Unsaleables 101: A Preconference Workshop

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Unsaleables 101 A Pre-conference Workshop

• 2005 Joint Industry Unsaleables Management
  Conference
• Challenges to the Bottom Line

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Agenda

• History of Unsaleables
• George Thrower Harris Teeter
• Carol Snyder Nestle Purina PetCare Company
• Collaborative Relationships and Supply Chain
  Audits
• Jeff Camp SuperValu
• John McKeon Nestle USA
• Product Handling
• Gary Regina Winn Dixie
• Danielle Kowalkowski H.J. Heinz
• Data and Product/Packaging Improvements
• Ted Lechner H.E. Butt Grocery
• Gary Piwko Kellogg Company

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History of Unsaleables

• George Thrower Harris Teeter
• Carol Snyder Nestle Purina PetCare

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Unsaleables History
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Joint Industry Unsaleables Steering Committee

• Formed in 1992
• Food Marketing Institute (FMI) representing
  retail and wholesale companies
• Grocery Manufacturers of America (GMA)
  representing grocery manufacturers
• A forum to share best practices on unsaleables
  and damage reduction.
• Meets 3-4 times annually, plus conference calls
  as needed
• Annual deliverables
• Benchmarking Report
• Conference
• Projects resulting in conference
  presentations/white papers

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Reclamation Centers

• Prior to reclamation centers (pre-1990)
• Unsaleables picked up at store level
• Manufacturer reps paid the stores with sales
  drafts/checks
• Product disposed at store level
• Markdown carts were often used to dispose of
  product
• Reclamation center objectives
• Central location for collection of unsaleables
  outside of the stores
• Initially mostly retailer-owned
• Better control of product disposition/accounting
• Large growth in 3rd party owned/operated in the
  1990s

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Product Reclaim Centers A Joint Industry
Report (JIR)

• Published in 1990
• Study provided guidelines for
• Products to be sent to reclaim centers
• Billing/payment procedures
• Product disposal
• Reclaim process
• Shared responsibility
• Disposition and handling costs
• This document became the bible for unsaleables
  in the Industry
• Unfortunately, much has changed since 1990 while
  the Report has not been updated!

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Unsaleables Benchmark Reports

• 1996 The first Unsaleables Benchmark report was
  published
• Survey results of manufacturers and
  retailers/wholesalers (distributors)
• Designed to provide an overall Industry average
  on the state of Unsaleables while tracking
  Committee progress at addressing the issue
• Unfortunately, Unsaleables rates continued to
  rise!

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Policy Adaptation

• In addition to the JIR, Adjustable Rate Policies
  where established.
• Late 90s saw the first of these policies
  introduced
• Years of study on the supply chain and where
  damage occurs went behind these policies.
• Ongoing analysis is needed to support rates, up
  or down!
• Rates based on a of sales based on the studies
  of damage in the supply chain and shared
  responsibility.
• Concern among the retail/wholesale community on
  capping costs, cost of running reclamation
  centers, and the setting of the rates.

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What Next?

• Policy Evolution?
• Continue to review best practices for unsaleables
  processes and policy development
• Focus on damage reduction
• Emphasis on collaboration

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Collaborative Relationships and Supply Chain
Audits

• Jeff Camp SuperValu
• John McKeon Nestle USA

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Collaborative Relationships

• The cause and eventual reduction of unsaleables
  can be achieved through a Collaborative
  Relationship between Manufacturer and Retailer
• Although reclamation center data provides some
  insight into the volume and specific UPCs that
  make up unsaleables, the source and drivers are
  not identified
• Through collaborative data sharing and
  examination of study results, source reduction
  solutions are an integrated effort and benefit
  both trading partners.

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Supply Chain Audits

• In order to understand the source and drivers of
  unsaleables, examination of product movement
  throughout the supply chain is necessary.
• To achieve this complete examination, Retailers
  DCs, Retail Stores, and Reclamation Centers
  should be audited.
• Customer DCs should be picked that have
  geographical diversity as well as
  size/operational diversity.
• Retail stores selected for the study should be
  associated with the DCs studied.
• Reclamation centers included should be the
  centers that the retail stores and DCs use for
  reclaim.

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Supply Chain AuditsScope

• Manufacturer needs to determine selected
  categories to be reviewed
• One size does not fit all
• All products are put into categories with similar
  characteristics
• Audits should be done across all classes of trade
• Audits should be done in all georgraphical areas
• Audits should be done representing all
  Manufacturers shipping locations

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Supply Chain AuditsCustomer DC

• Include a review of an incoming shipment from the
  Manufacturer
• Observe the condition of the trailer and its
  products
• Was the trailer loaded correctly? Did the load
  shift? Why?
• How was the load checked in? Are items
  repalletized?
• Hidden Damage Assessment
• Examine product just received as well as products
  in the racks and product staged for shipment
• Examine shipping cases/trays and the sales units
  inside
• Categorize the reasons for damage

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Supply Chain AuditsCustomer DC

• Process Flow
• Detail the receiving and storage flow of the
  product
• Document the process of pulling the product from
  storage and shipping it to the stores
• Interviews
• Interview DC staff as to opinions on opportunities

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Supply Chain AuditsRetail Store

• Review how product is received and put away at
  stores
• Review how product is put on shelf at store. Is
  product rotated?
• What about back stock?
• Does manufacturers representatives work the
  shelf?
• How are damaged products stored prior to being
  picked up
• Are discontinued items stored with damaged goods?

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Supply Chain AuditsReclamation Center

• Review receiving process from stores
• Have reclamation center hold product for one
  period (4 weeks) prior to audit
• Review product held and determine an unsaleables
  reason code
• Match product reviewed with bill received from
  retailer

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Product Handling

• Gary Regina Winn Dixie
• Danielle Kowalkowski H.J. Heinz

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III. Product Dispositions
Product Handling
I. Product Discontinuation
II. Product Rotation / Expiration
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I. Product Discontinuation
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I. Discontinued Items Overview

• 2004 Benchmark Report for Unsaleables
• Total industry expense 2.57 billion
• Discontinued products 13 (or 338MM)
• Discontinued through reclaim 21 of
  total disco. volume
• Drivers include
• Unsuccessful item launches
• New Item launches
• Seasonal items
• Product changes
• Category Management

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Definition of Discontinued Product

• The removal of a product from distribution to
  Wholesalers or Retailers by Manufacturers or
  Sales Agencies
• The removal of a product from stores and
  warehouses by a Distributor (also known as
  delisting).

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2001 White Paper Study

• Defines the major problems in the existing
  product discontinuation process
• Offers potential solutions and recommendations
  for process efficiencies.

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A solid plan is key to success

• Communication
• Internal customers
• Thoughtful New Item Introductions
• Not all incremental
• Product Exit Strategy
• Plan for lost items

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Solving for Discontinued Items

• Internal (Manufacturer)
• Manage your FGI and RM
• Phase out (geography/customer)
• Liquidation (revenue loss)
• External (Customer)
• Warehouse Level
• Sell through
• Donate
• Destroy
• Return
• At Shelf
• Sell through
• Markdown
• Reclamation

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Discontinued Markdown Program

• Most manufacturers have a written policy (72)
• Provides a clear written statement of
  manufacturer guidelines
• Components should include
• A plan to manage it
• Comprehensive buy-in
• Advance notification
• Resolution for full cases at warehouse
• Establishment of maximum rates
• Establishment of minimum timing
• Plan for residual inventory
• Tracking and Ordering
• Post performance executional elements

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Discontinued Items..Manufacturer Driven

• New item introduction
• Package / size change
• Product reformulation
• SKU rationalization
• Product failure
• Seasonal items
• In and out items
• Brand ownership change

Process, Procedure Protocol are KEY
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Discontinued Items.Retailer and Wholesaler
Driven

• New item introduction
• Category review
• SKU rationalization
• Total store reset
• Change in order quantity minimum
• Store ownership change
• Store closing
• Wholesaler change

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II. Product Rotation Open Code Dating
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Product Rotation and Open Code Dating

• Product Rotation
• Definition The process by where older product is
  brought to the front of shelf, and newer product
  is pushed back.
• Inventory rotation is important clearly defined
  rotation schedule
• Manufacturer Production Plant
• Manufacturer DC or Mixing Center
• Retailer/Wholesaler DC
• Retail Stores
• Shelf life standards at the DC and store level

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Product Rotation

• Product Rotation should be a shared
  responsibility
• Manufacturer
• Within Supply Chain
• WMS
• Ensure FIFO of shipments
• Maximize turns
• Periodic at-shelf rotations
• Retailer / Distributor
• Within Supply Chain
• WMS
• At-shelf

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Open Code Dating

• Open Code Dating - Best by or Use by format.
• e.g. Best if used by Apr 04, 2006
• Primary and secondary packaging for edible
  product.
• Product shelf life on bill of lading
• Minimum shelf life for shipments to customers to
  avoid unsaleables
• 6 months on longer shelf life or 75 for short
  life items

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III. Product Disposition
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Disposition of Unsaleable Product

• Adjustable Rate Customer Responsibility
• JIR policy - Reclamation center

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Disposition Options

• SALVAGE
• Distributor option
• Swell or adjustable rate products
• Tertiary market distribution
• DONATE
• All items sorted and shipped to food banks
  (Second Harvest)
• Liabilities protected
• Emerson Good Samaritan Food Donation Act PUBLIC
  LAW 104-210
• DESTROY
• Sorted to be sent to landfill
• HOLD
• Hold and pick-up
• Hold, review and donate
• Hold and destroy
• Hold and pick-up third party (USI, GENCO,
  DRS,etc.)

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Disposition Options
Low

• Product can be
• Left to Center Option
• Salvaged
• Donated
• Destroyed
• Held for Review
• Held for Pick-up

Control
Cost
High
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Removal of Product from Shelf

• Causes
• Product Discontinuations discussed in detail
• Old Age Product unique driver
• Damaged Product next few pages

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Manufacturer Supply Chain Damage Drivers

• Manufacturing process
• Case Packers
• Palletizers
• Shipping Platform
• Pallets
• Slip Sheets
• Floor Load
• Transportation Mode
• Rail
• Truck

• Warehouse Equipment
• Clamp Trucks
• Forklifts
• Shipment Practices
• Stabilizer Bars
• Air Bags
• Product Design
• Packaging
• Pallet patterns

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Customer Supply Chain Damage Drivers

• Receiving Process
• Lumpers
• Pallet break-down
• Warehouse Equipment
• Clamp Trucks
• Forklifts

• Shipping to store
• Mixed pallets
• Additional handling
• Stocking Shelves

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Summary Product Handling

• Many factors influencing condition of product at
  shelf.
• Manufacturing Process
• Shipping Platform
• Transportation Method
• Primary and Secondary Package construction
• Touch points within the supply chain
• Store handling
• To determine cause of damage to your product
  requires data.
• Data is obtained through supply chain studies

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Obtaining Data and Driving Product Packaging
Improvements

• Ted Lechner HEB
• Gary Piwko Kellogg Company

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What is the problem?No Data collection or Poor
Packaging?

• Data collection is critical
• Turning Data into information
• Setting measurements and targets

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How to Collect Retailer Data

• First step - Guidepost to open discussion with
  supplier
• Purchases by supplier
• Unsaleables by supplier
• of unsaleables Rate
• Drill down the data
• By UPC-Look for high SKU return
• By Store
• By district, By region
• Category comparison with other suppliers
• Trends

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How to Collect Manufacturer Data

• If not on swell!
• By major brand
• By category
• By geography
• By sales region
• If on swell!
• Swell
• No specific data available only third party
  audits
• Purchased Data

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Industry GMA/FMI Data

• Benchmarking Survey - annually
• Unsaleables Management Resource Guide - 1999
• The Root cause of Unsaleables - 1999
• Return Goods Scorecard A self-assessment tool
  for use by Manufacturer or Distributor - 1997

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Manufacturer Funded Third Party Audits

• Manufacturer sponsored audits at
  Retailer/Distributor DC
• Audits across multiple Distributors
• Plant Audits
• Trend Analysis
• Customer comparison
• Etc. Etc.

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Where can I find the data?

• Retailer/Distributor
• Manufacturer
• Third party-
• Source reduction

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Product Distribution Flow
Retail
Consumer

• Environmental Factors
• Time
• Temperature
• Humidity

• Physical Stresses
• Handling Equipment
• Stack Height
• Unloading variation
• Racking variation
• Transportation variation

• Costs
• Operational
• Material
• Transportation
• Storage

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Supply Chain Opportunities

• Ship Life / Shelf Life
• Packaging (case / interior package)
• Transportation (shipping platforms)
• Warehousing
• Retail (design, manufacturing damage)

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Questions?