Inventory Costs – Pillage & Ullage

Watching the video about Inventory Management from Mal Walker I stumbled across two terms I have never heard before and which aroused my curiosity – Pillage and Ullage.

Inventory Management – An Introduction with Mal Walker

While Ullage describes the unexplained loss or damage of goods, Pillage characterizes the actual theft. The annual cost of inventory theft is around $15 billion for warehouses, manufacturers and shippers and therefore needs to be considered in an inventory cost calculation. I didn’t expect this number to be this large because of the highly advanced security standards implemented in all the companies I visited in Germany. The word security refers to the condition of a closed system (like a warehouse) being protected from intentional intrusion and harm from the outside. But what if the harm does not come from the outside?

The Article: “Prevent Theft in your Warehouse” offers small insights about two contract delivery drivers working for Amazon, who routinely stole goods from their employer for at least 6 years. The two drivers, who also happen to be roommates, later sold the stolen goods to two frauded pawn shops and received $4 Million from them. The pawn shops actually sold the goods again on Amazon, as third party sellers and generated over $10 million. Full information about the Amazon theft ring can be obtained here.

In industrial security there is a 10 / 80 / 10 rule, which implies that 10% of your employees will never steal from you, 80% can be motivated to steal or not to steal and the remaining 10% will steal whenever they can. It is important to focus on the 80% and motivate them not to steal by reducing the opportunities and therefore the temptation on one hand and making sure the employee feels appreciated both personally and financially on the other hand. If you are looking for in-depth information about industrial & warehouse security I recommend this paper from Cisco-Eagle.

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