Impact of Sales & Procurement
on Reverse Logistics
July 20, 2011
© 2011 Wipro Ltd - Confidential
Contents
 Study Overview
 Objective
 Methodology
 Key Findings
 Current State
 Common Challenges
 Summary Findings
 Recommendations
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Study Overview
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Objectives
 Raise Industry awareness of the impact of sales/procurement
practices on the escalating amounts of unsaleables in the CPG
industry
 Obtain objective comparisons and analysis to provide insights
and recommendations to further engage and/or educate
“sales” in their development of future trends in unsaleables
management
 Publish a Report on “The Impact of Sales and Procurement on
Reverse Logistics Management”
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Methodology
 The approach for this study consisted of 4 phases:
 Data Collection: Development and issuance of a 28
question survey specific to manufacturers and retailers
 Validation: Individual interviews with subject matter
experts split evenly between manufacturers and retailers
 Analysis: In-depth analysis of the survey, interview results,
and published reports
 Synthesize Findings: Review and summary of the
findings with industry experts
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Survey Statistics
Manufacturers
Retailers
Issued to 48
Companies
Issued to 14
Companies
48%
Response
Rate
6
8
+
Interviews
Survey Results
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8
+
Interviews
43%
Response
Rate
Key Findings
Current State & Common Challenges
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Industry Perspective on Waste
Overall rates holding steady, mix changing
 Average unsaleables rates, as a percent of gross sales, have held
relatively steady the past 7 years (.96% for manufacturers and 1.13%
for retailers)
 However, rates for discontinued and out-of-code products continue to
increase
Decreasing
Q: Please indicate the percentage of unsaleables in each category for the most recent fiscal year.
Source: Adapted from the GMA, FMI and Wipro Technologies Study – The Impact of Sales & Procurement on Reverse Logistics
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Increasing
Industry Perspective on Waste
Manufacturers / Retailers agree on scope of issue and 5 common challenges
1.
2.
3.
4.
5.
Managing Open Code Dating/Expired Products
Managing New Product Introductions/Discontinued Items
Capturing and Providing the “Right” Data
Enabling Effective Collaboration Internally and Externally
Ensuring Proper Accountability and Incentives
Q: What are three major challenges facing your company in managing unsaleables effectively?
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Source: GMA, FMI and Wipro Technologies Study – The Impact of Sales & Procurement on Reverse Logistics
© 2010
2011 Wipro
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Key Findings
Shelf Life Management
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Shelf Life Management
Companies continue to struggle with open code dating/expired products
 Remaining shelf life disconnect between manufacturers &
retailers (actual days vs. % shelf life remaining)
 Inconsistent product rotation execution by retailers
 Product dating variances by manufacturers
 Continued confusion by consumers regarding product code
dates
Expired and out-of-code products contribute approximately one-third
to the overall cost of unsaleables resulting in an estimated $700
million in expenses for the study group
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Shelf Life Management
Remaining shelf life – how much is sufficient?
Retailer’s Perspective
Manufacturer’s Perspective
“Products are coming into
warehouse with 30 days shelf life”
“The trend is towards a high
percentage remaining when it arrives
at retailers DC … Needs to be tailored
to the specific SKU”
“Most manufacturers don’t address
shelf life”
“ One retailer demands 80%
remaining shelf life…creating issues”
“ Inconsistency by suppliers &
outdated supply chain systems
which were not designed to
efficiently manage dated shelf stable
products is creating issues”
“This is an area we are looking at
closely. Today we have minimum
guaranteed remaining days…. We
are reviewing the potential of
offering a minimum guarantee
based on percent of manufactured
code life”
“The issue is we can’t control rotation
at retail”
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Shelf Life Management
Where does the consumer factor in?
 A new study says that 76 percent of U.S. consumers
mistakenly believe certain foods are unsafe to eat after
the date printed on the packaging has passed1
 61 percent of consumers mistakenly believe the printed
date (sell-by) is the final date they can consume the
product1
 “Endowment effect“ - consumers are still more likely to
eat or drink expired products that are already in their
possession2
 33% of people ignore expiration dates3
 Best-if-used-by date preferred by consumers; Sell-by
date preferred by retailers
1Source:
ShelfLifeAdvice.com and Harris Interactive
Journal of Consumer Research
3Source: Parade Magazine
2Source:
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Key Findings
Product Planning
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Product Planning
 New Product Launch
 Lack of cross-collaboration related to new product introductions
(category management, replenishment, store operations,
reclamation)
 Discontinued Products
 Fragmented process and delayed communication
 Exit Strategies
 Formal exit strategy not used by 23% of manufacturers
 Sales Promotions
 75% of survey respondents report a challenge with promotions
execution
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New Product Launch
End-to-End planning required for New Product Launch
28% of survey respondents do not address/include any of
the below in their new product launches
“Five percent of new product
introductions fail due to inventory
shortage and availability and another
11 percent fail due to an inefficient
commercialization process”
Q: How do you collaborate with partners in managing new product launches?
Q: Do most of your new product launches include? (Check All That Apply)
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Discontinued Products
“Discontinued is not included in our unsaleables compensation but as we
understand the industry shift from damage to expired/discontinued
product at reclaim, we are proposing a more holistic approach that will
ensure all players have some skin in the game for Product Lifecycle
Management.” – Manufacturing Executive
Q: What categories are classified as unsaleables in your organization? (Please check all that apply)
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Exit Strategy
Formal exit strategy not used by 23% of manufacturers
“Product exit is not “failure,”
but should be part of a
carefully honed strategy”
“While companies have been building their new
idea development and execution skills, very few
have focused on the equally important and equally
frequent ability to successfully remove products
from the market.”
Q: Retailer - Please indicate in what areas the manufacturer routinely advises you on the product exit strategy?
Q: Manufacturer - Please indicate for which products your company utilizes a formal exit strategy with your partners.
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Sales Promotions Trends
Issues:
 75% of survey respondents report a challenge w/promotions
 Excess volume
 Over-buying/selling
 Poor planning/forecasts and execution
 Brand & Price Dilution
“The biggest issue we have is not having
“Some customers are getting more
sophisticated and working more closely visibility to real time inventory.”
with us to improve promotion planning…..
These changes have all lead to reduced
“Sales promotions that fail show
unsaleables related to expired product.”
up in the unsaleables line up to 6
months later so this is an area that
“Purchasing Teams and Sales Teams need
must be identified sooner.”
to coordinate better” to ensure minimal
unsaleable stock.
Q: What has been the recent trend/impact of sales promotions on unsaleables?
Q: At what point in the promotion cycle is further purchasing halted, to ensure minimal unsaleable stock at the
end of that cycle?
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Key Findings
Collaboration
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Industry Perspective on Waste
Progress slow due to limited formal Waste collaboration
Defined
Responsibilities
Defined
Roles
Formal
Collaboration
Regular
Touch-Points
Q: Which of the following best describes the unsaleables collaboration process with your trading partners. (Please Select One)
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Source: GMA, FMI and Wipro Technologies Unsaleables Sales & Procurement Study Results
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Shared
Data
Collaboration Components of Success
SHARED
VISION
SKILLS
INCENTIVE
RESOURCES
PLAN
SKILLS
INCENTIVE
RESOURCES
PLAN
INCENTIVE
RESOURCES
PLAN
RESOURCES
SHARED
VISION
SHARED
VISION
SKILLS
INCENTIVE
SHARED
VISION
SKILLS
INCENTIVE
SHARED
VISION
SKILLS
RESOURCES
LEADERSHIP
CHANGE
CONFUSION
LEADERSHIP
ANXIETY
LEADERSHIP
FALSE
STARTS
PLAN
LEADERSHIP
FRUSTRATION
PLAN
LEADERSHIP
GRADUAL
CHANGE
Source: J.P. Kotter & P&G ECR
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Key Findings
Accountability & Incentives
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Accountability
No direct correlation between success and executive responsibility
Indirect Correlation
No Correlation
Functional
Group
Unsaleables Rate
Cross-Functional Alignment
Level of Commitment
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Senior
Executive
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Incentives
 Providing incentives to manage/limit unsaleables has an impact
 Opportunity to ensure unsaleables is included in the process
“Volume smoothing incentives with Sales have resulted
in less volume spikes”
- CPG Company
Because sales reps are paid on net sales, they are
paying more attention to Unsaleables
- HPC Company
“The weight of unsaleables in that process ………has raised awareness, attention, cooperation, and
commitment for improvement amongst our field sales team” – F&B Company
Q: What financial and non-financial incentives are in place for Sales/Procurement to
manage/limit unsaleables? (Please check all that apply)
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Procurement - SKU Profitability
Assigning accountability to Procurement
Majority of respondents indicate Procurement is
not accountable for profitability at the SKU level*
*Note: Either due to process exclusion or system limitations
Q: Is procurement accountable for profitability (net profit) at the SKU level?
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Key Findings
Demand Chain
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Collaborative Planning (CPFR)
Of those that utilize CPFR
approximately 30% of Retailers and
25% of Manufacturers do not
include Strategy & Planning nor
Analysis as part of their solutions
Q: Does your organization have a Collaborative
Planning, Forecasting and Replenishment (CPFR)
program?
Q: What elements of CPFR does your organization use with partners? (Check All That Apply)
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Vendor Managed Inventory
67% of Respondents indicate they have made
progress with partners
“Promotions can be more easily
incorporated into the inventory plan”
- Manufacturer
Increase
Sales
Increase in-stock
inventory
Improve
customer service
Increase gross margins
“In most cases the unsaleables
have decreased”
- Retailer
Reduce overall
inventory
Q: Are your unsaleables rates lower of higher with those partners with VMI/CPR?
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Recommendations
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Recommendations

Synchronize product data with partner
to ensure product shelf life is
understood

Ensure a product data review process
is established to account for changes
in data
Guarantee a reasonable amount of
'minimum shelf life' to ensure sell
through and collaborate with partner
Synchronize Product Master Data

Drive consistency in product shelf life

Shelf Life
Management

Adopt targeted product rotation
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Explore the potential to base minimum
code life on a product's sales velocity
and quantities sold to the customer
Identify top 10% problem SKU’s,
conduct root cause analysis and
target for rotation plan or other action

Ensure accuracy of planograms and
customize to fit fast/slow items with
high/low volume stores

Reward department leads for reducing
out-of-code/expired product
Recommendations
Consistently apply exit
strategies
Plan Discontinued
Product

Communicate exit strategy in writing during program sell-in
and obtain agreement from the retailer buying agent

Include exit strategy for any item being replaced

Implement regular portfolio performance reviews to identify
and monitor potential product delist risks or planned exits
Include accountability for cost of discontinuation in new item
introductions
Determine product markdowns with trading partners and a
establish a time limit
Timely communicate decision to discontinue a product
Jointly explore product redeployment options
Establish clear hand-over points for each New Product
Introduction (NPI) from the ‘project’ team to line operations
Reflect optimal store mix in distribution strategy
Identify course correction opportunities throughout the
product launch/checkpoints
Continually monitor actual versus projected sales growth in
aggregate, across consumer segments and by store
Establish joint coordination for promotion execution
Monitor results at specific touch-points





Coordinated
Planning
Coordinate New Product
Launch



Optimize Sales
Promotions
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

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Recommendations
Establish a formal collaboration
process
Formal Collaboration
Accountability,
Incentives &
Education
Match accountability and incentive
structure to desired goals and
outcomes






Assign dedicated resources
Define roles & responsibilities
Establish regular meetings
Openly share data
Assign relationship owner/leader
Share cost to optimize ownership and
involvement

Assign SKU profitability goals and
accountability metrics to procurement
Assign customer profitability and metrics to
sales


Demand Chain
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Optimize demand chain
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Include strategy/planning and analysis in
collaborative efforts
Thank You
David Lambert
Practice Lead, CPG Consulting
david.lambert@wipro.com
© 2011 Wipro Ltd - Confidential