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The Human Aspect of Industrial Pilferage BY ERIK HOFFER His heart is pounding; hands a bit shaky and droplets of sweat appear on his forehead. He slits open a box and removes a pair of sneakers. Quickly he hides them in his lunch bag and moves toward the door. He arrives in the parking lot, careful to observe for on lookers, opens his trunk and dumps his quarry in. He then gets into the car and drives home somewhat exhilarated, somewhat guilty yet somewhat relieved that he did not get caught. Still a bit shaken from pulling off his first "job" cleanly. This industrial thief, alias "your trusted employee" has begun a new career. While driving home for dinner he makes a mental note of just how easy it is to get stuff out of the warehouse. "I've got to tell my friends about this", he muses. Justifying the theft more easily as each mile goes by with rational beginning from being underpaid and ranging up to "they certainly owe me, I'm a dedicated hard worker" and everything else in between! "I have been there for 5 years and my bonus is way smaller than my associates", "this make up for some of it". "This small token is meaningless to Megastore and it helps make up the discrepancy in my compensation". "In fact I would say that they got off easy!" By creating his own concept of entitlement this worker and thousands like him make industrial pilferage a major international problem. This type of employee shrink costs American businesses millions if not billions of dollars in losses that are totally unrecoverable. In fact these losses are so far below normal insurance deductible thresholds that they typically get written off more often than investigated or prosecuted. They are almost transparent to the normal operations of manufacturers, truckers and distributors. Thieves such as this know that there is room for these losses already figured in on the bottom line of the employer and that someone will get away with it, why not me? Some larger companies actually have a 2-3 percent shrink built into their cost structure so operating with shrink below that level is profitable. That logic can be understood if you have no business ownership or accountability. Theft comes off the bottom line dollar for dollar and it costs 5 times the initial manufacturing cost to replace a stolen item! If you move $1 Billion dollars, putting 30 million up for grabs is hardly good business! This tolerance can include everything from low-level pilferage up to trailer truck hijacking where millions leave the balance sheet all at once. The trepidation accounted here in this scenario of a petty thief is common. People new to theft will steal smaller articles and although they feel stress they have an inherent concern of exposure which keeps the problem at petty levels for most of them. You would be surprised to know that theft at the mass level such as trailer hijacking, warehouse robbery and the like are different by 180 degrees. Thieves at this level are just typically "going to work" when they steal pallets, products and truckloads of goods or even the trucks and trailers themselves. Supply chain pilferage is the best and most profitable crime imaginable for many reasons. No one is harmed, no penalties really exist as cargo theft is a 4th degree property crime and people rarely do hard time for that! Goods are easily fenced so most become immediately untraceable. No one is immune from theft and no one can predict when these events will adversely affect them. From diamonds to Tupperware every company experiences theft. An awareness of the elements that make manufacturers, truckers and the government vulnerable to this type of condition can be learned. Once educated, businesses should endeavor to protect themselves as best they can. Theft is a predictable hazard. Products that are most vulnerable are always easily fenced or sold on the black or gray markets. Next in line, but to a far less degree are products that can be used by the thief himself and finally products stolen or taken just for the thrill of it make up the total picture of most industrial theft. In today's business climate where manufacturing is cut back to unprecedented levels, remanufacturing stolen goods is far less practical and far more costly. Theft however, after 9/11, is now two tiered. People have to be concerned with goods extracted from warehouses and containers for both the financial loss, but also for the surreptitious introduction of contraband biologics or explosives that would seamlessly enter unsuspecting business as secure goods. Theft therefore in terms of unattended cargo, becomes a potential catalyst for disaster beside financial loss! Thieves come in many forms. Everyone will steal something in their lifetime be it a pen, a pad at the base level to a pallet, truck or laptop at the other end of the spectrum. Stealing is a bazaar form of fun that entices the average Joe into its clutches. It challenges and stimulates certain personalities types to beat the odds or beat the system or simply for revenge. Thieves are typically not stupid. Except for the really dumb ones, who are one-time opportunists, they have all gone through a brief risk & reward evaluation process before they begin their mission. This risk reward conflict is the basis for their action and it is the determining factor as to the severity and magnitude of the crime. Planning also helps them determine the method, venue and thrill of the theft itself. Once a decision is made to proceed, a justification process takes over making everything OK with his value base and morality history. From the Churchgoers to the recidivist criminal, each finds his own balance of justification and reward and then proceeds with the planning and execution phase of their task. Some people seek out the challenge as a stimulant, others fill a dependence need while still others respond to peer pressure. Regardless of the stimulation or satisfaction level, once you do it you can easily be hooked. Without an understanding of the issue, theft can get exponentially worse very quickly. Without a proactive means in place to curtail industrial pilferage the problem grows and spreads. Since most petty thefts go undetected and rarely are investigated, criminals tend to get on the fast tract after just their first exposure. Theft also gets worse without risk or remedy. Once an employee steals something and helps his associates understand the benefits, the theft proliferates the organization like wildfire. Theft sometimes is just a slow leak, but like a leaky pipe water is always dripping. A million of anything is a lot; this axiom holds true in pilferage, only the leak often times become more than a drip when left unchecked. Because the perpetrator gets away with one pair of shoes, it may mean that he sees a way to get 2, 3 and 4 pairs as time goes on. Thieves spend 100% of their efforts and wit to beat you while most companies spend very little time dealing with the problem. When a person finds theft as a way of life he can mature into a full time criminal. This does not mean that he cannot hold down two jobs! While he may be your driver, dock manager, salesman or scientist, he may also be a thief. A thief does not necessarily need to steal physical products. He can supplement his income by simply passing on business intelligence, or if cargo is the target, information to others to help them find cargo to pilfer. He can actively compromise intellectual property without ever removing a single physical asset from your building. He can subvert others into theft or if he has the time he can accomplish all of the above! Theft starts with a focus and ends in a reward. Rarely does theft not have some clear defined purpose and focus or targeted quarry. Thieves can begin stealing to support a narcotics or alcohol habit, get revenge, because they wish to hurt those of whom they are jealous of or just because they like the rush. Whether the thief has his sights on money, goods or services, tampering or destruction, he knows the ways he can be caught and avoids them at all costs. Remember that a thief spends 100% of his time dealing with not getting caught through his working knowledge of your system, your business policies or culture. The very nature of theft avoidance dictates the need to remove the reward and replace it with a negative consequence. To deter theft you therefore need risk. Risk can come in the form of prosecution which results in jail time, loss of job, embarrassment or financial penalty. You can create this level of risk in many ways besides the ones mentioned, as each of these requires the premise of apprehension through investigation or other means of discovering the crime. In many cases pilfered cargo goes undetected unless some mechanism is created to identify the act to others in the organization or those shipping handling or ultimately receiving the cargo. Effective countermeasures to theft which will limit your exposure to these losses usually begin with a desire on the part of someone in the supply chain to curtail the loss. This inherently is only instituted by someone that stands to gain from the reduction of the situation or more often someone who stands to lose directly from the theft. People are funny when it comes to being proactive in theft control. More alarms are sold to the neighbors of burglary victims and to unaffected third parties than to the victim himself. Proactive crime reduction seems to always begin with pain! Risk of apprehension, discovery and prosecution makes new comers to theft sweat a bit but unless the plan of action is consistent and diligently maintained the condition will reappear after a short respite. The greater the risk to the thief the more care needs to be taken by him to hone his craft into a science. Thieves typically have the time, inclination and focus to steal but by removing or limiting any one or all of these components you reduce your potential problem radically. Secure packaging, fast moving freight, checks and balances on receiving and shipping through clearly defined inspection criteria reduces the condition. Make him take longer to steal, be neat in committing the act, introduce visual risk based deterrents and always prosecute offenders can reduce your exposure to pilferage. Risk of discovery and identification can also be a factor in making ones heart pound while committing the crime. But in either case the risk of prosecution and application of jail time is only a fourth degree property crime at best. Even if perpetrated at the federal level, State prosecution is the norm reducing the probability of harsh sentences or any incarceration at all for first time offenders. Property crime pays. A person who would take a computer is not the same person who would commit a violent crime, or sell drugs or cause physical harm to someone. He simply steals property which legally speaking is a victimless crime. At the state level, hard time is a rarity, multiple offenses are not the precursor to long sentences even for cases of truck hijacking, and for certain offenses prosecution can be limited to a fine which can fall well below the amount stolen thereby making a profit for the thief. The fact is that in only a very few states does cargo crime reach a felony level nor is there even a legal description for the offense of theft of shipped products besides a basic property crime or car theft! So with all of this information what can industry do to dissuade these good folks not to turn bad? The answer is not much! People have needs. Some of us have a morality base that is easily subverted by greed while others have a classic mean streak that is recessive most of the time but that can manifest itself in small thefts to get back at someone or the entity itself for some preconceived inequity known only to the perpetrator himself. Without a radical change in the culture of the organization, blended with establishing decorum, loyalty and morality; theft will continue to grow unabated. Theft is, by my account, the second oldest profession! Reduction of the probability of theft therefore is the only viable approach to theft control. Thieves steal because the reward is greater than their risk; so increasing the risk base should reduce the corresponding impetus to steal. There are two concepts at work here, one is to increase the risk and the other to change the culture; each is operating independently yet they need to converge in order to be effective. Ownership in the form of organizational loyalty and the fear of jail time can help reduce the condition. A culture change is as simple as creating loyalty toward the company, its staff, its products or services. This can be done by allowing employees to participate in the profitability of their activity or conversely be penalized for a lack of profitability. By creating a culture that promotes a cohesive work environment at the small group level you stand a better chance of reducing theft than by a system that lacks accountability and denies rewards for not stealing. If you treat losses as transparent operational costs your employees will deem it OK to steal since their justification is established as part of the costs of doing business and the business culture. Theft should not be a cost of doing business! Next by providing a deterrent to theft that increases a perpetrators risk of getting caught you further reduce the probability of attack. The latter can be in the form of cameras, security packaging components or inspection protocols. These two types of systems can be implemented very inexpensively and they can collaterally be expensed while curtailing a problem of major proportions. Cultural changes can take time but since rewards such as cash bonuses or a loss free month can be implemented very quickly, an immediate and change can be expected because you have replaced the idea of take what I want to get cash for not stealing. This type of plan needs to be structured at a department level or at most a shift level. By limiting the population involved in the plan you can get more recognition over a smaller group. The bonuses should be between $50 and $100 and paid out quarterly for a perfect record and lowered radically for any breach. By establishing this as a game you fill certain competitive needs of your workers and at times even create a teamwork spirit. Those not working for the plan soon are pressured to join, as peer pressure is quite an effective tool in loss prevention. At the same time a cultural plan is imposed a deterrent plan needs to be created which serves to help keep honest people honest. Deterrents take many forms such as electronic article surveillance on goods. Other effective means to curtail theft are security seals, which form inspection templates so that inspection can be done by more than one group keeping everyone in the supply chain on their toes. Inspection templates in the forms of seals are the basis for integrity checks by all handlers. Combined with the motivation, inspection template and rewards must also come risk. Make it known that you persecute all theft losses. Make it known that you share this information with others in the same industry in your local area and on a national basis. In this way the potential skilled thief knows that his career can be adversely affected by the release of this information in the event of a successful prosecution. Risk is a tremendous tool when used in this manner. The fact is we cannot stop theft at any level. We can move it to competitors, change its form, dissuade new criminals and reduce our exposure to it, but we cannot stop it. Morality aside, theft is the second greatest threat to bottom line profits that faces industry today. While damage remains the highest threat to lost revenue, theft is far more violating to those of us able to perceive ownership of our respective business. Whether an owner or employee feeling a part of the business that pays your wages can be an important factor in theft reduction. Whether you know it or not a percentage of every product you purchases contains an element of loss as a component of the selling price. Those losses can be invisible on the balance sheet due to creative accounting but they are ever present. CFO's, especially in public companies, are experts in making theft losses invisible to shareholders. They use terms such as shrink to couch theft with an acceptable buzzword, they create budgets to expense theft, they write off shortages as if they were bad debts or even misplaced assets. To anyone reading a financial statement theft does not exist at all. Theft losses erode business value and suppresses stock values. It requires 5 to 10 times the initial cost of an item stolen to replace it in the market. Stolen goods are sold against you and your clients in the market, they require remanufacturing, re-shipping, more insurance and the disruption to your normal manufacturing business to mention just a few of the obvious downsides of theft. Losses reduce markets and demean your good name. They make business vulnerability to great liability through misuse or mishandling of goods as a result of theft. Just think about it for a moment. Once an item is stolen for the purpose of resale a company has lost their ability to control their markets, maintain their product status and perception and they quickly wind up competing with themselves on non-counterfeit goods. Clients awaiting the receipt of goods stolen in transit have no goods to sell and therefore consumers (your ultimate client) purchase other goods in lieu of yours due to this unavailability. Besides this disruption to normalcy you have to investigate the theft, deal with servicing or liability issues with the stolen item in the market. You lose service contracts and client loyalty. In many cases when theft is at a mass level such as a stolen truckload, you can also loose your tractor and trailer. There is nothing good about industrial theft. If you think you are insured, think again. Insurance covers certain limits. Thresholds need to be met as well as certain criteria in proving a claim. In the event of a payment from a carrier, you may get 25 cents a pound for your $600 bottle of perfume! If you are a pharmaceutical manufacturer you run a tremendous risk of liability for misuse of your product. If you recover stolen drugs you then have to return insurance payments and ultimately wind up destroying the product with no financial remedy. Whether you realize it or not, insurance is no remedy to pilferage. Theft is a no win condition at best. Getting back to thieves for a moment, we must recognize who our adversary is in order to address the threat. If he is organized as a member of a gang or on his own, we need to know his motivation in order to consider countermeasures. If that form of theft is endemic to the particular industry we must consider changing certain ways of doing business to reduce our inherent risk. In all cases we must identify the magnitude of the problem in a quantitative format before choosing a deterrent path. Once the impact of theft is known and understood by the company, the company can then take steps to remedy the condition. If the actual problem can then be identified, decisions can be made as to the need to advance resources to address the problem. Only companies who identify loss, as erosion to their bottom line and only managers who will be directly impacted by the condition of loss will proactively work to stop it. No ownership, no accountability, no solution! |
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