Don't Keep A Lid On Useables

Trading partners that raise awareness of the unsaleables problem are reducing product damage throughout their supply chains.

  • Campbell Food Co. and Food Lion, for working together to identify a secondary packaging flaw in V8 and tomato juice packages in a matter of 15 days, resulting in a long-term solution for the entire supply chain.
  • Kellogg USA, for developing an innovative system that delivered a 75 percent reduction in damage to Morning Food products over five years.
  • Land O'Lakes, for reducing overall unsaleable percent to sales below 1 percent over a three-year period.
  • MeadWestvaco Coated Board, for evaluating paper board compression and choosing paperboard substrate, which ultimately reduced unsaleables by 20 percent to 30 percent.

"The goals achieved by these companies can serve as models for others in the industry," says Croft.

Here's a look at how winners hit their goals.

Kellogg USA/Morning Foods: The Morning Foods Division of Battle Creek, MI-based Kellogg USA scored a major success in its battle with unsaleables implementing practices that reduced the damage rate by 75 percent over four years. The results came about from the work of a cross-functional unsaleables team led by the director of remarketing and returns management. The team worked with Universal Solutions, a third-party supplier that was acquired by Carolina Logistics Services.

The key to Kellogg's efforts was implementing a closed-loop returns management system in 2000. A closed-loop supply chain includes traditional forward supply-chain activities and the additional activities of returns management. According to Kellogg, returns management is "the process of enhancing the role of supply chain management for the purpose of increasing profitability for the manufacturer and the retailers."

By conducting failure analysis on returned product and evaluating product condition at the customer warehouse and retail, the returns management process creates opportunities to improve the product, packaging, distribution, marketing and sales processes."

Kellogg developed a model for the closed loop returns management system that featured a continuum of four key links, each feeding into the others:

  • Data collection: Collecting significant data at regular intervals throughout the supply chain and at the customers' locations;
  • Information/knowledge: Turning the data gathered into information by working with Universal to gain knowledge about each other's operating processes;
  • Measurements: Developing ongoing measurement scorecards; and
  • Accountability: Holding all functional areas accountable for the results.

Here is one example of the model at work:

  • Finding: Product shipped on slip-sheets created 160 percent more damage in its customer warehouses.
  • Solution: Discontinued customer slip-sheet financial incentives and changed to pallets only.
  • Key learning: Kellogg was losing much more on unsaleables costs due to damage than it was saving on platform costs.
  • Continuous improvement step: Conduct ongoing measurements of platform type and unit load dimensions on damage level. Work is underway to develop a model to predict damage levels based on unit load design and dimensions, platform type, and method of shipment.

Food Lion: At Food Lion, based in Salisbury, NC, the message has been to overcome several obstacles, including its perception of unsaleables. In previous years, unsaleables were thought of as a cost of doing business and given very little consideration.

"Today, Food Lion understands the impact that unsaleables have on our bottom line. We are putting a significant amount of effort into educating our company and our vendor partners on the impact of unsaleables," says Chris Mead, unsaleables manager.

A first step for Food Lion was to provide visibility and accountability. The retailer has added both to all levels of its organization and with the vendor community. Operations and the category management department both have bottom-line accountability for unsaleables. Vendor partners provide monthly reports that identify progress with unsaleables.

"The result of the education, visibility and accountability has been a massive reduction in unsaleables that has provided a substantial positive impact to our bottom line," says Mead.

Food Lion is also hosting several summits a year to identify opportunities to work with vendors and third-party party audit companies to reduce unsaleables. The summits provide an environment that allows the group to share ideas to help the industry tackle the problem.

"The summits have been very beneficial and we plan to continue hosting them," says Mead. "The vendor summits have increased communication and awareness of initiatives and tools that are contributing to our progress. We have seen a large increase in audits and information sharing."

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