When one side moves, they all move.

 Any engineer will tell you, “Cost, Specifications, Schedule. It’s a triangle. Adjust 1 side, the other 2 sides move. ” For example, adding more features means your product will be developed later, and cost more. The same goes for Loss Prevention, especially in this economy. We define the LP Triangle as, “Loss Tolerance; Organization; and, Controls.”

What level of cash loss is okay?

“None!” would be the politically correct and unrealistic response. But we are setting ourselves up for disaster. I recently worked with a retailer who used to have a staff of 3, handling LP and Safety. Now, it’s just him . . . and he has the added responsibility of Training! Sound familiar? Talk about skimming the waves . . .

No good choices.

Some say that the 2 steps between honesty and dishonesty are NEED and OPPORTUNITY. No one would argue that “need” is up. Unfortunately, LP staff reductions have also increased “opportunity.” Looking at our triangle’s moving sides, what are the options?

• Accept higher losses. This may seem more like a consequence than an option. But unless you take deliberate steps, that side of  your triangle will grow. When the bad employees figure out the floor of your investigation threshold has moved, say from $5.00 to $10.00, watch that $500.00 monthly number rise. They may be testing you even as you read this.
• Protect your assets with technology.Smart-safes and single-control cash procedures limit exposure at store-level. Investing in the most secure, tamper-evident bags to protect cash deposits and shipments will pay big dividends, especially when you communicate to other parties a strong understanding of the protection you pay for. Saving a few pennies to buy bags known in the industry for pre-voiding and false-positives may land you in an indefensible position.

• Protect your people with training. It’s a chain of custody, not a rope! “Give a signature/get a signature.” Your signature says you accepted an in-tact package with no signs of tampering. Rushing at the check-in window without spending a few seconds in inspection because you are understaffed, or accepting a change order delivery at a store without verifying the integrity of the package is like driving with your eyes closed. You may have accepted the responsibility for any loss associated with a evidence of tampering.

“Shore-leave cancelled until morale improves.”

Lastly, we encourage LP directors to regularly communicte to other senior managers,  factual data that reflects the implications of cut-backs. It’s going to take a while to turn this economy around, with more folks switching from plastic to cash. Are you ready?

Whose problem is it?

The market for bundled smart-safes has exploded, as more banks offer in-store provisional credit from smart-safes. End-users and even service providers want options. Banks, armored carriers and technology providers are painting the landscape with “mix-and-match” options that allow considerable vendor-independence.

Many problems never see the light of day, from the customer’s perspective, so long as a single provider has access and control over the smart-safe, including its audit trail, technical support, deposit verification and information. The service provider has a vested interest in keeping the noise level low.

With freedom comes responsibility!

Unbundling can result is situations where problem-solving is really complicated. Users will expect quick resolution, especially if there is a possible cash shortage. Someone will eventually have to play referee, chairing a multi-vendor corrective action committee or assuming a product management role.

Improve your chances of success.

You might consider some of these approaches in your pursuit of excellence:

 1. Limit yourself to a single bundled solution by market.

2. If possible, establish a “standard” for the way you receive safe totals and deposit verification & settlement reports. New middleware solutions are being introduced to facilitate this.

3. Consider separating sales audit from your banking timeline. Wow! This is a major paradigm shift, but one that simplifies things while opening windows of opportunity.

4. Maintain a seat at the table with your multiple vendors, by appointing a specialist.

5. Put in place contract language that spells out roles and responsibilities for working through disputes.

Any approach should maintain the fundamental priorities – First, balance; then, get the job done without adding back-office hours; and, only then look for added value.  By embracing this new freedom with realistic expectations and goals, you’ll enjoy the best of the best!

Important – not always strategic!

All clients are important. But, not all clients are strategic. Let’s talk about that 10 to 20% of your client base that delivers 80% or more of your fee revenue. Setting up virtual vaults to serve strategic clients outside your footprint is important. However, it is a horizontal solution to a geography problem.

We need depth.

You are being challenged to differentiate yourself from competitors. One sure way is to add value beyond basic deposit gathering. You can achieve this by vertically integrating your money room services with your client’s daily operations. The first step is to understand your own capabilities, so you had better plan to spend time with your vault operations group.

Next, consider the client’s store and your money room as part of the same process. Understand how cash, coin and checks circulate into, around and beyond his location. Then, find ways to remove cost. Lots of it! Remember the “Re-engineering the bank” era of the nineties? Banks wanted to reduce costs by 15, 20 and even 25%. Take that same approach on your client’s behalf. You are looking for major savings. Here are some suggestions:

• Change funds - If your client has added non-standard pay-points such as self-checkout, how does he load cash and coin? Can you tailor the way you deliver change to reduce labor at his end?
• Deposits - Has his world evolved from traditional cash drawers, to pay-points that produce batches of unsorted notes? If so, perhaps strapping up the deposit is an extra and unnecessary step, provided you have the technology in place.
• Checks - You probably have him on RDC. Have you secured they checks post-imaging to avoid the embarrassment of having them reappear?
• Information - Is your technology sophisticated enough to provide information below the DDA level? Can you provide register, lane or even cashier balancing?  If the answer is, “Yes,” then you may be able to help him shut down his cash offices.
• Logistics - A client whose cash is strapped and accurate might be a candidate for strap- or bundle-bags. Get an agreement to extend the cycle for reporting a difference . . . a couple of extra days . . . and you might avoid verification in your money room, if you intend to use that same cash at a branch. Again, we are looking to eliminate wasteful effort. Your savings might be his gain.

We hope you can find savings that add so much value to your clients, that fee reductions aren’t a consideration. Your client is running lean on labor, and fighting for “capex.” Now is the opportune time to leverage your investment in technology while creating a strong, product inter-dependence.

More cash, more loss.

The NRF  Tuesday released a study saying cash or debit will be the payment of choice this season for 71% of shoppers. The good news is that cash still has the lowest, per-transaction cost. The bad news is that unlike electronic payments, cash grows physically as volumes increase.

Automation is at its best when volumes increase.

When you count manually, even a marginal increase in the number of notes taken adds to your counting time, especially since many notes are counted 3 and even 4 times. Not so when you use automation. When you count at 20+ notes per second, volume increases have little impact. In this regard, we coincidentally last week learned of the next big advancement in desk-top currency counting technology, from Cummins-Allison Corporation. This blog doesn’t endorse any manufacturer, but this is a significant step forward. The i100 series JetScan iFX digitally reads the denomination and captures an image of the serial number at 1200 notes per minute. 2 things about this technology are germane to this discussion:

• Capturing the serial number brings an entirely new level of evidence, if your chain-of-custody is up to par. More cash equals more differences (aka, “shortages.”)

• The cash does not go into a cassette. Desktop solutions are less impacted when volumes increase.

5-Point Check-up for Better Currency Health:

1. If you skim your registers based on the clock, rather than dollar limits, consider increasing the schedule.
2. Review change funds and change orders. More cash transactions might demand more change.
3. Look at any physical constraints you experience in your environment.  If you use technology that counts and immediately stores cash in a cassette or drum, look at your higher volume locations. You may have to increase capacity. Are your deposit bags able to handle your increased volume without going to additional deposits? If you pay a fee for each deposit slip, it may be less expensive to go to a larger bag . . . and more simple to reconcile your bank and sales audit.
4. Look at your armored car schedule, and the amount of cash kept in the store.
5. AND THE BIG ONE – Keep a close eye on cash refunds. More cash transactions . . . more temptations.

Banks are catching the wave, but

 Often, a complex concept is more easily understood when compared with a known product or service. Many times when explaining the concept of a cash-counting safe to which the store has no access, bundled with armored transportation and cash processing, the retailer or banker says to me, “Oh, that’s just like a reverse ATM. Now I get it!” As that Hertz™ ad says,

“Not exactly!”

This technology reads and secures cashier drops in cassettes. But it also accomodates other transaction critical to the store, and which have to be reconciled. Two examples are envelopes containing cash that cannot be read, and possibly change fund payment transactions. The differences will likely push you outside your comfort zone.

• Smart-safes probably won’t have the kind or transaction-level communications with the bank you experience with ATMs.
• The content has to be proven in total. Cassette Cash + Drop Envelopes makes reconciliation a “many-to-one” process, similar to Wholesale Lockbox. An ATM looks to us more like Retail Lockbox.
• There may be a Change Fund transaction built into the system, which posts separately from the deposit. Now you have two credits, and multiple debits.
• Banks are unlikely to process the contents because some cash is exposed during removal, so revenue opportunities rest with providing credit, including provisional-credit-from-the-safe. The common methods of removing cash are cassette-swap, or on-site cash extraction from the cassettes. Drop envelopes might be removed by at store employee, but they may or may not go into a separate, tamper-evident bag. For these reasons, the carrier is more likely to verify the contents.
• The smart-safe is inextricably tied to the store’s sales audit process. Information has to be timely, accurate and available at a granular level so that the store or restaurant can resolve problems of cash-shrinkage.

The bank brings great value to this service. The challenge is to identify where you add to most value, and the least complication.

Pay-island kiosks create a win-win

An article just published in CSP Magazine (October 2009 – see link) amplifies the value of payments complementing the customer experience.

For several years, convenience store retailers have attempted to implement bill acceptors on gas pumps. It has been a tough sell.  I once evaluated this on behalf of a major armored carrier and the leading supplier of bill acceptors. The study concluded it was logistically impractical for an armored carrier to service bill readers at each pump. “Pay-island kiosks” (PIKs) proved to be a practical and successful solution. The kiosks, located to accomodate payment without having to enter the store can be configured to also accept debit and credit card transactions.

Cash usage at c-stores  rose 3.8% in 2008

Cash represented 46.8% of all payments at convenience stores last year, at the expense of plastic. Retailers provided price incentives for cash purchases as they dealt with the reality of credit and debit card fees. Those fees averaged $58,903 per store, the second-largest expense next only to labor! According to the article, more than 4000 PIKs are installed, processing $3 billion per year in cash. Everyone wins:

• Customers enjoy pay-at-the-pump convenience.
• Security is less of an issue since they are serviceable by armored carriers.
• Merchants can drive more sales to cash, their least expensive form of payment relative to cost per transaction.

Have you approached payment methods as a marketing tool?

 Consumers value the purchase experience, not just the purchase. Does your approach to payment acceptance meet your customers’ desires?

Is ”checkout rage” next?

 A driver last evening edged half-way into my lane. A quick toot of the horn fixed things. You guessed it – Texting while driving! What if that same situation occurred, not in the protective environment of a car, but shoulder-to-shoulder in your checkout lane? As someone who quickly gets “lost in space,” anytime he holds his PDA, I think that the phone- as-a-wallet concept is great for a vending machine. But, should we risk turning our checkout into a social media spot?

Payment methods should enhance the customer experience.

They do so when they are harmonious with the broader scope of the transaction. Some transactions have inherent wait times. The payment process can be conducted simultaneously with other activities like wrapping or bagging the purchase. And, they allow the merchant to offer payment types that have lower transaction fees.

• Drive-thru restaurants tell you the cost of your meal immediately after you order. You have time to get your cash ready while you move forward in line.
• A gift shop can even have you fill out a check, while they wrap your purchase.

Here are two recent examples I experienced where the payment method made for a great experience. I was last week in Canada and had a lightning-fast transaction at a coffee shop. I tendered a $5 note, and received back NOTHING BUT COIN!!! (Canada  replaced $1 and $2 notes with coin, years ago.) Coin was easier than currency for the cashier to pick from the drawer, and I just dropped it in my pocket.

At dinner that same day, our server brought to our table a wireless payment unit, complete with printer. I swiped my card, entered the tip myself and my card never left my hand. Fast. Secure. Nice.

Back to that checkout line: The name says it all – “CHECKOUT.” The customer is there to finish his shopping experience, not conduct business or enter the world of social media. I would suggest that very few checkout environments are improved by a customer interacting with his PDA. But, then . . . I’m a Cash Advocate.

Any time you change your payment mix, make sure to look at how you handle cash.

There they were! I was grabbing a coffee at my local bagel shop, when I saw them: 2 contactless payment terminals. And why not?! The speed and convenience are obvious, especially where you have commuters standing behind you, need their caffeine fix.

Suppliers of contactless technology say the QSR industry is “the next killer app.”

It is reported that there will be 80 million contactless cards in circulation by 12/2009. Here is a payment method that might just pay for itself.

The SmartCard Alliance says contactless payments are 21.2 seconds faster than cash, and 14.2 seconds faster than the average card transaction. I’ll leave it to the industrial engineers to argue about what constitutes the beginning and end of a transaction, and the impact of simultaneous activity. But, let’s face it – fast!

Some say that 6 seconds of savings in a drive-thru adds 1% to sales.

(There are experts that argue on both sides of that 1% argument, though.) If that holds true for my bagel shop, this would offset the transaction fees. Here is a technology that provides benefits to both the consumer and the business owner, and I expect it will really start to change your payment mix.

If contactless payments are starting to affect your cash volumes, you owe it to yourself to revisit the way you handle cash. Deposit frequency, change fund size and armored car schedules should all be reviewed. This is the logical extension of implementing contactless payments. If you don’t, then your expense of having cash in the business just grew as a percentage of sales.

(SPECIAL EFFECT VIDEO – IT’S NOT YOUR COMPUTER!) It’s state-fair time. Going to the Indiana State Fair reminded me of the shock I had doing a re-engineering study on a huge amusement park. It had all the latest rides, games and talking animals.But, progress hadn’t found its way to the back end of the business. With each step of additional revenue, they  added one more piece of cash-counting equipment. Years of innovation and savings had passed them by.  New technology, legislation affecting checks, plus the establishment of virtual vault networks by banks all are good reasons to take a close look at YOUR backroom.

Have you captured economies of scale?

 Counting cash is probably not a core competency of your business. It’s easy for costs to creep up disproportionately. This is especially true for money rooms, since the activity is hidden and few businesses employ in-house experts.  Changes in volume should be paired with new, back-end technology and legislation.

Here’s a 5-step health check for your cash:

1. Go back 5-years and compare your volume of cash deposited, with your bank deposit fees. Don’t forget to look at store labor, too.
2. If you have added self-checkout systems, have you re-engineered your backend to handle unsorted notes?
3. Do you deposit 10 or more checks each day, taking them to the bank? Most major banks offer outstanding products that  eliminate the need to move this high-value paper to the bank for deposit. Some solutions can be combined with guarantees. And, by converting them to electronic items, checks move more efficiently through the banking system, reducing the chances of you eating a bad check.
4. Do you deal with more than 1 financial institution per market? Ask your bank or armored carrier about their “virtual vault” service.

5. Is your armored car schedule the same as it was 5 years ago? Compare it to the amount of cash you handle and see if it makes sense.

A CEO told me just last week that he is looking to save every possible dollar. How about you? Get behind that money room door and take a look!

Only you can truly protect your assets.

My car got slammed last week by a hit-and-run driver. You get a feeling of  helplessness when you realize the chances are slim to none of having a “Perry Mason” investigation in the name of justice. It made me think of retail cash shrinkage.

Baseball-sized hail riddled our neighborhood recently. Roofing, siding and window crews came from as far away as Texas and my car had to be parked on the street during the work. Although there were over 30 witnesses to the accident, the policeman was right when he said, “You will never see that truck in the neighborhood again.”

A Loss Prevention Manager for a major petroleum company shared with me that at least once per year, a dishonest employee steals all the cash he takes in during a holiday weekend. The employee enters the drops in the POS system, but since he doesn’t have a smart-safe, the drops aren’t verified. The crime goes undetected until the armored car company shows up to empty the safe.  As my friend explained, when he reports the crime to the police, they ask, “Anyone hurt?” When he tells them, “No,” the police inevitably say they are too busy to investigate, and “Welcome to retail!”

What can you do?

1. Get away from entering drops manually.Look into implementing cash-verification technology that reads and secures the cash, AND electronicaly reports the drops to your back-office or POS system.
2. Be suspicious whenever an employee volunteers to work extra shifts over a long weekend.
3. Watch for patterns. My experience has been that employees steal a little, before they steal a lot.

If you start with the assumption that no cash loss can be recovered, you have taken the first step in truly protecting your assets.