Unsaleables 101

1. Unsaleables 101 An Introduction to Unsaleables History, Opportunities, and Solutions

2. Agenda A History of Unsaleables Gary Spinazze Unsaleables Opportunities Ted Lechner Eugene Schachte Unsaleables Solutions Rob Shifter

3. Legal Disclaimer • Presentations are intended for educational purposesonly and do not replace independent professional judgment. • Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of the Grocery Manufacturers Association (GMA), its cosponsors, or its committees. • The GMA does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented. • Material within this presentation is intended to be used for purposes of education and discussion stimulation only. 

4. Unsaleables: A History Gary Spinazze

5. What are Unsaleables? “Any product removed from the primary channel of distribution, regardless of the reason forremoval. This includes, damaged, seasonal or out-of-code products.” Unsaleables is defined as:

6. Unsaleables Timeline JIR Published Updated JIR Published Initial Unsaleables Benchmark Study JIULT Formed 2008 Joint Industry Unsaleables Report Reclamation Center Growth Initial ARP Implemented 1985 1990 1992 1995 1997 2005 2008 2009

7. Reclamation Centers • What is a Reclamation Center? • Central location for collection and processing of unsaleables product. • Can be owned by distributor or 3rd Party. • What is the purpose of a Reclamation Center? • To control disposition of unsaleable product • As a central return point for recalls • To ensure proper issuance of store credit

8. Joint Industry Report (JIR) • Published in 1990 • This document became “the bible” for unsaleables in the Industry

9. Joint Industry Report (JIR) Guidelines still used today for policy development and implementation. Referred to as JIR Policies Reimbursement based on list cost • Study provided guidelines for: • Applicable products • Reimbursement • Disposition • Reclaim process • Shared responsibility • Costs

10. Joint Industry Unsaleables Leadership Team FPA GMA Dist. FMI Mfg. • The JIULT was Formed in 1992 • Deliverables: • Benchmarking Report • The Unsaleables Conference • Projects based on the JIULT mission statement. JIULT

11. FPA GMA Dist. FMI Mfg. The mission of the JIULT is to: JIULT • Provide strategies, educational content and tools to help Retailers, Distributors and Manufacturers reduce the volume of unsaleable goods within the consumer package goods (CPG) value chain. This will be achieved by: • Developing strategic management applications • Identifying and sharing successful practices and recommendations • Creating educational platforms • Collecting and disseminating industry intelligence on emerging trends and developments

12. Unsaleables Benchmark Reports • In 1995, the JIULT began producing recurring Benchmark Reports • Survey Distributors and Manufacturers • Report overall rates • Report state of industry

13. Adjustable Rate Policy (ARP) WHAT IS IT? • Rate based policy • Assessments of supply chain damage & root cause • Requires substantial resources & investment • Requires use of independent 3rd party • 18-24 months to develop and implement 60% of Market Share is currently on ARP * In 1997 the first ARP was introduced in the industry * 2008 Joint Industry Unsaleables Report

14. Joint Industry Report Update - 2005 FPA GMA Dist. FMI Mfg. In 2005, a “New” JIR was published • Support “original” JIR • Address industry changes • Raise Unsaleables to a Senior Management Issue • Importance of reclaim centers • Identify Unsaleable ARP Components • What should and shouldn’t be included • Continued Collaboration JIULT

16. Unsaleables Benchmark Reports • The 2008 version is available on the GMA website • www.gmabrands.org

17. What Are The Opportunities Today? Commitment ARP“GAPS” Sustainability Tight Economy Collaboration Shelf Life Inventory Management Exit Strategies SKU Rationalization

18. Unsaleables Opportunities Ted Lechner - HEB Danielle Kowalkowski – Heinz North America

19. Unsaleables Opportunities: Part I Policy Recalls Damage Open Code Dating & Expired Discontinued Seasonal & New Items Unsaleables

20. Unsaleables- Damage • Packaging Issue • Cardboard Strength • Compression Damage • Tray Pack vs. full Case • Is going Green, Costing us GREEN? • Platform Issues • Poor Pallets • Use Pool Pallet, CHEP, IGPS, PECO • WW Grade A or B only • Pallet overhang or underhang • Damage Reduction is an Attitude • Damage is not an acceptable supply chain practice

21. Unsaleables- Discontinued • Manufacturer Discontinued • Normally funded • Product disposition options • Mark down at Retail, or bill back through Reclaim • Retailer Discontinued • Normally not funded by supplier • Retailer specific discontinued • Product Disposition • Mark down at retail, Salvage sales,

22. Unsaleables- Seasonal & New items • Seasonal • Special one time pack • One time buy items • Holiday product • Easter, Halloween, Christmas etc, • Exit plan needs to be discussed up front • New item introduction • Product failure • Included in SWELL policy • No exit strategy Is it Really the greatest thing since sliced Bread?

23. Unsaleables-Open Code Dating & Expired Product • Open Code Dating • What is the correct shelf life • Who determines the correct shelf life • Why is some Julian Dated and some open code dated? • Receiving Shelf life • How much shelf life should be left at time of receiving • Who determines that shelf life? Retailer, Manufacturer? • When do you pull out of date from Shelf • When it is expired or days before? • Who owns Expired Product Financials? Freshness belongs to the Consumer not the Supply Chain

24. Unsaleables-Recalls • Recalls • Quality issues • Handling Charge dispute • Store Handling • RGC Handling • Quality Assurance handling, notification • Product disposition • Who is responsible? • Hazardous Material? • Certificate of Destruction? • Land fill charges?

25. Unsaleables- Policy • What is the Right Policy • JIR or Swell • Benefits of Policy • JIR you see data, Swell you don’t • Exploring the GAP • Who should pay the difference? • Shared Responsibility • Trade funds? • Where should we focus our energy? • Policy dispute or Reducing Damage? • IF you focus on the right thing you will do the right thing

26. What did you learn? • Unsaleables is complicated! • It takes Retailer and Manufacturer to make a different! • Facts not Emotions! • You can make a difference! • Focus on the right thing, and you will do the right thing! • Cost Reduction is why you are here today! • Failure is not an option

27. Don’t Miss These Sessions Wednesday – 10:45 Breakout Session Retailer/Wholesaler Discontinued Manufacturer Discontinued Wednesday – 2:45 Breakout Session Recalled Products Thursday – 10:00 General Session Damaged Products Expired Products Reverse Supply Chain Improvement Project Work Groups

28. Unsaleables Opportunities – Part II Gene Schachte Sr. Manager, Reverse Logistics

29. Unsaleables Opportunities: Part II • Expired Product • Open Code Dating • Product Rotation • Recalls and Withdrawals • Organizational Structure

30. What Is Open Code Dating? ‘Best if used by’, ‘Sell by’, or ‘Expires on’ format Freshest possible product Primary and secondary packaging Bill of Lading A complete guide to open code dating and the supply chain was published in 2007 and can be found at: http://www.gmaonline.org/publications/docs/2007/OpenDate.pdf

31. Open Code Dating Examples OK Good • Month – Day – Year Format • Legible and easy to find • What does the date mean • Use by, sell by, expires? • Month – Day – Year Format • Legible and easy to find • Use of Best By

32. Open Code Dating Examples Better OK • Month – Day – Year Format • Too Small • Hard to find • Bottom of case • Month – Day – Year Format • Legible and easy to find • Use of Best By • Correct Size

33. Remaining shelf life = ongoing debate The amount of shelf life left at time of receipt at the customer warehouse Customer requirements vary Most manufacturers’ WMS systems are not capable of different ship statuses for different customers What does the consumer require for pantry Open Code Dating Challenge

34. Opportunity: Product Rotation Shared Responsibility Manufacturer Ensure FIFO of shipments Maximize turns At-shelf rotation schedules Case identifier Retailer / Distributor At-shelf Periodic During category resets Proactive communication

35. Opportunity: Product Rotation Shelf ready trays Shelf rotation racks

36. Product Rotation: Challenges Labor costs Other Priorities – shelving, pricing, new item etc. Variable Formats / Hard to Read code dates

37. Recalls and Withdrawals Product recalls have become morefrequent… and more expensive. Fines and fees have been introduced by most retailers. - Formalized and substantial Cost of recall - anywhere from 300% - 3,000% of normal reclamation volume

38. Considerations as you begin • Where is your program now? • What is your end state? • How is your corporate culture? • Do you understand the causes? • What do your customers think?

39. Executive Support • Organizational Structure Support & Structure Unsaleables Program Roadmap Executive support needed Organizational Structure • Resources • Company focus and priority • Corporate culture • Performance measurement • Long term program stability • Customer relationships • Structure varies based on: • Size of company • Culture • Core competencies • Reporting Relationship • Sales, Supply Chain, Finance, Cross-functional • Size • Varies by company • Average is manager and analyst

40. Structure - Example Unsaleables Program Roadmap • Unsaleables Manager • Responsible for strategic direction • Interface to customers • Resource for front-line sales • Unsaleables Analyst • Reporting • Data Analysis • Tools • Liquidation Analyst • Alternate channels Supply Chain Sales Finance

41. Support & Structure Resources • A versatile skill set Unsaleables Program Roadmap • Executive Support • Organizational Structure • Communication: oral + written • Aggressive + An Influencer • Detail Oriented + Strategic • Focused + Flexible • Broad cross functional skills

42. Support & Structure Unsaleables Program Roadmap • Executive support • Organizational structure Resources • A versatile skill set Opportunity • Reporting tracking and measuring Can we rank our: Customers Factories Brands Warehouses Do We know our Unsaleables Expense? Where are we vs. our Peer Companies?

43. Resources Opportunity Support & Structure Tools • Develop enablers • Capability building tools Unsaleables Program Roadmap Levers and Enablers: • Internal reporting and tracking • Customer reviews • Internal root cause studies • Customer collaboration studies • Discontinued markdown programs • Product rotation schedules

44. Support & Structure Unsaleables Program Roadmap • Executive support • Organizational structure Resources • A versatile skill set Opportunity • Reporting tracking and measuring Tools • Develop enablers • Capability building tools • Customer relationships • Policies and procedures • Long term plan Strategy

45. Unsaleables Solutions Rob Shifter

46. This applies to: Vendor / Manufacturer Wholesaler / Distributor Retailer Shared Responsibility Let’s work together

47. Data Audits (3rd party and internal) Damage reduction Inventory management Current practices Supporting policies Policy assessment Collaboration Big opportunities Building blocks for success

48. Using data Unsaleables data – defined and consistent • Measured vs. sales volume & dollars • Total unsaleables by SKU • Total profitability by SKU over time

49. Using data Understand the data sources • Who? • Retailer/Distributor, Manufacturer, 3rd Party, Industry benchmark • True and accurate • Complete • Does it represent the entire supply chain? • Representative sample size

50. Using data Analyzing the Data • What is captured and compared? • Warehouse damaged and expired • Damaged, distressed, and expired at store level • Short dated receipts • New product launches • Discontinued items • Can we identify root causes? • Product handling • Rotation • Delivery practices • Packaging issues • Inventory management and position • Inadequate remaining shelf life