CPG Company Initiatives Continue to Reduce Cost of Unsaleables: Report

VANCOUVER, B.C. -- For the second straight year, the cost of unsaleable products has declined for CPG manufacturers, according to the 2005 Unsaleables Benchmark Report, which was released yesterday at the Joint Unsaleables Management Conference here, which is produced by GMA in conjunction with FMI, the National Association of Chain Drug Stores, and the Consumer Healthcare Products Association.

The report, issued by the Joint Industry Unsaleables Committee, found that the cost of unsaleables, including damaged, expired, out-of-date, and seasonal merchandise, went down by $50 million between 2003 and 2004. The total industry cost of unsaleables is projected to be $2.52 billion in 2004.

However, just 56 percent of respondents in this year's survey reported lower rates of unsaleable costs compared with the previous year -- almost the same as last year's 55 percent year-to-year rate decline.

The report further found that manufacturers and retailers are using various strategies to reduce unsaleable costs. Among the successful tactics noted in the report was working together to improve product packaging and shipping based on retailer feedback. Additionally, companies are manufacturing directly to pallet to reduce handling and damage, as well as implementing programs to help relieve retailers of too much product because of product failures and seasonal items.

"While we continue to make progress, more can be done to reduce unsaleables," said GMA senior director of industry affairs Karin Croft in a statement. "As this year's report has shown, reducing the cost of unsaleables is not simple, guaranteed, or enduring without a focused commitment to improvement and collaboration between trading partners."

"We applaud the progress retailers and manufacturers have made in reducing unsaleables," added Food Marketing Institute senior director, industry relations Patrick Walsh. "The dramatic reduction in losses that results from cooperative efforts to reduce shrinkage and waste benefits our industry and consumers."

The 2005 Unsaleables Benchmark Report was sponsored by the Joint Industry Unsaleables Committee, which consists of members of the Grocery Manufacturers Association and FMI. It was prepared by Raftery Resource Network, an independent consultant with subject matter experience.

In related news, GMA and FMI yesterday honored four industry initiatives that have successfully lowered unsaleable costs. The winners of the 2005 Innovation Awards, sponsored by the two industry groups, were:

--Campbell Soup Co. and Food Lion, for collaborating to identify in 15 days a secondary packaging flaw in V8 and Tomato Juice packages, leading to a long-term solution for the entire supply chain.

--Kellogg USA, for creating an innovative system that delivered a 75 percent reduction in damage related to its Morning Food Division products over a five-year period.

--Land O' Lakes, Inc. for lowering overall unsaleable percent to sales below 1 percent over a three-year period.

--MeadWestvaco Coated Board, for reducing damaged goods by evaluating paperboard compression and selecting paperboard substrate, which ultimately cut unsaleables by 20 percent to 30 percent.

"The winners of the Innovation Award clearly showcased dynamic solutions for reducing the costs associated with unsaleable products. The goals achieved by these companies can serve as models for others in the industry," noted GMA's Croft.

"We are very pleased to recognize the outstanding accomplishments made by each of these companies," said FMI's Walsh. "Their innovative initiatives provide excellent examples of how collaborative efforts can significantly reduce unsaleable losses and improve operating efficiency across the board."

The Innovation Award recipients are presenting their case studies at the 2005 Joint Unsaleables Management Conference.
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