Cracking Down On Unsealables

John Karolefski
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Trading partners work together to eliminate some of the lesser-known causes of unsaleables.


"Secondly, stretch hoods provide five-sided protection without the need for a top sheet, which is frequently used with stretch wrap. This provides additional weatherability and also decreases the likelihood that pallets stacked on top of each other will shift during transport."

Silver Bullet?

Leading executives agree that there isn't a silver bullet to the nagging problem of unsaleables. But there is something that is close: the executive suite.

"You need to make sue that the boardroom is aware of what's going on in the areas of unsaleables and what the true impact of their decisions are," says Romback of Genco.

Doughton of CLS sums up, "Top management support with dedicated resources for reverse logistics that can influence across functional areas has been what we have seen yields the most significant results."

 

CASE IN POINT:Heinz, H-E-B Grocery Step Up To Drive Down Unsaleables

Removing products from distribution ––regardless of the reason––remains a nettlesome problem for all companies involved. How can trading partners reduce the costs associated with damaged, seasonal or out-of-code products?

One way is to study how leading firms get the job done.

Two examples are H-E-B Grocery Co., the San Antonio, TX-based supermarket retailer and Carolina Supply Chain Services (CSCS), and Heinz U.S. Consumer Products and GENCO Damage Research.

The Grocery Manufacturers Association (GMA) and the Food Marketing Institute (FMI) have recognized these pairs of companies for their commitment to reducing unsaleables and they received the 2006 Unsaleables Innovation Awards.

"We congratulate all four companies on their achievement and hope their experience and learnings will continue to benefit them and the entire CPG industry," says Pat Walsh, FMI's senior director of industry relations.

"The award winners recognized that the most successful unsaleables management practices analyze performance across divisions and take accountability for inefficiencies. Minimizing unsaleables in the supply chain remains a shared process, which is why we value the outcomes celebrated through this award."

H-E-B and CSCS were able to reduce unsaleables by 50 percent by changing the processes, procedures, private label packaging and policy that were negatively impacting the supply chain. Heinz and GENCO reduced unsaleables by 40 percent through "Project MUDA," or "waste" in Japanese, a multi-dimensional operation that impacts all Heinz projects.

"GMA and FMI have consistently supported and promoted industry work that recognizes effective supply chain processes," says Karin Croft, senior director of industry affairs at GMA. "H-E-B and Heinz saw initial cost benefits, but the most significant impact was adopting missions to eliminate unsaleables in their corporate strategies."

Single Scan Eliminates Costs

H-E-B was the first in the industry to implement a single-scan unsaleables program with its third-party vendor, CSCS. The two launched significant changes in the processes, procedures, private label product packaging, and policy within their supply chain. The result was and unsaleable reduction of an average of 50 percent for all stores.

The company implemented the single scan process which eliminated transportation costs and sharing the costs of disposition with the manufacturer. To minimize the amount of product being returned to the reclamation center from the retail stores, the Store Damage Allowance program was initiated. Stores were now only reimbursed a percentage of a returned product, not the full 100 percent as in the past.

In an effort to reduce the amount of product being returned from the warehouse locations, the Unsaleables Recovery Program ensured that only the damaged unit would be removed from the case and tracked as an unsaleable, while the rest of the case is repacked sold on the shelf.

Reducing private label products with damages necessitated the hiring of a packaging engineer to establish category packaging for the buyers and the supply chain team. This way, store brand packaging could be measured against best-in-class packaging and serve as an example for improvement.

Heinz describes Project MUDA as "a waste reduction initiative," a cross-functional implementation designed to encompass all aspects of waste, including unsaleables, disposals/obsolescence, and supply chain damages. Root causes of waste––internal departments, outside suppliers, third party providers, or customers––are identified.

The aim was to not to push costs to other internal departments or trading partners, but to drive them out of the business. The first year consisted of a focus on financial analysis, process development, root cause studies, education, tracking and reporting. Total savings equated to 23 percent in the first year, with an expected 25 percent savings for year two, which will result in a 40 percent total reduction. The company has a three-year plan in place to continue the initiative.—J.K.

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