Vendor Unsaleables Costs Slide, While Distributors' Rise: GMAFMI Study

CHARLESTON, S.C. -- Average manufacturer payments for unsaleables dipped slightly to 1.05 percent of sales from 1.13 percent between 2004 and 2005, according to The 2006 Unsaleables Benchmark Report, released yesterday at the Joint Unsaleables Conference here by the Grocery Manufacturers of America and the Food Marketing Institute.

The report is based on an industry survey, in which respondents attributed the decline to packaging improvements and other changes to reduce damage, along with heightened management focus on data. However, some companies reported rate increases as a result of product discontinuations, new item failures, and new pseudoephedrine (PSE) legislation.

At the same time, distributor unsaleables costs as a percent of sales rose to 1.17 percent from 1.13 percent. In this case, survey respondents cited manufacturer swell allowances/adjustable rate policies and lower reimbursements by manufacturers as major reasons for the increase.

"This year's survey shows that the industry is actively engaged in working to manage the dynamics of unsaleables," said GMA senior director of industry affairs Karin Croft in a statement. "The report describes the latest stages in the evolving approach to the benchmark measurement of this cost to the entire CPG supply chain."

Published by the Joint Industry Unsaleables Steering Committee and its sponsors, GMA and FMI, the study shows how surveyed manufacturers and distributors reported diverging averages related to unsaleables costs over the past two years. Surveyed manufacturers and distributors had the opportunity to boost supply chain efficiencies, and the benchmark includes several successful case studies.

"This report emphasizes the need for continued trading partner collaboration on some very challenging issues, specifically, reducing overall unsaleables and proactively addressing the reimbursement gap issue between manufacturers and distributors," said FMI senior director of industry relations Patrick Walsh.

In related news, GMA and FMI at the same conference yesterday revealed the 2006 Unsaleables Innovation Award winners, exemplary companies that worked across industries to reduce the incidence of unsaleables. This year two pairs of companies -- HEB and Carolina Supply Chain Services (CSCS), and Heinz U.S. Consumer Products and GENCO Damage Research -- received top honors.

"We congratulate all four companies on their achievement, and hope their experience and learnings will continue to benefit them and the entire CPG industry," said Walsh. "The award winners recognized that the most successful unsaleables management practices analyze performance across divisions and take accountability for inefficiencies. Minimizing unsaleables in the supply chain remains a shared process, which is why we value the outcomes celebrated through this award."

HEB and CSCS put in place programs that changed the processes, procedures, private label packaging, and policy that had adverse affected the supply chain, eventually reducing unsaleables by 50 percent as a percentage of sales. Tracking the reductions in unsaleables across multiple divisions, HEB found that some performed better than others.

In a similar fashion, Heinz collaborated with GENCO to identify the root causes of unsaleables, setting an ambitious goal to reduce them by 40 percent. In the first year of the program, Heinz lowered unsaleables by 23 percent and projected another 25 percent reduction to meet its goal in just two years. "Project MUDA," which translates as "waste" in Japanese, is a multidimensional operation that encompasses all Heinz projects.

"GMA and FMI have consistently supported and promoted industry work that recognizes effective supply chain processes," observed Croft. "H-E-B and Heinz saw initial cost benefits, but the most significant impact was adopting missions to eliminate unsaleables in their corporate strategies."

The Joint Industry Unsaleables Management Conference is an event dedicated to finding solutions to unsaleables in the supply chain.
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