Security Industry: The Emergence of Loss Control and Inventory Management Services in East Africa

Interview with CEO John Wanjohi and General Manager Francis Indimuli of Hipora Business Solutions East Africa

The sector you are in is very competitive, but you are very specialized. How do you assess the security sector in Kenya?

John Wanjohi: The retail sector in particular has seen a lot of transformation. Here in Kenya, there are a lot of new entrances from outside in the supermarket industry, with big giants like Carrefour, and Shoprite from South Africa, although they have now exited. In terms of inventory management, we always find there are huge losses which come as a result of staff pilferage, collusions, theft of inventory, and the like. The global and allowed standard of shrinkage is about 0.05%. But in most of the businesses, even if they are unable to compute the shrinkage or inventory losses, it ranges between 5 to 10% of their revenue, which is huge in terms of losses. As a result, we noticed there was a big gap in managing inventory. In the retail sector, we worked with the major supermarkets in Kenya, Uganda and Tanzania, and we managed to mitigate on the losses by putting preventive measures in the vulnerable areas such as goods receipt, goods dispatch, the stock rooms and the distribution centers. We normally mitigate the losses using human resource, backed up by technology. In the human resource segment, we train personnel on loss prevention, and we place them in the vulnerable areas to work as independent checkers of the goods that are coming in and leaving the business of the manufacturer, the retailer, or whoever it is. Even though we have realized that every business sector in the economy, particularly here in Kenya, suffers losses of inventory, it has not yet been embraced fully. Despite the clients that we have in Kenya, Uganda, and Tanzania, we have not even clinched 5% of the market.

We are still moving slowly because we do not have competitors supporting the sector. The competitors we have are staff who have exited our company, and have formed loss control companies, which have no structures. There are other companies which have been formed by ex-partners and the like, but they do not have the structure Hipora has. Hipora is the leading loss control and inventory management company in Kenya, Uganda, and Tanzania. We penetrated through the retail sector, and we managed to have a lot of control on the sector regarding conformities in terms of goods received from the suppliers, manufacturers, warehouses, which come with a lot of discrepancies. For instance, goods are being delivered to the supermarkets with shortages and excesses. We asked ourselves why, and we traced it backwards by looking at what the problem could be. We realized that the underlying problem was bigger than we thought. Most of the customers we have are manufacturers, and, at the dispatch, there is huge collusion between the staff who are doing the dispatch of the goods, the customers who are getting the goods, the drivers, and the staff of the client. We normally do something called a survey. We carry out an in-depth audit survey of the client’s processes. And we realized that there was a lot of collusion between the staff of the client and the market outside.

The losses are so huge that sometimes it is very difficult for the customer to believe that they are losing that kind of inventory. We have processes in our own internal training, which we put in place. We look at the areas that are very vulnerable. There is one area I would like to emphasize on called return management. Return management involves goods that have gone to the market and due to some complexities like non-compliance, expiries, and the like, they are sent back to the manufacturer. Some of those goods never come back to the manufacturer, and sometimes they comprise of huge amounts of goods. So the losses are enormous from the customer side.

The market is not fully exploited in terms of inventory management. We have diversified our loss prevention in terms of approach. We have manufacturers, we have warehouses, we are doing logistics, we have pharmacies who are also suffering from huge losses, we have the milk industry, etc. And we are doing all of them. We have distributors who have come in very handy, because distribution in Kenya has become a huge aid in the market, particularly because we have big distributors who are taking products to the consumer on the ground. These are distributors we are working with.

We cover end-to-end inventory management, which means from the time of receiving, time of putting the products in the stock room, production, finished goods, up to the dispatch, then to the market. Sometimes, some clients want to take their goods to different places, and the drivers disappear with the goods, or something happens on the way. We are offering something we call transport security officers, whom are Hipora-trained staff who accompany the inventory to the customer. We are diversifying in terms of products, depending on the need in the market. Inventory management covers end-to-end full warehousing and logistics.

Could you give us an overview of the risk management concept?

There are other companies which have been formed by ex-partners and the like, but they do not have the structure Hipora has. Hipora is the leading loss control and inventory management company in Kenya, Uganda, and Tanzania.

Francis Indimuli: Hipora has adopted a risk management concept whereby we embrace on the loss prevention aspect, rather than loss control. We are using two approaches. One, we have the key point loss control, and that is when we engage with a retailer for example, to make sure that we see the loopholes in terms of the merchandise that is being received, the merchandise on the sales floor, and the merchandise that is going out in terms of sales. We put guys who are trained in these particular areas called double checkers. A double checker is an independent verifier who confirms the order and the invoice to ensure that whatever was ordered by the client matches what is coming in, in terms of quantity and quality. We have had scenarios whereby there is what we call short shipment, which means merchandise was ordered in full, but the supplier was not able to afford all the supplies, so he supplied in bits. What we do with the invoices is indicate whatever we have supplied. At the back end, we have guys who are working in the accounts department to ensure that the supplier gives a credit note for the goods not supplied. We also fight fraud and collusion. We have had scenarios where suppliers came with a truck and did not deliver. The documents were signed and taken to the accounts department. At the end, the client paid the supplier, but the supplies were not supplied. That is a loss for the company. The double checker ensures that whatever is in the order matches whatever has been supplied. He also performs quality checks in terms of local purchase order expiry, and validity of the LPO (local purchase order). The LPO, the delivery note, and the invoice must be able to marry. If they marry, the double checker will confirm the consignment and ensure that it is in good condition, in terms of quality and quantity.

Then we have somebody else called a stock controller. Once the merchandise has been received, the goods will either be taken to the sales area or the stockroom. We have two categories of goods. If these are fresh FMCG, most of them are taken straight to the line. If you have Triple H, heavy household commodities, they will always be taken to the store. The stock controller will receive the merchandise and practice what we call FIFO (fast in, fast out). He organizes the store arrangements to ensure that all the merchandise is arranged to ensure the safety of merchandise, and also the security of all the guys that are operating in the area. No merchandise should be on the aisles. For example, in case of an emergency, people should be able to have proper way through, or escape route. Then we have the shop attendants. They will come to the stockroom and pick merchandise as per the instructions from the stock controller. The stock controller does the cycle counts on the stock that is in the stockroom and also compares with what is in the sales flow, so that at the end of the day, the client is advised in terms of what are we supposed to order.

We have three categories. Category number one the stockout. If you have a stockout, the client must be informed promptly, so that he can make an order so that when customers come, they will not miss any product. Number two we have the slow-moving items. We need to advise the client because of the small margins they are having. So we need to advise them this product is slow-moving, and when they order, it should be in small quantity. Number three we have the fast-moving products. We need to take advantage of the fast-moving products and also focus on the customer trends for that particular location. We generate, compile, and send those reports to the client on a daily basis so that they can place orders from an informed perspective. We also have other aspects of what we call the absolute products. These are products that have overstayed in the branch because of taste and preferences. Customers are not buying. So we advise the client not to order these particular products because they just sit here, wasting your time and money, which now translates into losses.

From the stock controller, we have two other types of people in the sales area, an overt person who is in uniform, and a covert one, called a store detective. These people will walk around the store just to check the behaviors of the customers in order to prevent shoplifting. A customer will walk in the store without purchasing anything, but he will walk out with so many items. This person will follow this particular customer to ensure that he is intercepted before he exits the outlet. Once we realize that you have a merchandise or a product that you have not paid for, you are taken to a separate room for interrogation. The process follows until if there is need for police to be called for arrest.

The same person works closely with somebody called a CRO (camera room operator). Camera room operators work hand-in-hand with the store detective. Either overt or covert. Whenever they site somebody, because sometimes you create suspicion, you let the camera room operator follow this person everywhere they are going. In case they pick anything or conceal anything, they will be able to take that footage and support in case of any arrest and so forth.

We also have somebody called a frontend controller at the till area, which is where so many activities take place. If you are not careful, that is where most losses occur. A customer may come in, pick three items when he walks close to the cashier, and the cashier only punches two items. The customer will walk out with three items, but only paid for two. That is what we call the undering.

There is another offense called overing. Sometimes you purchase an item and leave the store. But when you go home and check clearly on your receipt, you realize the cashier punched five items, while you only purchased three. That is a direct step to the customer. Overing is a loss to the customer and undering is a loss to the retailer. Our guy will make sure that this does not happen, together with any other fraud that occurs at the selling area.

There are two aspects involved: there is checking on the cashiers’ activities and there is also dispatches. Regarding semi-heavy household items (kettles, iron boxes, etc.) and heavy household items (TVs, fridges, washing machine, etc.), we have the electronic track register, and the dispatch clerk, who is a Hipora staff, that will confirm the particular item that is being sold is approved in terms of quality and quantity. And how do we ascertain that? We have experts who are category managers that will come and confirm that the item living the store was in good condition. Those are the roles that we play in a supermarket scenario where we have got a double checker, a store controller, a flow walker or detective, a camera room operator, and a frontend controller/dispatch.

If we realize that a scenario requires more than four people, we will come with somebody called a loss control manager. A loss control manager is an overseer of all the operations. If there is anything happening at the back end, he makes sure that everything is okay. He takes action on everything that happens in different departments. That is the scenario whereby he is called the key point area loss control management. Because we have evolved, we have taken a step higher and we are doing full warehousing, because the key point area is also embracing end-to-end inventory management. When we talk about full warehousing, we are taking 100% responsibility of the merchandise that the client has. We employ from the clerks until the merchandise goes to the market in terms of logistics. We have the administrator, who is put on that particular area, there is a dispatch associate, there is a receiving associate, there is security, we put clerks. We oversee all actions to ensure that all the incoming shipment is received as required. Storage of that particular merchandise is as par in regard to FIFO, when it comes to dispatch. What comes to make it an end-to-end inventory management in terms of full warehousing is we now oversee the logistics part whereby the merchandise will go to the various clients.

Then we manage the return management. Return management is when you have a dispatch for particular clients. Not all of them will pick the merchandise, and we will have some returns back to the warehouse. We have to understand the reason why the returns are back. They can be a damage return or a sound return. In a system, we have a location where we put this merchandise. We will direct them back the store after now converting them to be sound merchandise and taken back to the storage. If it is damage, we take action with the person who damaged the merchandise, and give a reason. If something can be recycled, for example, if it is an MPCG or FMCG, we will use this internally, and also expense the same so that it does not conflict with the physical invoice and the system invoice. On a daily basis, we do the track fulfillment report, whereby when the merchandise goes to the market, you need to clear the board. Clearing the board is just confirming that I was given this merchandise on this volume of this merchandise. I supplied this particular route, these are the clients that I supplied, and these are my returns. Once you clear the board, you are now eligible for tomorrow and the following days’ deliveries. If you have not cleared the board, you will not be allowed to take any other step of delivering.

What are some of the success stories you are proud of?

John Wanjohi: The warehousing and logistics aspect, which we started late last year, has become a success. When we get a client who is doing distribution, we are able to onboard more than 70 staff, which means we have created 70 jobs for our staff. Warehousing is more of a job creator than the retail sector. When you take a supermarket, you only need two people at the receiving area of the goods, and two people at the dispatch area of the goods. But with warehousing and logistics, you create opportunities for between 40 to 80 people who will manage the warehouse and the inventory management. We have some of our clients who left us like a year or two ago after thinking that our charges were high, but they have come back to us after realizing cheap was more expensive than what we were offering. They have lost more by onboarding competitors who have no structures. Last year we onboarded the pharmaceutical industry and they have really embraced inventory management, because in Kenya, the owners of the businesses just pump in stocks without knowing what the stockholding is, but we have managed to train them, to take them through. And they have been able to understand where they were losing, because instead of just pumping stocks, they realized we could help them see how much they were losing, how much they were gaining, how much stocks they had at any particular time, etc. The pharmacies have really embraced the idea, they are small customers, but they hold big amounts of inventory.

There was a little infiltration of cartels in the milk industry, whereby the milk would leave the production or the factory, and go to the market contaminated with water. We have been able to onboard undercover agents, enact a lot of irregularities and arrest a lot of people who have been involved in this malpractice.

We have also been able to onboard new technology, particularly for catching the people who are involved in such malpractices. In the receiving area and the dispatch area, we have a way of monitoring what is happening in the business at any moment. We then we give real time information to the client, which is a very proactive way of helping the businesses control their losses.

Are you interested in attracting investors or partners?

John Wanjohi: It has been a mid-term to long-term pro strategy of ours to onboard strategic partners. We just lost some partners that we had two years ago, so we are still working on revamping the business and realigning it before we allow an investor from outside. Currently, I have an investor who wants to partner with us from Austria in Europe. They are also doing inventory management and loss control, but they have a lot of technology. We would like to partner with them so that we can embrace technology and change our mode of operation by embracing and using more technology than human resource. We will go a long way because we will bring synergy in the business and new ideas. I will be able to take my people to Austria for training and the Austrian people will come here for training. It has always been in our portfolio to see how part of the challenges in cash flow can be averted, and bringing a strategic partner would be able to curb the issue of cash flow.

What about the international aspect? You are very much focusing on Kenya, but is there any plans of going abroad?

John Wanjohi: We are currently ensuring that we are covering the whole of East Africa. We started from home, in Kenya, where we are fully covered. We have more than 40 towns in Kenya where our presence is being felt. We have a presence in Uganda, in Kampala and some other three to four cities. In Tanzania, we have four assignments in Dar es Salaam and Arusha. We are also entering Rwanda. We were supposed to have gone there last year, but COVID took us back a bit. Ethiopia is another country we would like to venture into. We shall be in Rwanda and Ethiopia before the end of the year, and if we can partner with the Austrian strategic partner, we are sure that we shall extend our wings outside of Africa.

Did you win any awards or certifications?

John Wanjohi: We received an award 5 years ago. We were number 5 in the top 100 SMEs. Being number 5 among the top 100 was an achievement. We are members of several bodies like Kenya Private Enterprises, the Retail Association of Kenya and the Protective and Safety Association of Kenya. We are embracing new ideas from like-minded partners.

What is your inspiration?

John Wanjohi: What inspires us is having the right people in Hipora. We create job opportunities. Every month we are able to create more than 30 opportunities for jobs, and it gives us an inspiration to feel that we are doing something for the economy and for the community around us. We do a lot of CSR, like visiting the needy members of our community, and we have been supporting them a lot. Every time there is an issue, Hipora is always on the frontline to assist the communities that are surrounding us. These are some of the things that make us feel inspired to continue. Every week, we have meetings to reflect on our achievements and our challenges, and then we plan ahead. This gives inspiration to the team, because we work together. We do a lot of team building, so I can say that the team is very intact and cohesive. These are some of the things which make us feel like we are a family.

Is there anything else that you would like to add?

Francis Indimuli: We are doing good in terms of checking on the guys that we have deployed and also on the clients’ staff. We deal with integrity, so for us to remain at bay with the service provision, we need to check on our staff.

There is also another project that we offer, which is called undercover agency. An undercover agent is a person we deploy amongst our staff and the client’s staff, to infiltrate and get important information to be shared with us, which we then share with the client in case there is anything that is needed to be actioned immediately. For example, if there is any issue about staff theft, or if people are planning to go on strike, these people will give us prior information, and then we share this with the client for action purposes. This helps our clients to be more ahead of information, rather than being reactive. Because if you react you will lose a lot of liberty, if you are proactive, it just keeps your business at bay. We normally give our undercover agents a weekly incentive bonus on top of their salary for this precious information.

If we need to deploy three undercovers in your assignment, you will not come and have a round meeting with the three of them. We will have to deploy one at a time, so that we do not blow their cover. And the three of them will not know the other guys are undercovers. We are getting information from all around.

Regarding logistics, most of the clients require somebody who can make sure that the products delivered to client A, B, C, D are delivered in a safe manner. They also want to know if there is any action that the driver is doing outside the norm, such as fuel siphoning. Mr. Wanjohi mentioned the dairy issue. Sometimes, once the drivers are on the road, they will put a syringe in the milk holder, siphon milk and put it in a five-liter jerrican. Once they have done the deliveries, they come back with returns telling the client that the milk had leakages. Yet they are the same people who did that particular vice. We planted an undercover agent who was able to unveil what was happening. It is a very important tool that we are using.

We have partnered with a company in South Africa doing polygraph tests. If you require your staff to be polygraphed, we come and do the polygraph test. We give you feedback so that it informs the decision that you may want to take in case you have a disciplinary case or something else that happens. Even though a polygraph is not admissible in a court of law, it is a support. We make our staff sign a polygraph too so that in case anything happens, and they exit the company, they will not come and sue. It also creates a legal implication. That is what we do. And we coin it to these other functions so that it encourages us to get more information and action on the various events that may take place.

John Wanjohi: In order to stay ahead in our market, we have to be very innovative and come up with new ideas, because there are very many unfair competitors who are not following the fair practices in the market. We have to stay ahead. We do not compromise in terms of pricing and neither do we compromise in terms of integrity, and that is why we introduced the idea of the polygraph. There is no other company in Kenya, which is doing polygraphing of their staff. We do that because we want to have the best. We want to ensure that we remove the vice and integrity issues, and then we do a lot of training. We train our staff on integrity, on loss prevention, on inventory management and also some aspects of security, because all these go hand in hand in risk management. We have partnered with some service providers to ensure that every time we find a staff has been involved in some irregularities, we have a platform where we post them so that person cannot get a job anywhere else until he or she is cleared by the organization that we are working with. This one has eliminated rogue employees, and it has reduced the issues of having staff who are involved in losses. In order to manage our staff, we have an employee monitoring system. We manage it from our office, and we have a control room. Every employee who enters the workplace signs in, and signs out when he leaves. We are able to monitor our staff from where we are seated. So those are some of the things I wanted to mention about our innovation.

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