Cracking Down On Unsealables

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

Whoever said that famous line must have been talking about unsaleables. Yes, the drumbeat of product returns continues due to damages along the supply chain. Manufacturers and the distributors have focused on unsaleables for at least 20 years. Over that time, various solutions have emerged.

"But it continues to be a soaring problem, and it always will be by the very nature of change," says Tom Conoscenti, executive vice president and COO, Damage Recovery Systems Inc., a Pottstown, PA-based provider of returned good management services for food and consumer packaged goods manufacturers.

"There have been changes in products, in their packaging, in materials handling, in distribution methodology and in the shelf presentation. As long as there are going to be changes every step along the way, there will be damages that will become returned goods," he adds.

Don Rombach, vice president of the damage research team at Genco Supply Chain Solutions, Pittsburgh, says changes in personnel also hamper any real progress on reducing unsaleables.

"There's no single person who's responsible for the overall unsaleables initiative within organizations," he says. "Unsaleables cuts across the many different functional areas within a company. People change positions and people change companies. When that happens, you tend to lose some of the momentum that a company has developed in unsaleables initiatives."

In the last two years, however, Rombach and other executives have noticed a major increase in cooperation between trading partners to prevent damages. A big part of the reason is the Adjustable Rate Unsaleables Policy, which is a means of reimbursement between the manufacturer and the retailer. Manufacturers analyze the supply chain to quantify what levels of damage occur at each touch point. They then reimburse their customers based on a percentage that studies have uncovered.

"For manufacturers to come up with that reimbursement rate, they need to have a very clear understanding of the supply chain––their own as well as all the way down to the retail shelf," explains Rombach. "That has forced manufacturers and retailers to work together to get to that rate."

He points to a white paper on unsaleables published last year by the Grocery Manufacturers of America (GMA), Washington. It contained recommendations on how to develop the Adjustable Rate Unsaleables Policy.

While there are still differences of opinion between trading partners when it comes to unsaleables, Mark Doughton, president of Carolina Logistics Inc., Winston-Salem, NC, recognizes a more collaborative spirit in the last several years. Whenever there are differences of opinion, they are typically driven by different perspectives on the amount of unsaleables as well as who owns the process within the supply chain where the unsaleables occur.

"Many trading partners have worked to collaborate on supply chain studies to understand the drivers and to determine the point at which the unsaleable occurs within the supply chain. This allows them to not only assign appropriate responsibility, but also allows both partners to find ways to prevent the unsaleable in the future," says Doughton, whose company and its affiliate, Carolina Supply Chain Services, provide supply chain audits and facilitate discussions between trading partners.

Conoscenti of Damage Recovery Systems points out that the parties generally agree on "best practices" to control unsaleables. The emphasis seems to be on "controlling" damage in handling and product returns which can never be totally eliminated.

"Both parties shine the bright light of day on it and invest a lot of resources. They're able to measure, and therefore manage and control, the problem," he says.

Four Areas To Watch Out For

The obvious cause of unsaleables relate to product handling. But what are the less obvious problems? Leading experts in the field of unsaleables control point to the following:

  1. Behavioral factors: The leading causes of unsaleables today are driven by the behavioral side related to inventory management, including sales, marketing, merchandising, promotions and replenishment. This results in discontinueds, withdrawals, seasonals and out-of-date product returns.

Information is the key to reducing unsaleables. Information has to start with a program that executes the physical returns management program well by keeping damages separate from other types of returns, collecting reason code data and then analyzing with business intelligence tools that not only views the data collected but integrates it with other information sources such as sales data and supply chain studies.

"To achieve ultimate success in reducing unsaleables volume requires a holistic view of the supply chain," says Doughton of CLS. "The key to the successful holistic view is information that is accurate, insightful, integrated and actionable."

  1. New products create new challenges: The steady steam of new products with new packaging and distribution methods are a factor in continued unsaleables. The drivers are limited shelf space and number of facings, and the resulting decisions about stock to carry. Product discontinuations on both the part of the distributors and the manufacturers are a big trigger for unsaleables.

"Damage and unsaleables are used interchangeably," says Conoscenti of DRS, "but they are not exactly synonymous. We deal with the whole realm of what we call ‘returned goods' at the broadest level, and unsaleables are a part of that. There is such a large percentage of ‘discontinueds' driving unsaleables, but they are not damaged."

  1. Less packaging, more data coding: There are many initiatives today to reduce packaging by making it lighter, less bulky and more environmentally-friendly. Manufacturer need to estimate the ripple effect. Many times, an increase in damage rates that occurs because of the reduced packaging may be close to what their savings are on the actual packaging dollars.

"As you reduce packaging, you have the potential of driving up damages cost if it's not done intelligently," says Rombach of Genco. "You need to consider the whole supply chain. What effect will reducing packaging have on damages? You've got to balance the two."

Meanwhile, date coding is creating problems because of the increase in this practice in recent years. The problem relates to food and over-the-counter (OTC) products that have date codes, the increased prevalence of open code dating and the uncertainty around what type of open code dating is being used.

Such wording as "use by, best by, best if used by, bought on" dating creates some confusion with the consumer. It also calls for an increased level of rotation at retail.

Such practices "demand a higher level control within the operations in the supply chain. If you ship products coded with the date, the next touch point in the supply chain needs to record that date, what the expiration date is on that product and make sure that it is being shipped out in a timely manner. Based on my experience, those types of controls are not always being met," says Rombach.

  1. Loose loads on pallets: A recent study of unit loads conducted by Carolina Supply Chain Services revealed that more than 14 percent of unit loads were not wrapped to the pallets, contributing to poor load stabilization and damages to shipping units. The study concluded that attaching the unit load to the pallet could reduce shifting and protrusions of the unit load and minimize the negative effect of load overhang and underhang.

A stretch hood is a plastic film that protects and secures palletized loads. Traditionally, stretch hoods have been monolayer film structures, but today are co-extruded multilayer structures that provide improved properties through advanced plastic resin technology.

"Stretch hoods can help reduce the causes of unsaleables because they attach the load to the pallet, improving overall package integrity compared to packaging technology that does not attach to the pallet," says John Garnett, application development leader for stretch hoods, The Dow Chemical Co., Midland, MI.

"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."