2005 Unsaleables Benchmark Report

1
2005 Unsaleables Benchmark Report

• Joint Industry Unsaleables Steering Committee
• Challenges to the Bottom Line
• July 19 21, 2005
• Fairmont Waterfront Hotel
• Vancouver, British Columbia

Sponsors
Consultant
2
Contents

• Aggregated company data statistical industry
  benchmarks
• Summaries of qualitative input key issues and
  challenges
• Case study descriptions successful unsaleables
  management actions/programs

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Definitions

• Unsaleables products removed from their normal
  channel of distribution, regardless of reason for
  removal
• Distributors retailers and wholesalers
• Unsaleables Costs warehouse delivered products,
  US business only, all forms of payments
  (receipts), no DSD, no full case returns, no
  markdowns

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Intent

• Provide tools useful for reducing incidence and
  costs of unsaleables in total supply chain
• Provide industry trends to compare to individual
  company trends
• Expand industry participation in survey
• Refine definitions of total cost of unsaleables
  for manufacturers and distributors

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Methodology

• Three questionnaires developed by Joint Industry
  Unsaleables Steering Committee Raftery Resource
  Network
• Mailed to associations members, past survey
  participants, past conference attendees
• Individual company responses held confidential by
  R2N
• Data aggregated, open-ended answers summarized
  and interviews conducted by R2N
• Report developed by R2N, reviewed by Committee
  and GMA legal counsel

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Survey Sample Size

• 50 Manufacturers - nearly all provided data
• 26 Distributors about half provided data
• 4 Service Providers
• More than last year
• Representative of companies invested in tracking
  unsaleables data and actively managing costs

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Manufacturers
8
Distributors
Service Providers
Strategic Solutions International, Inc. Universal
Solutions International, Inc.
Damage Recovery Systems, Inc. Genco Damage
Research
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Methodology Observations

• No standard information and reporting system
  exists to record unsaleables costs
• Many costs are excluded administration, root
  cause determination, some outside services, some
  reclamation
• Additional refinement of definition of total
  costs is needed to more clearly understand true
  cost of unsaleables
• These benchmarks and averages are as
  representative of industry costs as possible at
  this time

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Manufacturer Benchmarks
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Manufacturer unsaleables cost declined to 1.06
Manufacturer Benchmarks
Manufacturer Unsaleables Cost Percent of Gross
Sales
1.18
1.14
1.11
1.11
1.06
1.08
1.07
.96
Company Average
.95
1.02
1.02
1.00
.99
.95
.93
.91
.92
Weighted Average
.88
Total industry expense projected at 2.52 billion
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Manufacturer Benchmarks
Supermarket and mass retail show largest decline
in manufacturer unsaleables rate
Club Convenience Mass
Supermarket Drug
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Manufacturer Unsaleables Payments Gross Sales
by Retail Channel
Manufacturers report disproportionate
unsaleables payments vs. sales for some channels
Manufacturer Benchmarks
Supermkt Mass Drug Club
C-Store Other
Percent of total dollars reported
14
Deductions and allowances are most often used for
manufacturer unsaleables payments
Manufacturer Benchmarks
Types of Unsaleables Financial Transactions
Percent of total unsaleables payment dollars
reported
15
Over half of returned cases go into active
inventory
Manufacturer Benchmarks
Disposition of Full Case Returns to Manufacturers
Percent of total full case returns dollars
reported
16
Manufacturer Benchmarks Percent of Gross U.S.
Sales
Manufacturer Benchmarks
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Additional facts from manufacturer survey
Manufacturer Benchmarks

• Nearly all have unsaleables data by customer
• 4 of 5 have unsaleables data by brand or SKU
• 58 have about the same resources (people, time,
  dollars) available for managing unsaleables this
  year versus last year
• 1 of 4 have more resources this year

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Distributor Benchmarks
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Distributor unsaleables costs decline to .76
Distributor Benchmarks
Distributor Unsaleables as Percentage of Sales
Company Average Costs Average Receipts Industry
Average Costs
All data from 2005 survey. Samples 2003
13,14 2004 14,15
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Some distributors report total unsaleables
receipts are below their costs
Distributor Benchmarks

• The total gap for 13 distributors was
• 6.0 in 2003
• 6.7 in 2004
• Costs were less than receipts for
• 5 distributors in 2003
• 6 distributors in 2004
• Sample size for type of transactions was too
  small to report.

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Fully-disclosing distributors also report rate
drops for costs receipts
Distributor Benchmarks
Selected Distributor Unsaleables as a Percentage
of Sales (Weighted Average)
Sample size 10 distributors Note
Distributor sales includes distributor margins.
Declines may be driven by a decrease in
percentage of unsaleables volume sent to
reclamation centers for processing and data
collection.
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Dry grocery is 55 of unsaleables costs
Distributor Benchmarks
Unsaleables Costs by Major Department
Distributor data. Sample size 8. Merchandise
mix is similar to manufacturer survey.
Percent of total unsaleables cost dollars reported
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Distributor Benchmarks as Percent of Gross U.S.
Sales
Distributor Benchmarks
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Additional facts from distributor survey
Distributor Benchmarks

• Nearly all distributors have unsaleable data by
  manufacturer and by store. Most use it.
• 3 of 5 use unsaleables data by department.
• 62 have about the same amount of resources
  (people, time, dollars) available for managing
  unsaleables this year versus last year.
• 1 of 5 have more resources this year.

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Store facts from distributor survey
Distributor Benchmarks

• 1 of 3 say stores marked down and sold more
  damaged goods in the past year.
• None reported selling less.
• Half use multiple methods to reimburse stores for
  unsaleables.
• 2 of 5 reimburse stores at full cost 1 of 5 at
  full retail.

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Some distributors reimburse stores at less than
full cost or retail
Distributor Benchmarks
Average Store Reimbursement for Unsaleables
Sample size 7 Sample
size 13 Multiple
answers
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Service Provider Benchmarks
28
Good product remains in reclamation stream
Service Provider Benchmarks
Reclaimed Product Condition( of all units
processed in 2004)
Sources Damage Recovery Systems, Genco Damage
Research, Universal Solutions International
Why where products become unsaleable are not
indicated by this data.
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Most audited reclamation claims contained
incorrect values for product cost
Service Provider Benchmarks
Total Claim Variances as a Percent of All 2004
Claims Processed
Units Scanned
Product Cost
Sources Damage Recovery Systems, Genco Damage
Research, Universal Solutions International,
Strategic Solutions
Sources Damage Recovery Systems, Genco Damage
Research, Universal Solutions International
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Manufacturer Distributor Comments
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Major forces driving change for declining rate
manufacturers
Manufacturer Comments

• Increased management focus on unsaleables data.
• Introduction/Implementation of swell allowance or
  adjustable rate.
• Dialogue and collaboration with customers.
• Improvements in pallet fit and packaging.
• Customer inventory management initiatives.
• Use of markdown programs for discontinuations.

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Major forces driving change for increasing rate
manufacturers
Manufacturer Comments

• Product discontinuations.
• New product introductions, packaging changes.
• Internal complacency, loss of focus.
• Seasonal returns and recalls.

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Manufacturer major challenges in 2005
Manufacturer Comments

• Customer resistance to manufacturer policy.
• New product introductions/changes/discontinuations
  .
• Securing customer involvement in reducing
  unsaleables.
• Reducing unsaleables costs/reclamation center
  fees.
• Lack of actionable data.
• Customer resets/store closings/discontinuations.
• Internal damage reduction.

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Top unsaleables issues for manufacturers
Manufacturer Comments

• New product introduction/product changes/SKU
  proliferation/discontinuations.
• Lack of agreement on shared financial
  responsibility, other resolved issues.
• Pressure to reduce costs/lower packaging
  strength/packaging problems.
• Excessive customer claims/high cost of
  reclamation/customer policies.
• Customer resets/closings/discontinuations.

Issue also reported by distributors.
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Top unsaleables issues for manufacturers (contd)
Manufacturer Comments

• Damages.
• Securing customer involvement in reducing
  unsaleables/collaboration.
• Store returns of saleable product.
• Policy enforcement/compliance.
• Excess inventory management/over
  buying/overselling.
• Acceptance/standardization of adjustable rate
  policies.

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Major forces driving change major challenges
for distributors
Distributor Comments

• Manufacturer swell allowances/adjustable rate
  policies, moving away from JIR.
• Lower reimbursements by manufacturers for
  unsaleables.
• Higher damage levels due to poor packaging/cost
  reductions.
• Expired products.

Issue also reported by manufacturers.
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Distributor top unsaleables issues
Distributor Comments

• Manufacturer swell allowance/adjustable rate
  policies, moving away from JIR.
• Managing product discontinuations/new item
  failures/resets.
• Lack of manufacturer actions to reduce
  damage/lack of retail support/reduced research
  by manufacturers.
• High damage levels due to poor packaging/cost
  reductions.

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Distributor top unsaleables issues (contd)
Distributor Comments

• Cost of reclamation.
• Expired/damaged product remaining on the store
  shelf.
• Lack of accounting, management data.
• Deterioration in vendor relations.

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Additional Topics in 2005 Benchmark Report

• Successful practices of companies mentioned by
  trading partners for actions to improve
  unsaleables management
• 12 thumbnails of retailers manufacturers
• 8 case study descriptions of distributors and
  manufacturers
• Related initiatives and resources

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2005 Unsaleables Benchmark Report

• Joint Industry Unsaleables Steering Committee
• Challenges to the Bottom Line
• July 19 21, 2005
• Fairmont Waterfront Hotel
• Vancouver, British Columbia

Sponsors
Consultant