Theft is inevitable. Thieves will take company time. Succeeding at time theft, some will proceed to take merchandise. To one degree or another, every wholesale grocer, supermarket chain, and foodservice distributor will suffer. The key to minimizing the economic pain is to control the potential for loss.

Danbee Investigations of Midland Park, New Jersey, specializes in controlling loss in the food industry. Founded in July 1966 by Daniel Brandman, the firm currently employs 92 full-time investigators. Unlike many security firms, Danbee is an investigative organization only. It does not provide guards.

Barry Brandman, president, joined the firm in 1972. He originally planned for a career with the FBI, but a knee injury in college sports left him unable to meet the Bureau's physical requirements.

Concentrate on High Value Products

In the mid-1970s, Danbee began to concentrate on food wholesalers as its primary clients. Losses to the food industry from theft of refrigerated and frozen merchandise are potentially high, because those categories contain some of the most expensive items such as meat and seafood. Thieves take steaks and frozen lobster tails; nobody goes to the trouble to steal cat litter, Barry Brandman says.

Danbee serves more than 300 clients, many of which are part of the Forbes 500 list. The company does little direct solicitation. Most clients come to Danbee from referrals or contact the company after attending educational sessions such as those sponsored by Food Distributors International.

Increases in inventory theft over the last few years can be attributed, in part, to the tight labor market of the late 1990s, Brandman says. Another problem is reliance on security methods that simply do not work.

Low unemployment has reduced the labor pool so much that many distributors are hiring workers who they would never have considered in the past. An applicant's employment history, past offenses, or involvement with drugs may play little or no role in today's hiring decisions. With such a shallow labor pool, distributors are essentially putting high-risk personnel into an environment that is already conducive to stealing.

Thorough Background Checks

Conducting a thorough background screening of all applicants is one way to reduce the risk of theft. Danbee points to its own hiring practices as an example for clients. Applicants are subjected to extensive background checks and physiological testing. Only one of every 240 Danbee applicants is hired.

Investments in sophisticated technology often provide a false sense of security to food industry managers, Brandman says. Video cameras and monitoring equipment may act as a deterrent initially, but are only effective if monitored consistently. Once employees become confident that security tapes are seldom reviewed, their effectiveness as a theft-preventive measure is diminished. Other high tech systems such as alarms and electronic entry cards provide little barrier to internal theft. Those systems will stop outsiders, but much of the theft in the food industry is committed by those in the company who use and know the entry codes, and who may know how to bypass the system.

Most employees are neutral; they are little or no threat for theft. In fact, Brandman says that 90% of any company's employees can be considered fence sitters who don't have a strong opinion either way about theft from the company. Another five percent are almost obsessively honest, the sort of employees who would not even take the last donut from the break room just as the company closes for a holiday, he says.

The remaining five percent of employees constitute the greatest risk for theft, Brandman says. These workers intend to steal and are always actively looking for an opportunity. They are a problem because they steal. They are a danger to the company because their behavior can be contagious. The fence sitters see them steal and get away with it. When that happens, otherwise benign employees become a threat. Almost inevitably, theft starts small and escalates when the thief succeeds, he says.

The initial problem can start as non-productive use of time. Workers who will take time from the company usually see no problem with taking merchandise, Brandman says.

Although security guards are widely employed by food wholesalers, they tend to be ineffective as a theft deterrent. Few guards are trained to recognize internal theft, especially when the theft looks like standard operating procedure. The same logic applies to load checkers at receiving and loading docks. It's risky to depend on their veracity, Brandman says. While theft can happen anywhere in the distribution chain, the loading dock is where most major theft occurs. A comprehensive effort to employ checks and balances throughout the distribution chain is one way to detect and minimize losses.

A common procedure for theft is adding to customer orders after product has been checked and staged for loading. A few extra cartons on top of a pallet often go unnoticed, Brandman says. Like most merchandise theft, this takes more than one conspirator. Someone in the warehouse has to put the extra product on the pallet, and the delivery driver has to participate to complete the theft.

Covert Surveillance Stops Thieves

Periodic covert surveillance is one tool to detect collusion and theft among employees, especially drivers. Danbee places undercover investigators in the warehouse to watch for activity such as padding a run with unordered goods, selling product from the back of the truck, or pilfering returned goods. One Danbee client, a major produce distributor in New York's Hunts Point Market, discovered a loss of more than $60,000 a year because several drivers were selling product that should have been returned to the distribution center. In this instance, the warehouse foreman responsible for inspecting returned product simply accepted accounts from drivers about returns. Consequently, dishonest drivers had an opportunity to sell the returns for cash instead of putting the goods back into inventory.

For years, food wholesalers have used on-board recording devices to monitor drivers and route productivity. The recent addition of wireless capability and messaging to these systems has improved their utility as a way to detect wasted time and out-of-route driving. Global positioning receivers tied into the recording systems help prevent time theft. Used in conjunction with sophisticated routing software, these electronic systems can reduce the cost of unnecessary overtime.

Unfortunately, recorders and positioning systems don't work effectively for uncovering theft of merchandise, although the panic button included in some communication systems can help pinpoint a vehicle location in the event of hijacking. If a theft is committed by employees, drivers can still conduct their illegal transactions during scheduled breaks, near customer locations, or even with customers who are willing to buy hot goods for cash, Brandman says.

To stop internal theft, the employees need to be identified. This may entail placing investigators on the warehouse crew, and it may take six months or more.

Another effective technique is to audit the loading of trucks during the night shift, targeting routes where drivers report a high percentage of shortages. Once everything on a loaded truck is checked and verified, the truck is locked and a security seal is installed. If the driver on that route reports shortages the next day, it's a good bet that he is diverting product. With this evidence, the driver can be disciplined, suspended, or terminated, Brandman says.

Stopping theft and prosecuting thieves are different results from the process of investigating merchandise loss, Brandman says. When investigations are pursued diligently, they are successful at stopping the theft 95% of the time. However, only about 50% of those successful investigations lead to prosecution. When thieves are prosecuted, almost 99% of the cases lead to conviction. In addition, district attorneys are more likely to prosecute in the current legal environment than they were seven or eight years ago, he says.