Land O'Lakes: When unsalesables were close to 1.5 percent of sales at Land O'Lakes Inc. in 2002, the Arden Mills, MI-based company put together a cross-functional task force to find solutions. The focus was on three key areas:
- Supply chain: Modified pallet stretch-wrapping, changed to CHEP pallets and reduced case pack-size on several lower-velocity items.
- Sales: Implemented new retail call procedures and a "smart rotation" guide, designed a new customer warehouse check process and staffed a retail excellence team to improve in-store execution.
- Operations: Partnered with Universal Solutions to provide unsaleables tracking and reporting, and began unsaleables monthly steering team meetings.
As a result unsaleables rate declined by 50 percent from 2002 to 2005 (from 1.41 percent to 0.71 percent). There was a cost avoidance of $5.8 million from 2003 to 2005.
MeadWestvaco: MeadWestvaco Coated Board makes more than 1 million tons per year of Coated Natural Kraft (CNK), a coated unbleached kraft paperboard used to make beverage carriers and folding cartons for items like frozen food. The firm based in Phenix City, AL, has examined the details behind unsaleables.
"While unsaleables encompass many categories, including expired code dates, over-ordering, etc., more than half the returns in the supermarket industry—57 percent—are due to damage coming from packaging, handling, shipping, receiving and stocking," says Mike Skrovanek, vice president of marketing. "Therefore, if we could determine where the damage was taking place, where the product was challenged, and make significant reduction in that damage, everyone would profit."
To address unsaleables, MeadWestvaco commissioned Genco Damage Research, which tracked frozen food products through the distribution channel to supermarket freezers. GENCO researchers evaluated 21,721 cartons using unbleached and bleached board for comparable products. Bleached, or SBS, is used for three-quarters of all frozen food products while MeadWestvaco's Coated CNK was used for about 10 percent.
Of the 10,700 products packaged in CNK cartonboard, only 166 were damaged, which equates to a 1.55 percent damage rate. In comparison, 235 of the 8,488 SBS cartons were damaged, a 2.77 percent rate; and 59 of the 2,533 SUS (a competitor's unbleached coated kraft board) were damaged, for a 2.33 percent rate.
"The results substantiated that, when CNK is used to create the frozen food carton, the package more effectively protects against crushing, denting, and tearing," says Skrovanek. "The two-phase research project also concluded that almost all damage occurs after the grocer takes delivery of pallets."
Applying the third-party damage results to market costs per ton for CNK ($870) and SBS ($960) equates to a board cost (including damage) of 8.5 cents per package for CNK vs. 10.8 cents for SBS, according to Skrovanek. In purchasing terms, that means a manufacturer could realize a savings in unsaleables of $22.55 per thousand cartons or $342 per ton of board by switching to CNK.
"Food manufacturers should look at how much the paper they use is costing them in damages," says Mike Ghassali, senior vice president of Genco Damage Research, who also encourages retailers to use this information to their benefit.
"Ask any retailer what is the strongest contributor to unsaleables," he says. "It's packaging. Inferior packaging causes more damages and more touchpoints. Conversely, better packaging means less handling, which equates to less damages. That's good for everyone and avoids the hassles of disposal and submitting for refunds. Retailers who are advocating for a better packaged product should be taking note."
What's the next step going forward?
Marcellino of CLS sees an improvement in data management and information sharing throughout the supply chain. His company has invested heavily in improving the data mining tools for clients, which really allows them to manipulate and query on a large amount of returns management data provided to them as a result of processing their products.
"This allows for a more open discussion with manufacturers and vendors because they're now looking at more accurate and timely information across the supply chain, where historically that really hasn't been the case," Marcellino says.