Management of Supermarket Operations
Management of Supermarket Operations
Management of Supermarket Operations
CONTENTS
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CHAPTER 1
INTRODUCTION AND THE LAW
Introduction
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Prevention of Bribery Ordinance (PBO)
(Laws of Hong Kong Cap. 201)
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Principal
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Agent
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Advantage
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Principals Permission
Deception by Using Receipt, Account or Other Documents 2
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Custom Constitutes No Defence
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Verbal Agreement Counts
Penalty
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Related Laws
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CHAPTER 2
CODE OF CONDUCT
Introduction
Code of Conduct
Corporate Commitment
Acceptance of Advantages
Acceptance of Entertainment
Conflict of Interest
Examples of Conflict of Interest
Handling of Confidential Information
Information Systems Security
Internet and Email Usage Policy
Chinese Walls Requirement
Investment Restrictions
Effective Enforcement
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CHAPTER 3
PROCUREMENT OF FOOD AND GOODS FOR SALE
Introduction
Procurement in a Supermarket Operation
Basic Checks and Balances
Proactive Sourcing
Establishing Genuine Need
Compiling Suppliers Lists
Inviting Quotations
Evaluation of Quotations/Tenders
Third Party Assessment
Negotiation of Trading Terms
Appointment of Suppliers
Performance Appraisal
Contract Renewal
Handling Approaches by Suppliers
Sourcing Suppliers at Food Fairs
Changing Retail Prices
Handling of Goods or Food Samples
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CHAPTER 4
CHAIN STORE OPERATIONS
Introduction
Inventory Control
Supervision of Concession Counters
Planogram Administration
Racks or Locations for Promotional Items
Product Recalls from Sale
Site Checks
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CHAPTER 5
ACCOUNTING CONTROL IN CHAIN STORES
Introduction
Operational Guidelines
Recording of Sales Transactions
Cash Handling
Refund to Customers
Shopping Vouchers and Gift Coupons
Management Monitoring
Handling of Credit Card Information
Internal Audit
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CHAPTER 6
ORDERING, WAREHOUSING AND DISTRIBUTION
Introduction
Company Policy and Guidelines
Segregation of Duties
Ordering and Delivering Stock
Receipt of Food or Goods Items
General Merchandise Items
Fresh Food Items
Issue of Food Items or Goods to Supermarkets in the Chain
Physical Security
Independent Stock Checks
Disposal of Stocks
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CHAPTER 7
GOOD GOVERNANCE AND INTERNAL CONTROLS
Introduction
Good Governance and Ethical Practices
Internal Control Systems
Setting Sales and Staff Performance Benchmarks
Laying Down Clear Policy and Procedures
Defining Staff Responsibilities
Segregating Duties and Functions
Safeguarding Sensitive Information
Initiating Effective Supervision
Producing Management Information Reports
Enhancing Checks and Balances
Establishing Channels for Complaints and Feedback
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CHAPTER
Chapter 1
Advantage
Advantage refers to anything that is of value such as money, gift, commission,
employment, service or favour, etc. Entertainment, which is defined as food or drink
provided for immediate consumption on the occasion, is not an advantage.
Principals Permission
It is lawful for an agent to accept an advantage in relation to his official duties with his
principals permission. The permission must be given by the recipients principal, NOT
the offerors principal. In any case where an advantage has been accepted without
prior permission, the agent must apply for his principals approval as soon as reasonably
possible afterwards.
Deception by Using Receipt, Account or Other Documents
Any agent who, with an intent to deceive his principal, uses any receipt, account or
other document, shall be guilty of an offence.
Custom Constitutes No Defence
It is not a defence to claim that an advantage accepted or offered is customary in any
profession, trade, vocation or calling.
Verbal Agreement Counts
The offeror and the recipient of a bribe are liable to prosecution if a verbal agreement of
corruption is reached, notwithstanding the purpose of bribery has not been carried out.
Penalty
A person convicted of an offence under Section 9 of the PBO is subject to a maximum
penalty of seven years imprisonment and a fine of HK$500,000.
Related Laws
Apart from the PBO, the supermarket operators should take note of other relevant
ordinances and regulations; for instance, the Companies Ordinance, the Employment
Ordinance, the Personal Data (Privacy) Ordinance, the Inland Revenue Ordinance,
the Public Health and Municipal Services Ordinance, and the Trade Descriptions
Ordinance, etc. (Please visit website http://www.justice.gov.hk for details of the above
ordinances.)
CHAPTER
CODE OF CONDUCT
Introduction
Commitment to lawful and ethical practices is the key to good governance in the
running of a business. It is advisable for supermarket operators to issue a Code of
Conduct to staff, stating the companys commitment to ethical and lawful practices and
setting out the proper practices and standards required of them. A well established
Code can help prevent corruption and fraud, build the companys reputation, as well as
enhance the trust of customers, suppliers and business associates.
In appointing term suppliers (e.g. vendors running concession counters in supermarkets
in the chain), supermarket operators could require them to issue a similar Code of
Conduct to their employees (e.g. the on-site staff manning the counters).
Regarding fair trade practices, supermarket operators may also wish to make reference
to the Good Corporate Citizens Guide I and II issued by the Consumer Council (http://
www.consumer.org.hk/website/ws_en/competition_issues/model_code/list.html).
Code of Conduct
The Code (a sample code obtainable from the Advisory Services Group (p.28) upon
request) should include the following key elements:
corporate commitment to ethical practices;
rules governing acceptance of advantages and acceptance of entertainment;
requirements to avoid and declare any conflict of interest when performing official
duties (e.g. when making procurement) and the procedures for handling such
declarations;
requirements to protect confidential and commercially sensitive information
obtained through work;
requirements to maintain proper books and records;
requirements to comply with investment restrictions;
requirements to report breaches of the Code and other matters of concern to the
company;
obligations to comply with all relevant laws and regulations; and
rules governing relations with suppliers, customers and business associates.
Further elaboration of some provisions in the Code is explained below.
CODE OF CONDUCT
Chapter 2
Corporate Commitment
The Code should include a statement of commitment that the company:
admits that integrity, accountability and fair competition are the companys business
conduct;
adopts zero tolerance against corruption, fraud and malpractice;
demands the highest standards of business ethics from all staff members and expects
all suppliers and business associates to conform to these standards;
regards highly its moral and legal responsibilities in ensuring the health and safety of
customers as a retailer of food products; and
seeks to provide an efficient and courteous customer service.
Acceptance of Advantages
Staff, in particular those responsible for procurement of food items and goods for sale
at the chain stores, may be offered samples of food or goods, some of which may be
expensive like abalone. Some may even be offered commission by suppliers. As
such offers may be bribes in disguise and acceptance may affect ones objectivity in
conducting business, supermarket operators should have a policy prohibiting employees
from accepting advantages which include any gift, loan, commission, employment,
contract, services, etc., from persons with whom they have official dealings. Reference
should be made to Section 9 of the Prevention of Bribery Ordinance. If employees are
allowed to accept token gifts, the permissible value should be specified.
Acceptance of Entertainment
Entertainment is an acceptable social activity, but extravagant and frequent
entertainment offered to the staff by suppliers or business associates may be a calculated
act to sweeten them in order to build up a store of goodwill for future demands of
favouritism (e.g. in the selection of suppliers). Supermarket operators should issue
guidelines, advising the staff in particular the procurement staff and their supervisors
to avoid accepting meals or entertainment that are excessively lavish or frequent.
CODE OF CONDUCT
Chapter 2
Conflict of Interest
A conflict of interest situation arises when the private interest of staff competes or
conflicts with the interest of the company. The staff should be advised to avoid any
actual or perceived conflict of interest and to report to their supervisors when such a
situation arises.
Examples of Conflict of Interest
It would be helpful to staff if examples of conflict of interest could be provided in the
Code of Conduct. The following are some examples of conflict of interest situations that
may arise from procurement activities, staff administration and supervision:
A staff member involved in the procurement process has financial interest in a
company which is being considered by the supermarket operator in the selection of a
supplier.
A supplier under consideration in a procurement process is a close friend or relative
of the staff member responsible for the procurement.
A staff member invests in the business of a supplier who supplies goods to the chain
store under his supervision.
A candidate under consideration in a recruitment exercise is a relative of the staff
member responsible for the recruitment.
A staff member responsible for appointing transport service providers engages
the selected contractor to provide him with free transport services or services at a
discounted price for personal use (e.g. home moving).
CODE OF CONDUCT
Chapter 2
Investment Restrictions
There should be clear guidelines governing investments by staff, e.g. staff should be
prohibited from dealing directly or indirectly in the companys shares or other shares of
any listed company at any time when he is in possession of information obtained as a
result of his employment by or his connection with, the company or its Group, and the
information is not generally available to the shareholders of the company or the public.
Effective Enforcement
To effectively enforce the Code of Conduct, the company should ensure that it is :
issued with the full support of the management;
incorporated in the companys staff handbook issued upon appointment and strictly
enforced;
promoted through continuous capacity building workshops to foster good practices;
communicated to suppliers, clients and business associates to ensure that they are
aware of the company policy and the ethical standards expected of the staff; and
updated as necessary.
CHAPTER
Chapter 3
designate approval authorities at the right level for purchases of specified financial
limits and for approving different trading terms;
specify procurement methods for different types and values of purchases (e.g. inviting
quotations or tenders based on the value of purchase);
specify the authority for approval of exceptional purchases (e.g. purchases from
single source);
require the procurement staff to keep proper records for random supervisory checks
and for audit purpose;
issue clear instructions and guidelines for staffs compliance; and
remind the procurement staff to make declaration of conflict of interest to the
company regarding their relationship with the suppliers periodically and at the
beginning of major procurement exercises.
Proactive Sourcing
From time to time, the procurement staff may need to proactively source suppliers for :
operating concession counters (e.g. counters for flowers, sushi or a bakery) in chain
supermarkets;
manufacturing and packaging the supermarkets brand name food items or goods;
supplying food or goods in regular demand (e.g. vegetables, fruits and seafood); and
supplying food or goods on an ad hoc basis (e.g. organic food).
Establishing Genuine Need
To ensure sourcing of suppliers and purchases are primarily based on actual need, the
following safeguards are recommended :
Procurement staff and their supervisors in charge of goods of the same category
and of different categories should be required to meet periodically to discuss and
exchange information regarding the market trend, new products and the popularity
of existing products.
Decisions on inclusion of new products and concession counters, as well as deletion
of old products should be made by a panel of staff at the appropriate level.
Chapter 3
Chapter 3
The minimum number of suppliers to be invited for different values of purchases and
the authority to approve the selection should be specified if not all listed suppliers are
invited to bid. Responsible managerial staff should conduct random checks to see
if the same few suppliers are repeatedly selected for bidding which is unfair to other
listed suppliers.
Specifications of the required food items or goods, such as the price and description
and the evaluation criteria in broad terms etc. should be included in the invitation for
bids to enhance transparency.
All quotations, whether obtained verbally or by fax, should be protected from
tampering or leakage before the deadline. Verbal quotations should be recorded
or confirmed in writing as far as practical. A designated fax machine installed in
a secure area or a computer terminal with password control should be used for
receiving quotations by fax. All written quotations should be kept securely, preferably
by a staff member not involved in the procurement process, to enhance checks and
balances.
To prevent false quotations, a supervisor may randomly call the bidders to confirm
the genuineness of the quotations received or contact the invited suppliers who have
failed to return any quotation to see whether they have actually been invited to bid.
Records of quotations should be kept for random supervisory checks and audits.
Quotations should be opened after the deadline and recorded jointly by two staff
members.
Evaluation of Quotations/ Tenders
To ensure fair and objective evaluation of comparable bids, the following measures are
recommended :
Quotations/tenders should be assessed by a senior staff member or a panel as far as
practicable, taking into account the value of purchase.
Quotations/tenders should be assessed in accordance with pre-determined criteria
(e.g. price, profit margin, profit sharing percentage in the case of concession contracts,
suppliers track record, goods or food quality, and delivery efficiency) if price is not
the only consideration. Justifications for departure from the assessment criteria should
be documented.
For high value purchases where price is not the only consideration, a marking scheme
with weightings for the respective predetermined criteria could be used for evaluation.
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Chapter 3
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Chapter 3
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Chapter 3
Performance Appraisal
To ensure the suppliers performance is objectively appraised and sub-standard suppliers
would not be corruptly tolerated, the following preventive measures are recommended :
subject the suppliers performance to periodic appraisals to ensure under-performed
suppliers will not have their contracts renewed or will not be invited to bid in the
future;
draw up a set of evaluation criteria (e.g. sales performance, service standard of
concession counters, food safety standard, and delivery performance);
adopt multi-tier performance appraisals to be conducted independently by the
procurement staff, regional and area managers, store supervisory staff and the quality
assurance team as appropriate;
put in place a disciplinary system to sanction suppliers who have been non-compliant
with the contract conditions (e.g. issue of warnings or suspension from invitation to
bid for future contracts); and
collect consumers feedback as an independent third party appraisal as appropriate.
Contract Renewal
To minimize abuse in contract renewal, the following measures are recommended :
lay down the criteria for renewing a contract (e.g. sales performance, market trends
and issue of a staff code of conduct) and the approval authority; and
periodically review the need to conduct a fresh appointment exercise to enhance
competition and to minimize the perceived over-reliance on a particular supplier.
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Chapter 3
Chapter 3
Receipt and disposal of samples with commercial value should be properly recorded
in a register and subject to the supervisors random checks.
Evaluation of the quality of samples should be conducted by a team including
managerial staff. To enhance objectivity, tasting of food or drink samples could be
conducted without revealing the suppliers identity to the evaluators.
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Inventory Control
Supermarket operators usually maintain a central warehouse for distribution of goods
and food items to supermarkets in the chain and a store in each supermarket. While
most stock items are distributed from the central warehouse to individual supermarkets
in the chain, for some commodities (in particular those of a perishable nature, e.g. milk),
individual supermarkets place order direct with the suppliers selected by the operator.
Acceptance of goods by supermarket stores, in particular those delivered direct from
suppliers, is an area prone to abuse. Compromised staff could cover up short delivery
or accept goods or food items of poor quality. To deter malpractice, the following
inventory control measures are recommended :
To enhance accountability, the staff responsible should be required to inspect and
count goods/food items upon delivery against the quantity specified in the delivery
note, cross-referencing the relevant purchase orders if any, and to certify acceptance.
There should be a procedure for staff to record defective or short delivered goods
or food items and to follow up promptly with the supply department or the supplier
direct.
The types and quality of food or goods to be replenished directly by the concession
counter staff should be subject to checks before sale.
Random supervisory checks should be conducted on the quality and quantity of
accepted food or goods, especially those of high value.
Chapter 4
require the store supervisor and the manager to monitor the concession counter staff
to ensure they provide satisfactory customer service; and
prevent these counter staff from pocketing the sales income by putting up a sign
asking customers to pay at the cashier counter only and compare customer patronage
and sales income of the same concession counters in different chain stores with a
view to detecting irregularities.
Planogram Administration
Planogram is a master plan of the physical display locations of various categories of
food or goods in a chain store, showing among others the racks and number of shelves
in a rack. As some positions may be deemed more advantageous for display purposes,
there is room for manipulation by compromised supermarket staff who may allocate
more advantageous display locations to the food or goods of a particular supplier.
Supermarket operators may adopt the following safeguards to prevent malpractice :
have the planogram set by a department independent of the store operation
according to predetermined criteria and prohibit store staff from being involved in the
process; and
require the store supervisor or manager to conduct on-site spot checks to ensure that
the items are placed correctly in accordance with the planogram.
Chapter 4
lay down the criteria for extension of the promotion period (e.g. based on sales
performance or availability of other promotional items).
Site Checks
Supermarkets in the chain are subject to different levels of site checks (e.g. by the
regional and area managers, store supervisors and managers, the quality assurance team
and the internal audit team). One of the purposes of these checks is to ensure the food
items or goods on sale meet the required quality and safety standards (e.g. to ensure
correct labeling and withdrawal of expired products). To enhance the effectiveness of
these checks, the following measures are recommended :
keep the schedule of checks confidential and make it known only to the need-toknow;
supervisors should define the scope of checks and set the sample size for the
respective persons or teams conducting such checks, and require them to record their
findings for management information; and
periodically engage mysterious customers, e.g. a professional survey company,
to conduct checks and require the findings to be reported to the management and
systematically analyzed and followed up.
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CHAPTER
ACCOUNTING CONTROL IN
CHAIN STORES
Introduction
Supermarket operators are not in short of professionals who oversee and handle their
accounting matters. This chapter aims to highlight the malpractice and the preventive
measures in the handling of sales transactions in supermarkets store, which are usually
settled in cash, or by EPS (an electronic payment system) or credit card.
Common malpractice in handling sales transactions includes non-recording or
cancellation of bill items to pocket the sales income, credit card fraud, and pilfering of
cash collection, etc. In supermarket operations, such risks may be mitigated by the use
of advance billing systems and customers personal monitoring over the cashier counter.
However, administration of refund to customers, shopping vouchers, gift redeem
coupons and cancelled bills are areas vulnerable to abuse and malpractice.
Operational Guidelines
To ensure consistency in practice, staff should be issued procedural guidelines covering
receipt of payments, recording of transactions, handling of cash registers, refund,
shopping vouchers, gift coupons and receipt vouchers, and conduct of supervisory
checks, etc. The level of staff and their responsibilities should be set out in the
guidelines and the authority for approving certain sales transactions (e.g. refund to
customers) should also be specified.
Apart from the guidelines, it is advisable to generate daily and periodical sales and
receipt reports to be prepared and signed by the staff responsible as this could provide
an audit trail and enhance staff accountability.
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Chapter 5
Cash Handling
To prevent manipulation, the following control measures are recommended :
The guidelines on handling of cash should set the maximum amount of cash flow per
day for each store, the banking frequency, and the requirement for daily cash position
reports.
Notes handling procedures should specify, among others, the bank notes, e.g.
HK$500 notes and Renminbi (RMB) $100 notes, to be tested using a money tester by
a sales assistant and HK$1000 notes by a store supervisor; and the designated staff
authorized to handle currency exchange and conversion in respect of RMB and HK
dollars.
CCTV with tape recording facilities could be installed to monitor cash handling at the
cashier counters if necessary.
A responsible staff member at the appropriate level should be designated to conduct
day-end reconciliation of electronic sales records against the cash in hand and to
make spot checks on other operational activities daily at random.
Compliance with cash collection security requirements by the staff responsible (e.g.
keeping and handover of cash) should be subject to supervisory and audit checks.
Refund to Customers
Supermarket operators should lay down guidelines for making refunds to customers.
Refunds made should be justified (e.g. damaged goods), authorized by designated
staff, recorded for audit review, and the returned goods properly disposed of under
supervision.
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Chapter 5
Management Monitoring
An effective management monitoring system could help deter and detect malpractice.
Supermarket operators may require the stores to generate periodic computer reports for
management information, such as reports showing the sales income, cash balance, sale
of shopping vouchers and issue of the gift coupons, and refunds to customers.
Internal Audit
Sales and accounting operations should be subject to internal audit.
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Segregation of Duties
To enhance checks and balances, the duties for making purchases, ordering stocks,
receiving and issuing food items/goods, and stocktaking should be segregated as far as
practicable.
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Chapter 6
Chapter 6
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Chapter 6
Physical Security
To prevent theft or pilfering, stock items are usually kept in a secure warehouse with
restricted access to authorized staff only. Items of high value should be kept under lock
to enhance security and the key holders be held accountable for the stock. CCTVs may
be installed to monitor access to the stores for keeping expensive items.
Disposal of Stocks
Senior staff of supermarkets should tightly control the disposal of stock items to ensure
that substandard food items or goods and those that have reached the expiry date will
not be sold to members of the public.
The following safeguards are recommended to minimize malpractice :
Supermarkets should have a clear policy prohibiting staff from putting up such stocks
for sale.
The disposal of stock items should follow established policies and procedures,
including inspection, approval and supervision of disposal.
If a total dumping policy is adopted, a designated staff member at the appropriate
level acting as a witness should be assigned to make sure that all written-off items
are destroyed and disposed of as waste.
Disposal records should be kept and certified by the staff responsible.
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Ensure suppliers, customers and business associates are well aware of the company policies
and business culture.
Defining Staff Responsibilities
Define clearly the roles and responsibilities of each level of staff to enhance
accountability.
Lay down clearly the approval authorities for business or operational decisions.
Allow discretion to be exercised only by staff at the appropriate level and with the
required experience or expertise.
Segregating Duties and Functions
Segregate the key duties and functions to enhance checks and balances.
Safeguarding Sensitive Information
Properly classify and physically secure sensitive or confidential information.
Adopt measures to prevent unauthorized access to sensitive or confidential
information stored in computer systems.
Initiating Effective Supervision
Require supervisors at different levels to conduct supervisory checks.
Require supervisors to report observations and actions taken if any.
Producing Management Information Reports
Require staff to keep accurate and proper records of major activities (e.g.
documentation of tender exercises).
Establish an effective information management system to ensure that useful data are
produced regularly for management information.
Enhancing Checks and Balances
Initiate independent internal or external audit on the activities of supermarkets in the
chain, apart from revenue audits.
Engage independent third parties (i.e. mysterious customers) to patronize the chain
stores as customers and obtain feedback from them.
Establishing Channels for Complaints and Feedback
Establish and publicize the channels for complaints or feedback from staff, customers
and suppliers.
Handle complaints promptly to show the managements determination to address the
problems identified.
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