Protected against the enemy within

Jun 1, 2000 12:00 PM, Randy Southerland

With more than 4,500 locations throughout the Southeast and an additional 500-700 opening each year, Dollar General still likes to be regarded as a little neighborhood store. Along its shelves lined with soap, detergent, food and other staples, many things still sell for around a dollar and the most costly item goes for $25.

Dollar General, based in Nashville, Tenn., has never had a problem with shoplifting. After all, how many $1 items can you carry out under a raincoat? What does concern the company, which grosses more than $4 billion in annual sales, is the enemy within.

"We don't have significant problems with shoplifting as do the bigger retailers," says Jeff Ostler, senior manager, asset protection. "However, we have a problem that is standard in the industry, and that's employee theft. So we have to be proactive in preventing losses. Secondly, we have to detect them early so we can stop them."

After 11 years with the company, including a stint as executive assistant to CEO Cal Turner Jr., Ostler was tapped to build a loss prevention department from scratch. His task was deceptively simple: Put together a security system capable of protecting stores from the obvious menace of outside break-ins, and from the more prevalent threat of employee pilferage. Ostler hastens to share credit for building the department with his staff of 250 district managers, who work hard every day in the area of asset protection - with no loss prevention people in the field to help them.

As the first step, Ostler and his staff studied how similar operations handle security and appraised Dollar General's special needs. The resulting coordinated security system combines high-tech equipment with low-tech innovations.

"We realized that we really had to pay attention to who we hire," remarks Ostler. "So we started performing criminal background checks. We started checking a few people and then expanded to everybody in the company."

Background checks are now a large part of the security program. Around 8 percent of the candidates who in the past would have been hired are now rejected sometimes because serious felony convictions turn up.

In addition to weeding out high-risk employees before they get on the job, Dollar General sought to control the number of keys in circulation among employees. With thousands of stores, management had no idea how many keys were being used at any particular location.

"Some had two keys, some had 10 keys," Ostler said. "We had no idea when the last time a lock was changed on our doors, or how often it had been changed. The policy had always been that when a key carrier left (employment), we changed the locks. It didn't matter if we got the key back or not. It was our insurance against someone duplicating a key."

The policy kept locksmiths occupied and often on-site. Changing out the locks that often, however was an expensive - and not always effective - way of curbing theft.

"Changing the lock cost anywhere from $50 in a rural community to $150 to $200 in some metro areas," remarks Ostler. "In fact we had one store that changed the lock more than 40 times in a year. We were spending upwards of a $1 million a year in lock changes. Not to mention we didn't have a comprehensive key control program."

To create a key-control program, while also eliminating the use of locksmiths, Dollar General refitted its stores with customized key-based locks from Englewood, Colo.-based InstaKey. The system enabled them to re-key and re-pin locks without expensive hardware changes. Better still, the re-keying could be done by anyone, without the assistance of a locksmith.

The lock systems also come with software that allows centralized tracking of every key in the system.

"InstaKey gave us the key control program that allowed us to know how many keys we had per store, where they were, and who they were issued to," says Ostler. "We knew when our locks were changed. We also had the peace of mind knowing if we lost a key carrier and got the key back, we didn't have to change a lock. The keys could not be duplicated."

In addition, when a key was lost, a district manager could handle the step change on the key system. It gave the assurance of knowing that the old key would not work at the store.

The new system offered the prospect of heightened security at lower cost, but the chain still faced the formidable and expensive task of changing out all the old locks and installing the new ones in what were then 3800 stores.

"There were a lot of locksmith fees because you had to survey the store - actually take out the lock and examine it and find out what kind you had," explains Ostler. "Then you had to order it from InstaKey and put in the new one. There were two actual operations that took place and two locksmith trips. It was just cost prohibitive. Then after sitting down and talking it out, we realized how easy it is to change a lock."

The company put together an instructional video on installing the locks and distributed it to district managers, who were charged with changing the locks themselves. So far about 95 percent of the stores have made the change.

The InstaKey locks allow repeated re-keying - up to 12 new key sequences in the life of the cylinder. Because one of the pins in the lock cylinder is made of a glued wafer-like material, it breaks off when a special key - the step change key - is rotated in the lock.

If an employee leaves service without returning his key, then the local district manager arrives at the store and removes a "step change kit" which is kept locked in the store safe. This kit consists of three new store keys and a step change key sealed in a tamper-proof pouch.

"They all have serial numbers that are issued to a particular store," said Ostler. "The district manager has changed the lock. He's re-keyed it. At this point if you tried those old store keys they wouldn't work."

The district manager then returns a card to InstaKey telling the company the lock has been re-keyed. A week later a new step change kit arrives in the mail and is stored away in the safe. The company's Records Management Software package allows Dollar General to maintain a record of all serial numbers and the stores to which they are assigned.

Dollar General officials also realized that they needed to move to greater protection of assets. The stores were then equipped with safes - an unheard-of and expensive proposition.

Dollar General chose strong boxes from Corporate Safe equipped with Mas-Hamilton electronic locks. These devices allowed store personnel to change the combination on each safe themselves and avoid the continuing expense of calling in a locksmith every time the combination needed to be changed.

ADT provides security system backup In addition to the key system, Dollar General also employs ADT Security Systems of Boca Raton, Fla., as its national monitoring company in about 650 stores. The firm provides monitored alarms that include door contacts and motion detectors, as well as silent alarm buttons at the cash registers and in the manager's office.

"While we didn't have a lot of problems with burglary, we did have stores that were repeatedly broken into because we were known not to have burglar alarms," he recalls. "When we installed the system that problem went away immediately because we started out covering the worst stores. We did 250 stores in 1997 and 1998, and we did 100 last year. We'll do about another 150 this year."

In addition to fighting break-ins, the system also allows the central security office to monitor the ingress and egress of the stores' key carriers. Each employee must use his or her own individual access code when opening and closing the store.

"ADT provided us with a weekly report on each store, including when it was opened and what time it was closed and who did it," he says. "We started seeing re-entries in the middle of the night. Employees were going in at 2 in the morning and staying in for 15 minutes. So we knew that we had a problem. A lot of terminations took place when this program was new, but now the word is out. Employees realize that if they go back in the store, Dollar General will know it."

They also upgraded to ADT's Mas-Link system, which gives them a live terminal from ADT in their corporate security office. The product provides opening and closing information daily. It can run exception reports and query to see which stores opened late or closed early, or which had a reentry.

"We have it all instantly right here in our office," said Ostler. "We can maintain our emergency call lists for our stores right here through our computer. We can change codes for users right here. Mas-Link is really what makes it functional for Dollar General to be able to react quickly to problems."

Early detection is a vital part of the strategy since the company doesn't have any loss prevention investigators in the field other than district managers.

The company also encourages employees to report suspicious activity to a "shrink tip line" provided by The Network of Atlanta. The Network, one of the nation's largest providers of telephone-based services such as the "How's My Driving" phone number found on trucks, provides live operators 24 hours a day to take calls.

Reports are immediately e-mailed to Dollar General, where they are logged into IRIMS incident tracking software manufactured by Edmonton, Alberta-based PPM 2000.

Keeping track of inventory Ostler and his team have also helped the company achieve less than 2 percent shrinkage by maintaining close tabs on inventory. Some of the company's greatest losses have come through stores building more inventories than they were selling.

Profit and loss statements are generated for all 4,500 stores on a weekly basis. These reports detail all of a store's operations, from sales for the week, to payroll, and all of their expenses including rent, telephone, gas, and water, as well as inventory levels.

"We monitor it diligently on a weekly basis," he says. "We update our systems every week and we generate exception reports. We plot it on color graphs per district and we send it out to the district managers. We let them see exactly which stores are building inventory. The district managers have the authority to call time out and conduct an inventory of the store."

The company employs Rochester, Mich.-based RGIS Inventory Services, one of the world's largest inventory services to examine individual stores when there is any question about rising inventory.

"We pull inventory levels each week and plot them onto an Excel graphic," he says. "It's a 12-month running graph so we can look at a store and if we see a line going up, it is building inventory. We send the reports to the district managers on a regular basis. They can spot it instantly." Excess inventory is not just a matter of shrinkage, but also carries a lot of cost to the company. "Properly managing our inventory is our biggest win for the company this year."

Dollar Generals are no longer the small town stores they once were. With success has come expansion. To keep the company moving forward, Ostler and his asset protection team have built a system that will keep the stores safe and the company profitable now and in the future.

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