UNSALEABLES 101 Tuesday, February 23, :00 4:00 Presenters: Gene Bodenheimer Managing Director, Damage Research, Retail, GENCO, a FedEx Company

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2 UNSALEABLES 101 Tuesday, February 23, :00 4:00 Presenters: Gene Bodenheimer Managing Director, Damage Research, Retail, GENCO, a FedEx Company Dan Raftery President, Raftery Resource Network

3 Gene Bodenheimer Managing Director, Damage Research, Retail GENCO, a FedEx Company

4 An Historical Perspective on Unsaleables Where We Started Significant Milestones Evolutionary Steps Where We Are Today How to Make Progress

5 No standard approach In The Beginning Declining store coverage Disposition issues Need for focus

6 The Onset of Reclamation Centers Began in the 1980 s Consolidation Points for All Unsaleables Included Multiple Product Categories Dry Grocery Refrigerated Grocery and Dairy (Package Only) Frozen Foods (Package Only) Health and Beauty General Merchandise Scanners Created Claims & Data

7 And Then There Were Voluntary Guidelines Joint Industry Committee Report (1990) Two Areas Covered Processes Costs Set a Level Playing Field Joint Industry Unsaleables Steering Committee Formed (1997)

8 Shared Responsibility

9 Ongoing Progress Annual Industry Benchmark Reports Additional Resource Publications or

10 A Significant Change Occurs A New Unsaleables Policy Format is Introduced (1997) Adjustable Rate Policy (ARP) Based on Supply Chain Audit Data Allocates Responsibility

11 A Significant Change Occurs A New Unsaleables Policy Format is Introduced (1997) Adjustable Rate Policy (ARP) Based on Supply Chain Audit Data Allocates Responsibility A New Joint Industry Report (2005) Unsaleables Management Practices Included ARP Voluntary Guidelines

12 Guiding Principles 1. Shared Responsibility: Unsaleables source reduction via collaboration, cooperation 2. Manufacturer Responsibility: Deliver saleable product in survivable packaging 3. Distributor Responsibility: Minimize damage and other unsaleable opportunities in retail supply chain 4. Consumer Right: Undamaged, in-date products at lowest delivered cost

13 Root Causes Defined Key Findings in Both Define Fundamental Root Causes Focus on Mutual Incentives Offer Actionable Solutions Recommend C Level Involvement

14 Root Causes Defined Key Findings in Both Define Fundamental Root Causes Focus on Mutual Incentives Offer Actionable Solutions Recommend C Level Involvement Time to Bring Planning Skills to Unsaleables Management

15 1.20% Unsaleables Trend Unsaleables % of Gross Sales - Manufacturers Weighted Average from Annual Surveys 1.00% 0.80% % 0.40% 0.20% GMA & GMA/FMI Surveys Data RSCI Surveys Data 0.00% '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 Sources: GMA Unsaleables Benchmark Surveys Joint Industry Unsaleables Benchmark Surveys 2006 Joint Industry Unsaleables Report Reverse Supply Chain Improvement Progress and Benchmarks Survey

16 Keys to Success Business Intelligence To Eliminate Unsaleables Data Collection and Assembly Measure, Measure, Measure All Sources Manufacturer, Retailer/Wholesaler, Supply Chain Analysis, Benchmarks, RSCI, etc. Analyze for Improvement Opportunities Be Scientific to Optimize Performance Identify Root Causes/Drivers (not Symptoms) Packaging, Process, Inventory (Assortment, Quantity, Rotation), etc. Recognize Failures as Opportunities Take Action Individually and Collaboratively Eliminate Root Cause Quality Requires Teamwork Assess Results Measure Outcomes and Evaluate the Results Repeat the Process

17 Focus Areas Damaged Products Packaging (conflicting goals) Handling (reasonable, excessive) Expired Products Shelf Life (total, delivered) Inventory Management (assortment, quantity, rotation) Discontinued Products Innovation (new and line extensions) Plan-o-Gram Changes Complete Plan for Exit Strategy Up Front

18 Final Thoughts All you need is the plan, the road map, and the courage to press on to your destination." -- Earl Nightingale, writer and motivational speaker

19 Final Thoughts All you need is the plan, the road map, and the courage to press on to your destination." -- Earl Nightingale, writer and motivational speaker Do not let what you cannot do interfere with what you can do. --John Wooden, coach

20 Dan Raftery President Raftery Resource Network

21 FMI s Wholesaler Advisory Committee sponsored the Reverse Supply Chain Improvement Project in Early-stage participants acknowledged shared responsibility as a core issue and agreed about current system advantages : Efficient, centralized process for removing products from stores Important for recalls, withdraws Improves store conditions Data source for improvement actions and disadvantages: Costs to operate system Incomplete cost recovery by retailers/wholesaler Lack of improvement incentive for 3 rd parties No disadvantages (retailers/wholesalers) Incomplete, inaccurate, not useful data (manufacturers) 18 Retailers and Wholesalers AWG Associated Wholesalers Inc. Bozzuto's Inc. C&S Wholesaler Grocers CVS Food Lion Harris Teeter Inc. HEB Hy-vee Inc. Kroger Laurel Grocery Company Nash Finch Publix Supermarkets Rite Aid Corp. Safeway Inc. SUPERVALU Wakefern Food Corp. White Rose Inc. Winn Dixie 14 Manufacturers Abbott Nutrition Alberto Culver Chicken of the Sea Conagra Heinz North America J. M. Smucker Co. Mars Chocolate US Mead Johnson Nutrition Nestle Purina Petcare Ocean Spray Cranberries Pfizer Pharmavite LLC Procter & Gamble Wrigley Sales Co 7 Service Providers Damage Recovery Service Feeding America GENCO Inmar Return Mgmt Services Strategic Solutions Intl Wesley Associates 21

22 The Reverse Supply Chain Improvement Project was a big joint industry investment. 5 work groups - 54 people - 41 companies Alberto-Culver Company Associated Wholesalers, Inc. Bozzuto s, Inc. C&S Wholesale Grocers, Inc. Campbell Soup Company Church & Dwight Co., Inc. The Clorox Company* Coca-Cola North America ConAgra Foods Del Monte Foods Company Delhaize America DRS Product Returns LLC Energizer Personal Care Feeding America GENCO ATC General Mills, Inc. Harris Teeter, Inc. HEB Grocery Company Heinz North America Inmar Kellogg Company Kraft Foods, Inc. The Kroger Company Land O Lakes, Inc. Mars Chocolate North America Nash Finch Company, Inc. Nestle Purina PetCare Co Nestle USA, Inc. Pfizer Consumer Healthcare Pharmavite, LLC The Procter & Gamble Co. Rite Aid Corp. S.C. Johnson & Son, Inc. Spartan Stores, Inc. Stericycle Pharma Services Strategic Solutions, Inc. Unilever US Wakefern Food Corp.* Walgreen Company Welch Foods, Inc. Winn-Dixie Stores, Inc. *Co-chairs 22

23 Where We Are Today TPA produced two Reverse Supply Chain Improvement reports in 2010 and 2011 RSCI Progress and Benchmarks Survey conducted 2012 through or

24 2015 RSCI Report Sample Size Progress questions 15 companies Benchmark questions 13 companies Average gross annual sales $5.5 billion Total gross annual sales $71.4 billion

25 Participating Companies Bush Brothers (4)* Chicken of the Sea (3)* ConAgra Foods, Inc. (2)* Dr. Pepper Snapple Group (4)* The J.M. Smucker Company (4)* Kellogg Company (2)* King s Hawaiian Holding Co. (1)* Mondelez International, Inc. (1)* Nestle USA (2) Ocean Spray Cranberries, Inc. (4)* Pfizer Consumer Healthcare (4)* Procter & Gamble (1)* Reckitt Benckiser LLC (3)* S.C. Johnson & Son, Inc. (1)* Tree Top, Inc. (4)* (Number of years company has participated out of 4) *Companies providing benchmark data.

26 Progress Section Recommendations from the 2010 RSCI Report are: Shown in Italics Considered best practices

27 General Progress RSCI Recommendation: Keep the five topics separate internally. (n=15) 53% Generally keep discussions and improvement activities separate across the five types of unsaleables 40% Sometimes keep discussions and improvement activities separate across the five types of unsaleables 7% Never keep discussions and improvement activities separate across the five types of unsaleables

28 General Progress RSCI Recommendation: Enhance scorecards and internal performance reports with metrics and KPIs for each of the five conditions. (n=15) 33% Generally use internal scorecards for unsaleables 60% Sometimes use internal scorecards for unsaleables 7% Never use internal scorecards for unsaleables

29 General Progress RSCI Recommendation: Enhance scorecards and internal performance reports with metrics and KPIs for each of the five conditions. (n=15) 33% Generally use internal scorecards for unsaleables 60% Sometimes use internal scorecards for unsaleables 7% Never use internal scorecards for unsaleables 79% use a scorecard for damaged goods 43% use a scorecard for expired products 27% use a scorecard for manufacturer discontinueds 23% use a scorecard for customer discontinueds 45% use a scorecard for recalls

30 General Progress RSCI Recommendation: Adjustable Rate Policy (ARP) programs should address damaged goods and expired products to the appropriate degree for each manufacturer and should exclude manufacturer and retailer/wholesaler discontinued products even if they are expired and recalls. (n=15)

31 General Progress RSCI Recommendation: Adjustable Rate Policy (ARP) programs should address damaged goods and expired products to the appropriate degree for each manufacturer and should exclude manufacturer and retailer/wholesaler discontinued products even if they are expired and recalls. (n=15) 40% ARP program covers damaged goods and expired products; it excludes discontinued products and recalls 7% ARP program covers damaged goods, expired products and manufacturer discontinued products; it excludes customer discontinueds and recalls 0% ARP program covers damaged goods, expired products and discontinued products; it excludes recalls 7% ARP program covers damaged goods, expired products, discontinued products and recalls 46% Do not have an ARP program

32 General Progress RSCI Recommendation: Collect better data about each condition. (n=15) Types of unsaleables data that are actively used by manufacturers 100% Data by SKU 93% Data by brand 73% Data by customer 0% None of the above 20% In the last two years, we have increased the use of service providers to collect supply chain data for unsaleables 60% In the last two years, we have used, but not increased the use of service providers to collect supply chain data for unsaleables 20% In the last two years, we have not used service providers to collect supply chain data for unsaleables

33 Benchmarks Section Industry-level benchmarks were recommended in the 2010 RSCI Report to be: Collected regularly Used by unsaleables managers to measure progress in reducing supply chain waste

34 Benchmarks Summary Unsaleables customer payments % of gross sales last year (n=13).63% Weighted average.72% Mean average Average (mean) company unsaleables payments (n=13) $34,440,632 Average (mean) company amount of customer deductions (n=10) $18,274,791

35 Company Rates Surveyed Companies Unsaleables Rates Total Annual Unsaleables Payments % of Gross Sales %.50% -.74%.75% -.99% 1.00% %

36 Unsaleables % of Gross Sales to Each Channel Supermarket* (n=9) 0.8% 1.1% Drug Store (n=8) 1.2% 1.5% Mass Merchant (n=8) 0.8% 1.1% C-Store* (n=8) 0.8% 1.1% Club Store (n=9) 0.5% 1.0% Other (n=5) 0.3% 0.3% Mean Average Weighted Average Channel specific data are unknown (n=4) Other: Military, Dollar and Internet. *Includes retailers and wholesalers.

37 Percentage of Total Unsaleables Payments by Channel Weighted Average [VALUE] [VALUE] [VALUE] [VALUE] [VALUE] [VALUE] Supermarkets* Mass Merch Drug Stores C-Stores* Clubs Other Channel specific data are unknown (n=4) Other: Military, Dollar and Internet. *Includes retailers and wholesalers.

38 Payments to Customers - Change vs. Prior Year Percent of Companies Answering Qualitative Questions Damaged Goods (n=15) 27% 27% 46% Expireds (n=12) 20% 27% 53% Manufacturer Disco (n=15) 7% 13% 33% 47% Retailer or Wholesaler Discontinued (n=14) 14% 21% 29% 36% Do Not Pay Recalls (n=14) 14% 21% 29% Decreased Same Increased Three companies do not track expired products. 36% of companies had no recalls.

39 Special Analysis

40 Unsaleables payment rates are lower for Average Unsaleables Payments Percent of Gross Sales 1.22% 0.91% 0.77% 0.86% 0.87% 0.85% 0.72% 0.63% Sample sizes: 2011 = 15; 2012 = 21; 2013 = 23; 2014 = 13 Year of data is shown.

41 Unsaleables payment rates are lower for Average Unsaleables Payments Percent of Gross Sales 1.22% 0.91% 0.77% 0.86% 0.87% 0.85% 0.72% 2014 averages for 7 companied in most recent three surveys: 0.71% (M); 0.75% (W). Weighted averages shown on graph. 0.63% Sample sizes: 2011 = 15; 2012 = 21; 2013 = 23; 2014 = 13 Year of data is shown.

42 Special Analysis Primary type of products sold has a direct effect on average unsaleables rate. 0.85% Unsaleables Rates by Primary Type of Products Sold 0.92% 0.98% 0.63% 0.48% 0.47% 0.73% 1.07% Nonfood Food/Bev Drug/HBC

43 Special Analysis 70% of the total surveyed unsaleables payments are covered by ARP policies. By Company By Gross Sales $ By Unsaleables $ 6/13 ARP 82% ARP 70% ARP Primary Type of Policy Weighted Average Unsale % Mean Average Unsale % Sample Size Number w/ Swell Allowance ARP.54%.54% 6 5 JIR 1.02%.88% 7 6

44 Special Analysis Managing Manufacturer Unsaleables Costs Most-Used Practices 93% Use scorecards with customers 79% Use a scorecard for damaged goods 80% Use an exit process for manufacturer discontinued 80% Use service providers for supply chain data on unsaleables 77% Audit reclamation center claims or deductions 83% ARP covers only damaged and expired (of 6 ARP companies)

45 Special Analysis Q. What works? A. Following RSCI recommendations. 8 companies report 75% or more of their top customers accept their policy. What these companies do in common: Keep discussions & improvement activities separate across 5 types of unsaleables, internally, with customers, or both (8/8) Include in their total supply chain process improvement strategy: Improvement in trading partner relations & communications (8/8) Reduction in overall damages (7/8) Use scorecards for unsaleables internally, with customers, or both (7/8) Use data by SKU (8/8); by customer (7/8); by brand (6/8) Are developing a better understanding of minimum customer shelf life requirements (8/8) Report unsaleables data to the sales organization & other depts. (8/8) Use a defined exit process for manufacturer discontinueds to reduce reclamation (7/8) Update ARP program regularly, not after package/product changes (6/6)

46 Thank You Dan Raftery Raftery Resource network Gene Bodenheimer GENCO, A FedEx Company Gene.Bodenheimer@genco.com