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4 key value chain strategies for reducing unsaleables

Nate Clark

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Fifteen billion dollars. The estimated cost that food manufacturers, wholesale distributors, and grocery retailers spend each year on unsaleables, defined as product removed from the primary distribution channel, regardless of reason. Unsaleables include discontinued product or product that can’t be sold into retail or wholesale markets due to packaging damage or spoilage. Circumstances that lead to unsaleables can be hard to control, but the opportunity for improvement is great. If just one percent of unsaleables can be reduced through process improvements, potential savings are greater than $100 million.

To guide major food companies on effective action for unsaleables, the Joint Industry Unsaleables Leadership Team (a collaboration between Food Marketing Institute, Grocery Manufacturers Association, and the Trading Partner Alliance) worked with CHEP to survey industry members on best practices and priority actions to reduce unsaleables. The resulting document, Collaborative Value Chain Strategies to Reduce Unsaleables, was published in September 2017.

The report contains 48 best practices, organized by supply chain function, and scored based on a) its impact at reducing unsaleables, and b) its frequency of usage by survey respondents.

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Each best practice is organized by supply chain function, and grouped into three broad categories: Collaborative, Manufacturer, and Retail & Wholesale. 

Here, we highlight four themes that span best practices and appear key to unsaleables reduction: Effective communication, standard operating procedures, data sharing, and continuous improvement.

Effective communication

Given that the word ‘collaborative’ is included in the report’s title, it shouldn’t come as a surprise that the first key theme is communication. Trading partners, or individual entities in the food supply chain that do business with each other (e.g., food manufacturer and grocery retail chain), must communicate effectively to drive actions that lead to unsaleables reduction. Communication should be consistent (daily if necessary), occur between appropriate functional roles, and completed with enough lead time to take action. For example, the report suggests that a manufacturer should communicate product discontinuations at least 16 weeks in advance to ensure products can be transitioned out before they are wasted.

Clear and effective communication between partners enables each to understand factors like supply chain dynamics, packaging and distribution, and store practices that impact unsaleables generation. When effective communication is prioritized and appropriate channels for doing so are established, all trading partners will be benefit.

"Training should inform employees on key action steps and communication needed to resolve unsaleable issues and limit the potential for future failures."

Standard operating procedures

When it comes to unsaleables reduction, survey participants listed shipping product on a First In First Out (FIFO) basis as a highly-effective, standard operating procedure (SOP). This is great — but if companies want to meaningfully reduce unsaleables, the report recommends creating many more SOPs.

From managing shelf-life and moving aged product, to strategies for markdowns and liquidation, to preventing product damage, establishing SOPs is identified as an effective tool for keeping trading partners accountable and responsible. Accountability and responsibility make supply chain participants more careful. This in turn can lead to the resolution of unsaleable issues and a reduction in waste. Individual companies should prioritize developing SOPs around the specific issues (e.g., product damage during receiving) that are leading toward higher-than-normal unsaleables generation.

"Accountability and responsibility make supply chain participants more careful."

Data sharing

The next key theme from the report is the importance and value of sharing data between trading partners, particularly at the UPC (or item) level. At this level, food companies have the granularity necessary to identify the root cause of unsaleables and then construct improvement strategies. Sharing UPC-level data can help trading partners hold each other accountable for product damage or more accurately predict seasonal fluctuations in product velocity at certain retail stores. The common thread is - when trading partners operate from the same data, all parties will be informed to make better decisions.  

The report identifies that collecting data is easier today than it ever has been before. Trading partners typically have access to relevant data through existing warehouse management, enterprise resource planning, or point-of-sale systems. (This theme resonates for our team. Spoiler Alert is a tailored solution built for food manufacturers, wholesale distributors, and grocery retailers to collect item-level data on unsold inventory and unsaleables.)

"When trading partners operate from the same data, all parties will be informed to make better decisions." 

Continous improvement

The report concludes with a suggestion that the first step to reducing unsaleables is to conduct an end-to-end supply chain assessment of any processes in place that impact unsaleables. From here, develop an action plan that outlines which current processes must be improved, which new processes can be implemented to achieve the biggest reward, and how progress will be measured.

Why?

Because driving reductions of unsaleables is a continuous improvement process. It is unrealistic that any one company will be able to implement each of the 48 practices laid out in the report at one time. But when time is spent understanding the current landscape and laying a roadmap for priority actions, continuous improvement can be achieved.

"Continuous improvement requires monitoring and measurement of processes. A valued relationship between trading partners should not be left to chance."  

Now take action! 

Collaborative Value Chain Strategies to Reduce Unsaleables clearly lays out actionable strategies to guide unsaleable reductions AND estimates just how impactful each strategy will be. Beyond each individual practice, understanding the key themes of effective communication, establishing standard operating procedures, data sharing, and continuous improvement will help companies identify overarching topics they might need to address before taking action.

Spoiler Alert is built to help food manufacturers, wholesale distributors, and grocery retailers better manage unsold inventory and reduce unsaleables. The platform makes effective communication, establishing SOPs, data sharing, and continuous improvement easy and efficient. Considering a strategy to reduce unsaleables at your organization? Reach out and see how Spoiler Alert can play a role today!

 

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