Unsaleables 101

An Introduction to Unsaleables History, Opportunities, and Solutions

Agenda

A History of UnsaleablesGary Spinazze

Unsaleables OpportunitiesTed Lechner

Eugene Schachte

Unsaleables SolutionsRob Shifter

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.

Unsaleables: A HistoryGary Spinazze

What are Unsaleables?

“Any product removed from the primary channel of distribution, regardless of the reason for removal. This includes, damaged, seasonal or out-of-code products.”

Unsaleables is defined as:

Unsaleables Timeline

1985 20091990 1992 1995 1997 20082005

Reclamation Center Growth

JIR Published

JIULT Formed

Initial UnsaleablesBenchmark Study

InitialARP

Implemented

Updated JIR Published

2008 Joint Industry Unsaleables Report

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 productAs a central return point for recallsTo ensure proper issuance of store credit

Joint Industry Report (JIR)

• Published in 1990

• This document became “the bible” for unsaleables in the Industry

Joint Industry Report (JIR)• Guidelines still used today

for policy development and implementation.

– Referred to as JIR Policies– Reimbursement based on

list cost

• Study provided guidelines for:

– Applicable products– Reimbursement– Disposition– Reclaim process– Shared

responsibility – Costs

Joint Industry Unsaleables Leadership Team

• The JIULT was Formed in 1992

• Deliverables:– Benchmarking Report– The Unsaleables

Conference – Projects based on the JIULT

mission statement.Mfg.

Dist.

FPA GMA

FMIJIULT

The mission of the JIULT is to:Mfg.

Dist.

FPA GMA

FMI

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 

JIULT

Unsaleables Benchmark Reports

• In 1995, the JIULT began producing recurring Benchmark Reports– Survey Distributors and Manufacturers– Report overall rates– Report state of industry

Adjustable Rate Policy (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

In 1997 the first ARP was

introduced in the industry

60% of MarketShare iscurrently on ARP *

* 2008 Joint Industry Unsaleables Report

Joint Industry Report Update - 2005In 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

Unsaleables Benchmark Reports

• The 2008 version is available on the GMA website– www.gmabrands.org

What Are The Opportunities Today?

Tight Economy

ARP“GAPS”

Sustainability

Exit Strategies

Inventory Management

Collaboration

Commitment

SKURationalization

ShelfLife

Unsaleables Opportunities

Ted Lechner - HEB

Danielle Kowalkowski – Heinz North America

Unsaleables Opportunities: Part I

RecallsRecalls

Open Code Dating &Expired

Open Code Dating &Expired

Seasonal &New Items

Seasonal &New Items

DiscontinuedDiscontinued

DamageDamage

PolicyPolicy

Unsaleables

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

• 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,

Unsaleables- Discontinued

• Seasonal– 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?

Unsaleables- Seasonal & New items

• Open Code Dating– 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

Unsaleables-Open Code Dating & Expired Product

• 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?

Unsaleables-Recalls

– 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

Unsaleables- Policy

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

Don’t Miss These Sessions

• 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

Reverse Supply Chain Improvement Project Work Groups

Unsaleables Opportunities – Part II

Gene SchachteSr. Manager, Reverse Logistics

Unsaleables Opportunities: Part II

1. Expired Product– Open Code Dating– Product Rotation

2. Recalls and Withdrawals

3. Organizational Structure

• ‘Best if used by’, ‘Sell by’, or ‘Expires on’ format

• Freshest possible product

• Primary and secondary packaging

• Bill of Lading

What Is Open Code Dating?

A complete guide to open code dating and the supply chain was published in 2007 and can be found at: http://www.gmaonline.org/publications/docs/2007/OpenDate.pdf

Open Code Dating Examples

• 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?

Good OK

Open Code Dating Examples

• 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

Better OK

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

Open Code Dating Challenge

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

Opportunity: Product Rotation

Shelf ready trays Shelf rotation racks

Product Rotation: Challenges

1. Labor costs2. Other Priorities – shelving, pricing, new item etc.3. Variable Formats / Hard to Read code dates

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

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?

Unsaleables Program Roadmap

Support &Structure

• Executive Support• Organizational Structure

Resources Company focus and priority Corporate culture Performance measurement Long term program stability Customer relationships

Executive support needed

Size Varies by company Average is manager and

analyst

Reporting Relationship Sales, Supply Chain,

Finance, Cross-functional

Structure varies based on: Size of company Culture Core competencies

Organizational Structure

Structure - Example

• Unsaleables Manager Responsible for strategic

direction Interface to customers Resource for front-line sales

• Unsaleables Analyst Reporting Data Analysis Tools

• Liquidation Analyst Alternate channels

Unsaleables Analyst Liquidation Analsyt

UnsaleablesM anager

FinanceSalesSupply Chain

Unsaleables Program Roadmap

Support &Structure

Resources • A versatile skill set

Unsaleables Program Roadmap

• Executive Support• Organizational Structure

Communication: oral + written

Aggressive + An Influencer Detail Oriented + Strategic Focused + Flexible Broad cross functional skills

Opportunity

Support &Structure

Resources • A versatile skill set

• Executive support• Organizational structure

• Reporting tracking and measuring

Unsaleables Program Roadmap

Do We know our Unsaleables Expense?

Can we rank our:CustomersFactoriesBrands

Warehouses

Where are we vs. our Peer Companies?

OpportunitySupport &Structure

Resources

Tools• Develop enablers • Capability building tools

Unsaleables Program Roadmap

1. Internal reporting and tracking2. Customer reviews3. Internal root cause studies4. Customer collaboration studies5. Discontinued markdown programs6. Product rotation schedules

Levers and Enablers:

Opportunity

Support &Structure

Resources • A versatile skill set

• Executive support• Organizational structure

• Reporting tracking and measuring

Tools• Develop enablers • Capability building tools

Strategy

• Customer relationships• Policies and procedures• Long term plan

Unsaleables Program Roadmap

Unsaleables Solutions

Rob Shifter

• This applies to:– Vendor / Manufacturer– Wholesaler / Distributor– Retailer

Let’s work together

• Data

• Audits (3rd party and internal)

• Damage reduction

• Inventory management

• Current practices

• Supporting policies

• Policy assessment

• Collaboration

Building blocks for success

Big opportunities

Unsaleables data – defined and consistent• Measured vs. sales volume & dollars

Total unsaleables by SKU Total profitability by SKU over time

Using data

• Who? Retailer/Distributor, Manufacturer, 3rd Party, Industry benchmark

• True and accurate• Complete

Does it represent the entire supply chain?• Representative sample size

Understand the data sources

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

Using data

Discussing Data• Be fact based

Removes emotion from discussion Confirm accuracy Cornerstone for solving problems

Using data

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

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?

3rd party audits

• 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

Summarize, Analyze Data, Process Improvement

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

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

Inventory management

Code Dating• 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

• Drivers for discontinuations Package/Size change Product changes SKU rationalization Category management Seasonal items Brand ownership changes Slow movement Store redesigns

Product Discontinuations

Inventory management

• 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

Product Discontinuations

Inventory management

• 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

Exit Strategies and Collaboration

Inventory management

• 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

Current practices

Practices Review

Supporting policies

OS&D 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

Policy assessment

• 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:

Unsaleables Policy Assessment Tool

http://www.gmaonline.org/downloads/research-and-reports/AssessmentTool.xls

Collaboration

• New item introductions• Discontinued items• Seasonal items• Resets / Plan-o-gram changes• Recall management• Promotion planning

Activities that require collaboration

• 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

Working together

Collaboration

Collaboration

• The key is understanding of mutual supply chains• Create a cross functional team

Manufacturer:

Distributor/Retailer/Wholesaler

Effective collaboration in action

Sales Finance Logistics

Packaging Warehousing Customer Service

Unsaleables Management Supply Chain Leaders Marketing

Reclamation Category Management Finance

Supply Chain Logistics Warehousing

Inventory Control

Moving forward

1. It’s OK to disagree, but don’t let that stop the process.2. Avoid data paralysis.3. Use the data to move toward collaboration.4. Go after low-hanging fruit first, then stretch.5. Work with a goal of improving trends.

As We Move Forward, We Should Remember:

Questions