Loss Prevention

Loss Prevention Thought Leadership, Part 4: LP on demand

Some retailers are on the up, whilst others are struggling. Either way the new risk management concept of “LP on demand” has much to offer

Whether your Risk Management Department is expanding rapidly or under pressure to contract, the concept of LP on demand is gaining traction as the way forward to manage retail risk in a post Covid era…

Some retailers are cutting risk management resources as they struggle to trade through turbulent times. Others are seizing opportunities for growth with alacrity, often centred around their online offerings. Whether you are shrinking or expanding, you have the same area of concern… Resources.

A growing business ramps up activities to meet new demand. And I have written previously about scaling up risk management operations. The challenges are complex. The belief within an organisation that to facilitate expansion it can simply do what it already does, but on a bigger scale is fundamentally flawed. Such an approach will inevitably open the business up to new risks and potentially large losses, legal action and reputational damage. Worst of all the new customers that have been won and who have fuelled demand and so expansion can very, very quickly get turned off to the brand and decide to spend their money elsewhere.

And then there are businesses that, facing difficulties, have decided to reduce their risk management resources. They see this reduction as a way to save money, although this method of cutting “overhead” probably means that they are underestimating the increased costs of loss incurred as a result of these “money saving” measures.

Risk Managers will fully appreciate the importance of maintaining risk management functions despite budget cuts. And whilst these cuts will probably be reversed “down the road,” as the consequent losses mount and become unacceptable, by that time responsibility for these risk areas may be devolved to other departments, whose central expertise is not risk management. Then the Risk Management Department will have lost control of those functions and so its ability to influence future decisions on risk even though it is best placed to do so.

So whether your challenge is to manage risk in a rapidly expanding business, or to retain as much risk management function as possible in a shrinking business, the fundamental problem is the same. How do you resource and manage change occurring at a rapid rate?

As a result of the challenges being faced there is a new approach to risk management evolving and gaining traction within the industry. It is called “LP on demand”

The basic concept is that a conventional LP model often has spare capacity built in. Many functions are needed on an ongoing basis, but not needed constantly. However, you cannot disband that function during those times that it is not hard at work. The concept of LP on demand is to take spare resources and repurpose them to become continuously productive, whether that is people or technology.

At its most basic it is outsourcing LP functions to an organisation that, by virtue of its specialisation, perhaps performs that function better, faster and more cost effectively than any retailer could do themselves. At its most complex, operating a total loss model of risk management, most of the risk management functions are performed by a third party reporting to a senior loss prevention executive in the retailer’s senior management.

Either way, using specialist help that is serving multiple clients means a reduction in cost with a simultaneous improvement in service levels and continued benefit for the business of retaining all risk management functions… and under the auspices of the Risk Management Department. Here are three examples of how it could work…

This is an overarching strategy that keeps people, property and profits secure across all business areas. Pillars of this strategy would include separate functions such as crime and security management, fraud screening, investigations, process coaching, product protection, audit, etc. This should be set you, and the outsource partner will need to fully understand the deliverables and function interdependencies.

This selective product approach can also be defined across strategic pillars relevant to your business. For example, you could select outsourced product protection coaching, investigations and field LP services working to one internal contact.

You may wish to procure LP products independently or as bundled options. These can be person based products and services or online services only, such as process coaching. Online products can be built in partnership with your team or be generic.

Of course moving to an LP on demand model has two distinct advantages.

First of all it is not an all or nothing solution. You can pick part of the business, perhaps a problematic one, to test it out on and see how the outsource partner deals with that. If successful then you expand the strategy. If not, well you’re probably not any worse off than otherwise you would have been.

Second in the future you can expect to find many of the senior people now working for retailers working for outsource partners who offer LP on demand. As individual businesses struggle to offer the kind of opportunities that those at the top of the profession aspire to, their talents will increasingly be wanted by outsource partners who can use that expertise across a number of functions and a number of retailers. By spreading the cost across multiple business users outsource partners can offer top talent the sorts of rewards it deserves whilst reducing costs for individual retailers and keeping all shareholders happy!

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