Tag: inventory shortages

OM in the News: Self-Checkout Era May Be Ending As Major Retailers Shut It Down

 

 

For over a decade, self-checkout was the retail future, speed, convenience, and cost savings. However nine of the largest retailers in the world are kicking these systems to the curb in an unbelievable reversal, reports MSM.com (June 30, 2025).

The numbers are brutal. Theft at self-checkout can be up to 65% higher than at regular lanes, with shrinkage hitting 3.5% of sales compared to just 0.21% with human cashiers. One study found 15% of users admit to stealing at kiosks, and 44% say they’d do it again. That adds up to over $10 billion in losses for food retailers each year. It’s not just career criminals. With no one watching, people blur the lines, blaming tech errors or telling themselves it doesn’t hurt anyone. With self-checkout transactions 16 times more likely to involve theft, stores are realizing the convenience comes at a staggering cost

As retailers like Dollar General and Walmart scale back self-checkout, the industry seeks a new approach balancing efficiency with personalized service. Self-checkout may save on payroll, but it comes with theft, tech breakdowns, customer frustration, and weakened brand loyalty.

Dollar General has taken one of the boldest steps away from self-checkout. Last year, the chain yanked self-checkout from 12,000 of its 20,000+ stores, dropping its earlier push toward 100% self-service locations. Its CEO  blamed “shrink,” or inventory loss, calling self-checkout the company’s biggest obstacle. Remaining kiosks now cap purchases at five items.

Five Below quietly pulled self-checkout from its highest-risk stores, revealing a tough truth, automation doesn’t work everywhere. Returning to staffed lanes did more to curb theft than adding extra security. The data showed that some neighborhoods saw massive spikes in shoplifting when kiosks went unmanned. So the company tailored its checkout systems based on local risk.

Walmart is testing a new tactic: limiting self-checkout access to Walmart+ members in select stores. It’s a bold shift that makes automation feel more like a premium perk than a standard option. The move helps reduce theft by tying kiosk use to verified customer accounts.

Amazon’s grand vision for cashierless shopping hit a wall last year when it dropped “Just Walk Out” from its Fresh grocery stores. The tech, which was supposed to track purchases automatically, relied heavily on human reviewers, over 1,000 people in India checking transactions manually. Some 70% of purchases needing intervention.

Classroom discussion questions:

  1.  Do you think self-checkout is going to fade away?
  2. What technology is needed to improve the system of self-checkout?

 

OM in the News: Retailers, Rising Theft and Shrinkage

As retailers report on the busy holiday shopping season, operations managers will be trying to get more understanding into shrinkage and theft, reports The Wall Street Journal (Jan. 9, 2024). The stores are fighting a growing wave of theft, cutting into profits that were already under pressure. But theft is just one contributor to shrink, the industry term for the difference between inventory on the books and what’s physically on hand. Lost or damaged goods and inaccurate records also play a part.

Shrink is now one of the most frequently discussed topics among management at Home Depot, said the firm’s CFO, having moved onto its list of top priorities two years ago. That focus hasn’t changed even though some mitigation efforts, such as locking up certain items and using live-view parking lot cameras, are in place.

The higher shrink may partly reflect a return to prepandemic norms rather than entirely new trends in theft. Reduced visits to physical stores starting in 2020 simultaneously decreased the opportunities for theft, an effect that dissipated as shoppers stepped out of their houses again.

Dollar General’s gross profit rate, or its profit as a percentage of net sales, fell 5% last quarter, due primarily to increased inventory shrink, more markdowns and lower inventory markups. Shrink is a roughly 100-basis-point headwind for Dollar General. Dick’s Sporting Goods  expects shrink’s impact on its gross margin to be roughly 50 basis points higher in its current fiscal year compared with 2022.

Retailers have said they are responding by adding security personnel and technology, locking up goods and closing hard-hit stores. Target, which last year said that shrink was expected to cut into profitability by more than $500 million, closed nine stores, citing higher theft and safety concerns for shoppers and workers. Nike closed one of its Portland stores in 2022 amid issues with theft. Academy Sports & Outdoors is using locked shelves for certain items and outfitting some departments that have seen higher shrink, such as the baseball bat section, with sensors that indicate when people linger in an area. Some retailers, such as Costco, are less exposed to theft for reasons including that they sell larger, harder-to-steal products, and stores are laid out with one primary entrance and exit.

Classroom discussion questions:

  1. Why is this an OM issue?
  2. What would you do, as a supermarket manager, to cut shrink?

OM in the News: Misplacing the Blame for the Baby Formula Shortage

Due to global supply chain disruptions over the past 2 years, Americans are getting used to product shortages, but they were still surprised by the recent shortage of baby formula, putting babies at risk.

As an immediate relief measure, military planes were recently used to transport baby formula from Europe and Australia to the U.S. Also, Abbott Laboratories, closed by the FDA in February, 2022, just resumed production at its Michigan plant. Despite this, Americans learned that this crisis will not end yet.

There is plenty of blame to go around, write Professors Babich (Georgetown U.) and Tang (UCLA) in Industry Week (June 17, 2022). There are many culprits they say, except for one that has been widely blamed: industry concentration, which is an innocent bystander.

The leading suspect is Abbott’s Michigan baby formula plant, which had poor quality control issues for years, but was not shut down by the FDA until Feb., 2022. The crisis would have been less severe had Abbott adopted the Toyota Production System, our topic in Chapter 16, by fixing its own quality issues sooner.

The runner-up suspect is the FDA. Its inaction and lack of urgency dates to 2019 when it was warned about Abbott’s quality issues. The FDA’s bureaucratic inflexibility means that milk formulas sold in Europe are banned in the U.S. because they exceed the FDA’s nutritional standards due to technicalities, like labeling. Its failure to do its own job is one root cause of the shortage.

Then there is the federal Women, Infants, and Children (WIC) program that funds over half of the baby formula purchased nationwide. The WIC contracting process has an unintended outcome of enabling the “approved” state provider to become a near-monopoly of the formula market for that state.

The press blamed the milk formula crisis on industry concentration–too few U.S. manufacturers. Politicians also tagged this as the culprit, as 90% of all production of baby formula is controlled by 4 companies. But industry concentration is a result of economic forces. Milk formula is a staple with stable demand, so there is no incentive for producers to invest in “just-in-case” capacity.

The crisis may continue beyond Abbott’s plant reopening. Once panic buying mentality sets in, it is difficult for consumers to switch back to normal purchasing habits.

Classroom discussion questions:
1. How is this an OM issue?

2. Explain why the WIC program has impacted the shortages.