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An Introduction to Unsaleables History, Opportunities, and Solutions
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Unsaleables Opportunities
Agenda A History of Unsaleables Gary Spinazze Unsaleables Opportunities Ted Lechner Eugene Schachte Unsaleables Solutions Rob Shifter
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Legal Disclaimer Presentations are intended for educational purposes only and do not replace independent professional judgment. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of the Grocery Manufacturers Association (GMA), its cosponsors, or its committees. The GMA does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented. Material within this presentation is intended to be used for purposes of education and discussion stimulation only.
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Unsaleables: A History
Gary Spinazze
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What are Unsaleables? Unsaleables is defined as:
“Any product removed from the primary channel of distribution, regardless of the reason for removal. This includes, damaged, seasonal or out-of-code products.”
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Unsaleables Timeline JIR Published Updated JIR Published Initial
Benchmark Study Reclamation Center Growth JIULT Formed 2008 Joint Industry Unsaleables Report Initial ARP Implemented 1985 1990 1992 1995 1997 2005 2008 2009
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Reclamation Centers What is a Reclamation Center?
Central location for collection and processing of unsaleables product. Can be owned by distributor or 3rd Party. What is the purpose of a Reclamation Center? To control disposition of unsaleable product As a central return point for recalls To ensure proper issuance of store credit
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Joint Industry Report (JIR)
Published in 1990 This document became “the bible” for unsaleables in the Industry
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Joint Industry Report (JIR)
Study provided guidelines for: Applicable products Reimbursement Disposition Reclaim process Shared responsibility Costs Guidelines still used today for policy development and implementation. Referred to as JIR Policies Reimbursement based on list cost
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Joint Industry Unsaleables Leadership Team
Mfg. Dist. FPA GMA FMI The JIULT was Formed in 1992 Deliverables: Benchmarking Report The Unsaleables Conference Projects based on the JIULT mission statement. JIULT
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The mission of the JIULT is to:
Mfg. Dist. FPA GMA FMI JIULT The mission of the JIULT is to: Provide strategies, educational content and tools to help Retailers, Distributors and Manufacturers reduce the volume of unsaleable goods within the consumer package goods (CPG) value chain. This will be achieved by: Developing strategic management applications Identifying and sharing successful practices and recommendations Creating educational platforms Collecting and disseminating industry intelligence on emerging trends and developments
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Unsaleables Benchmark Reports
In 1995, the JIULT began producing recurring Benchmark Reports Survey Distributors and Manufacturers Report overall rates Report state of industry
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Adjustable Rate Policy (ARP)
In 1997 the first ARP was introduced in the industry 60% of Market Share is currently on ARP * WHAT IS IT? Rate based policy Assessments of supply chain damage & root cause Requires substantial resources & investment Requires use of independent 3rd party 18-24 months to develop and implement * 2008 Joint Industry Unsaleables Report
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Joint Industry Report Update - 2005
In 2005, a “New” JIR was published Mfg. Dist. FPA GMA FMI Support “original” JIR Address industry changes Raise Unsaleables to a Senior Management Issue Importance of reclaim centers Identify Unsaleable ARP Components What should and shouldn’t be included Continued Collaboration JIULT
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Unsaleables Benchmark Reports
The 2008 version is available on the GMA website
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What Are The Opportunities Today?
Commitment ARP “GAPS” Sustainability Tight Economy Collaboration Shelf Life Inventory Management Exit Strategies SKU Rationalization
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Unsaleables Opportunities
Ted Lechner - HEB Danielle Kowalkowski – Heinz North America
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Unsaleables Opportunities: Part I
Recalls Open Code Dating & Expired Seasonal & New Items Discontinued Damage Policy Unsaleables
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Damage Reduction is an Attitude
Unsaleables- Damage Packaging Issue Cardboard Strength Compression Damage Tray Pack vs. full Case Is going Green, Costing us GREEN? Platform Issues Poor Pallets Use Pool Pallet, CHEP, IGPS, PECO WW Grade A or B only Pallet overhang or underhang Damage Reduction is an Attitude Damage is not an acceptable supply chain practice
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Unsaleables- Discontinued
Manufacturer Discontinued Normally funded Product disposition options Mark down at Retail, or bill back through Reclaim Retailer Discontinued Normally not funded by supplier Retailer specific discontinued Product Disposition Mark down at retail, Salvage sales,
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Unsaleables- Seasonal & New items
Special one time pack One time buy items Holiday product Easter, Halloween, Christmas etc, Exit plan needs to be discussed up front New item introduction Product failure Included in SWELL policy No exit strategy Is it Really the greatest thing since sliced Bread?
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Unsaleables- Open Code Dating & Expired Product
What is the correct shelf life Who determines the correct shelf life Why is some Julian Dated and some open code dated? Receiving Shelf life How much shelf life should be left at time of receiving Who determines that shelf life? Retailer, Manufacturer? When do you pull out of date from Shelf When it is expired or days before? Who owns Expired Product Financials? Freshness belongs to the Consumer not the Supply Chain
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Unsaleables-Recalls Recalls Quality issues Handling Charge dispute
Store Handling RGC Handling Quality Assurance handling, notification Product disposition Who is responsible? Hazardous Material? Certificate of Destruction? Land fill charges?
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IF you focus on the right thing you will do the right thing
Unsaleables- Policy What is the Right Policy JIR or Swell Benefits of Policy JIR you see data, Swell you don’t Exploring the GAP Who should pay the difference? Shared Responsibility Trade funds? Where should we focus our energy? Policy dispute or Reducing Damage? IF you focus on the right thing you will do the right thing
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What did you learn? Unsaleables is complicated!
It takes Retailer and Manufacturer to make a different! Facts not Emotions! You can make a difference! Focus on the right thing, and you will do the right thing! Cost Reduction is why you are here today! Failure is not an option
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Don’t Miss These Sessions
Reverse Supply Chain Improvement Project Work Groups Wednesday – 10:45 Breakout Session Retailer/Wholesaler Discontinued Manufacturer Discontinued Wednesday – 2:45 Breakout Session Recalled Products Thursday – 10:00 General Session Damaged Products Expired Products
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Unsaleables Opportunities – Part II
Gene Schachte Sr. Manager, Reverse Logistics
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Unsaleables Opportunities: Part II
Expired Product Open Code Dating Product Rotation Recalls and Withdrawals Organizational Structure
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What Is Open Code Dating?
‘Best if used by’, ‘Sell by’, or ‘Expires on’ format Freshest possible product Primary and secondary packaging Bill of Lading A complete guide to open code dating and the supply chain was published in 2007 and can be found at:
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Open Code Dating Examples
Good OK Month – Day – Year Format Legible and easy to find Use of Best By Month – Day – Year Format Legible and easy to find What does the date mean Use by, sell by, expires?
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Open Code Dating Examples
Better OK Month – Day – Year Format Legible and easy to find Use of Best By Correct Size Month – Day – Year Format Too Small Hard to find Bottom of case
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Open Code Dating Challenge
Remaining shelf life = ongoing debate The amount of shelf life left at time of receipt at the customer warehouse Customer requirements vary Most manufacturers’ WMS systems are not capable of different ship statuses for different customers What does the consumer require for pantry
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Opportunity: Product Rotation
Shared Responsibility Manufacturer Ensure FIFO of shipments Maximize turns At-shelf rotation schedules Case identifier Retailer / Distributor At-shelf Periodic During category resets Proactive communication
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Opportunity: Product Rotation
Shelf ready trays Shelf rotation racks
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Product Rotation: Challenges
Labor costs Other Priorities – shelving, pricing, new item etc. Variable Formats / Hard to Read code dates
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Recalls and Withdrawals
Product recalls have become more frequent… and more expensive. Fines and fees have been introduced by most retailers. - Formalized and substantial Cost of recall - anywhere from 300% - 3,000% of normal reclamation volume
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Considerations as you begin
Where is your program now? What is your end state? How is your corporate culture? Do you understand the causes? What do your customers think?
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Unsaleables Program Roadmap
Support & Structure Executive Support Organizational Structure Executive support needed Organizational Structure Resources Company focus and priority Corporate culture Performance measurement Long term program stability Customer relationships Structure varies based on: Size of company Culture Core competencies Reporting Relationship Sales, Supply Chain, Finance, Cross-functional Size Varies by company Average is manager and analyst
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Unsaleables Program Roadmap
Structure - Example Supply Chain Sales Finance Unsaleables Manager Responsible for strategic direction Interface to customers Resource for front-line sales Unsaleables Analyst Reporting Data Analysis Tools Liquidation Analyst Alternate channels
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Unsaleables Program Roadmap
Support & Structure Resources A versatile skill set Executive Support Organizational Structure Communication: oral + written Aggressive + An Influencer Detail Oriented + Strategic Focused + Flexible Broad cross functional skills
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Unsaleables Program Roadmap
Support & Structure Executive support Organizational structure Resources A versatile skill set Opportunity Reporting tracking and measuring Can we rank our: Customers Factories Brands Warehouses Do We know our Unsaleables Expense? Where are we vs. our Peer Companies?
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Unsaleables Program Roadmap
Opportunity Support & Structure Resources Tools Develop enablers Capability building tools Internal reporting and tracking Customer reviews Internal root cause studies Customer collaboration studies Discontinued markdown programs Product rotation schedules Levers and Enablers:
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Unsaleables Program Roadmap
Support & Structure Executive support Organizational structure Resources A versatile skill set Opportunity Reporting tracking and measuring Tools Develop enablers Capability building tools Strategy Customer relationships Policies and procedures Long term plan
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Unsaleables Solutions
Rob Shifter 45
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Shared Responsibility
Let’s work together Shared Responsibility This applies to: Vendor / Manufacturer Wholesaler / Distributor Retailer
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Big opportunities Building blocks for success Data
Audits (3rd party and internal) Damage reduction Inventory management Current practices Supporting policies Policy assessment Collaboration
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Using data Unsaleables data – defined and consistent
Measured vs. sales volume & dollars Total unsaleables by SKU Total profitability by SKU over time 48
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Using data Understand the data sources Who?
Retailer/Distributor, Manufacturer, 3rd Party, Industry benchmark True and accurate Complete Does it represent the entire supply chain? Representative sample size 49
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Using data Analyzing the Data What is captured and compared?
Warehouse damaged and expired Damaged, distressed, and expired at store level Short dated receipts New product launches Discontinued items Can we identify root causes? Product handling Rotation Delivery practices Packaging issues Inventory management and position Inadequate remaining shelf life 50
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Using data Discussing Data Be fact based
Removes emotion from discussion Confirm accuracy Cornerstone for solving problems 51
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3rd party audits Audit Planning Have a mission statement and a goal
Frequency – One shot or ongoing 3rd Party or Manufacturer/Distributor team Scope Statistically significant Fulfill pre-defined parameters Document current process flows Broad product and geographic scope Should include all classes of trade Should audit complete supply chain – plant to shelf Include hidden damage assessment Shared responsibility Should include interviews with key players 52
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3rd party audits Obtain Actionable Data Product age Expired rate
Damage by product/package type Product unit location where damage occurred Shipping platform Inbound damage disposition Are we reacting at time of receipt? 53
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3rd party audits Summarize, Analyze Data, Process Improvement
Debrief on audit and share results Identify areas of opportunity Revise processes (i.e. damage handling process) Review new processes with key players Initiate improvement plans Measure results and continually improve Adopt zero loss mentality 54
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Damage reduction Manufacturing/packaging improvements
Corrugate strength Pallet configuration Shipping container design (headroom, etc.) Adhesives Date code printers Stretch wrap application Load configuration Dunnage Distribution improvements 55
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Inventory management Working Capital Focus
Increased focus on reducing inventory for all parties Moving closer to Just-in-Time inventory processes Rapid replenishment models – LTL shipment impact Resets - How do we minimize the impact to unsaleables? Recalls - Proactively coordinate the removal of product from the full supply chain quickly and efficiently Store-Level Data – How do we leverage store sell-thru data Additional Inventory Impact Activity 56
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Inventory management Code Dating Product Rotation
We are in an open code date environment Are we using this as an effective tool to prevent unsaleables? Are we auditing and validating that product rotation is taking place? In Warehouse At shelf Manufacturer owns within their supply chain Warehouse Management System (WMS) Maximize turns Periodic at shelf rotations Product Rotation 57
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Inventory management Product Discontinuations
Drivers for discontinuations Package/Size change Product changes SKU rationalization Category management Seasonal items Brand ownership changes Slow movement Store redesigns 58
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Inventory management Product Discontinuations
Processes and procedures are the key Execute established exit strategies Is the plan proactive? Is there a phase out approach? Customer Geography Class of Trade Liquidation 59
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Inventory management Exit Strategies and Collaboration
Can be in conjunction with entrance strategy for new items Success is better when trading partners collaborate and communicate Implementation improves sell through and minimizes reclaim Effective program addresses warehouse inventory (full case) and shelf inventory Effective program tools include: Markdowns (Separate from unsaleables program/policy) Trade funds Coupons Primarily for discontinued products, but can also be used for underperforming products 60
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Practices Review Current practices
What is embedded in our process that causes damage? What tools are in place to ensure they are correct and measured? What are our policies on: Loading and unloading Ordering Product rotation New or discontinued Items Seasonal items Code date requirements 61
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Supporting policies OS&D Policy Customer Initiated Return Policy
Receiving process is a key step to eliminate unsaleables damaged product from entering the distributor supply chain. Provides visibility to product damaged through the supply chain. Enabling and executing compliance to OS&D policy. Report data and use to drive solutions. Address hidden damage cases in warehouses. Minimize excess and aged inventory. One option for disposition on discontinued/seasonal items. Customer Initiated Return Policy 62
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Policy assessment Unsaleables Policy Assessment Tool
Measures offered vendor policies using a consistent and methodical process. Acts as a catalyst for review of internal policies to identify opportunities in your organization. Available at: 63
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Collaboration Activities that require collaboration
New item introductions Discontinued items Seasonal items Resets / Plan-o-gram changes Recall management Promotion planning 64
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Collaboration Working together
Benefits are achieved by both trading partners through: Collaboration Data sharing Shared focus on unsaleables Steps to Effective Collaboration Open lines of communication Develop “trust” Share data Identify issues (internal and external) / Develop a plan Agree on goals Commit to improvement Take action – Work together for “Win-Win” solutions Measure and analyze results 65
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Unsaleables Management
Collaboration Effective collaboration in action The key is understanding of mutual supply chains Create a cross functional team Manufacturer: Distributor/Retailer/Wholesaler Sales Finance Logistics Packaging Warehousing Customer Service Unsaleables Management Supply Chain Leaders Marketing Reclamation Category Management Finance Supply Chain Logistics Warehousing Inventory Control 66
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Moving forward As We Move Forward, We Should Remember:
It’s OK to disagree, but don’t let that stop the process. Avoid data paralysis. Use the data to move toward collaboration. Go after low-hanging fruit first, then stretch. Work with a goal of improving trends. 67
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Questions
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