In Supply Chain

Supply Chain Warehouse Unsaleables

You can’t understate the significance of unsaleables to retailers and manufacturers. The estimated impact of around $15 billion says it all. Two trading partners Inmar works with are finding interesting ways to combat the underlying problems and are getting great results.

Putting unsaleables in context, the impact of this isue ranges between 0.5% and 3.5% of sales. Variations by sales channel result from factors such as product mix and velocity, but the percent of sales is significant in several major retail categories:

Grocery 1.2%
Drug 1.75%
Mass 1.5%
Value 2.5%
Club 0.8%

While zero unsaleables is not a reasonable expectation, real success is possible. The charts below, based on Inmar industry benchmark data for supply chain, shows positive progress over the last several years: Damage rates are down almost 50%, with expired rates down nearly 70%.

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While we see remarkable progress in reducing these numbers, vigilance is important. Without continued focus on the issue, these trends can easily reverse themselves.

How has the CPG industry realized this success? With access to better data and more sophisticated analytics and benchmarking, we’re now able to prioritize our approaches based on targeting the greatest ROI. Leaders within organizations are fostering more collaboration, both internally through cross-functional focus, and externally, working with trading partners to help reduce waste, better optimize supply chains, and drive profit.

As examples of best practices along these lines, I’ll use the example of a couple of Inmar clients, a major CPG brand and a large regional retailer.

The Manufacturer Perspective

For manufacturers, reducing unsaleables creates wins for retailers through increased sales and margins through better on-shelf availability and improved supply chain efficiency through reduced damage, as well as reduced costs associated with hazardous disposal.

Some notable best practices from this manufacturer:

  • Created a cross-functional Unsaleables Advisory Board, informed by quarterly reports from audit data in returns management software.
  • Built a Project Charter unsaleables Checklist to keep new-product launch teams informed about the brand/package/form in the market and its impact on unsaleables.
  • Socialized unsaleables efforts with other functional teams to better inform how upstream choices affect downstream segments of the supply chain
  • Conduct internal audits for hidden damage, delivery accuracy and OS&D
  • Maintain a strong relationship between quality teams and supply chain

This manufacturer is better able to maintain brand equity and gain tons of data that can be acted upon for trending, data on manufacturing process for specific sku’s and distribution center operations, as well as data from retailers’ distribution processes, in-store handling data and more. This all feeds ongoing opportunity for continual improvement.

The Retail Perspective

Our major retailer example shows how committing to a strong reclamation program generates valuable insight from product condition analysis. Their reclamation process creates a financial accounting system that promotes consistent operating procedures, improves shrink, and creates transparency across the supply chain. They get full visibility through retail and warehouse unsaleables management, vendor management, with good supply chain data analytics at the core of the effort.

The first year of the reclamation program shows impressive results. In 2015, the company reduced its proportion of product destroyed from 75% the previous year by almost half, to 36%. They were able to increase donations from 25% in 2014 to 42% in 2015, and added a liquidation program that recouped some value on 22% of unsaleable product.

This company’s next moves include some promising initiatives:

  • Corporate unsaleables scorecard
  • Monthly vendor scorecards
  • Moving Cigarettes and Tobacco to reclamation
  • Leveraging supply chain analytics to engage vendors in reducing unsaleables
  • Improving retail and warehouse handling processes to reduce damages
  • Connecting category rotation to inventory management tasks at retail
  • Enhancing system capabilities for managing product disposition and swell payments

Through collaboration and partnering for studies, manufacturers and retailers can gain visibility across the full supply chain continuum for end-to-end root-cause analysis and cooperate to conduct new-product launch tests that benefit both partners’ performance and profitability.

The success of these practices underscores the indispensable value of a full complement of data, generated from a complete, mindful strategy. The expanded visibility afforded by the right data, shared between trading partners, creates a far more complete, more valuable picture of the entire supply chain with potential for positive impact across the product lifecycle.

To quote the manufacturer, “The most intelligent supply chain must be educated and collaborative internally and externally to reach its full potential.”

Questions or comments for Rob? Comment on this article in the comments section below.

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