Impact of sales and procurement on reverse logistics

© 2011 Wipro Ltd - Confidential

The Impact ofSales and Procurement on

Reverse Logistics Management

© 2011 Wipro Ltd - Confidential2 © 2011 Wipro Ltd - Confidential2

Research Partners


Agenda

3

1 Objective of the study

2 Key Findings

Recommendations

© 2011 Wipro Ltd - Confidential4

Objective of the studyWhen > Where >How


• Better understand the effect of sales operations on unsaleables• Provide recommendations to reduce the incidence of unsaleables• Raise industry awareness of future trends

1. Data Collection: Development and issuance of a 28 question survey specific to JIULT manufacturer and retailer members

2. Validation: Individual interviews with 16 subject matter experts split evenly between manufacturers and retailers.

3. Analysis: In-depth analysis of the survey results, interview results, and published reports.

4. Synthesize Findings: Review and summary of the findings with industry experts

Objectives

The study was conducted in four phases


Key FindingsWhen > Where >How


Unsaleables are defined as consumer products which are removed from the primary channel of distribution for any reason (damaged, discontinued, or expired) and which may or may not be processed through product reclamation centers.

Managing Discontinued and Expired Products

Annual average unsaleablesrates, as a percent of gross sales, are .96 percent for manufacturers and 1.13 percent for retailers.

Expired and discontinued products combine for over 50 percent of the total unsaleables incurred and have increased steadily in significance the past three years Unsalebles by type


unsaleables:

There are five shared challenges which impact the overall cost and process of managing unsaleables:

Managing, Capturing and Enabling

ChallengesChallenges

Managing Open Code

Dating/Expired Products

Managing Open Code

Dating/Expired Products

Managing New Product

Introductions/Discontinued

Items

Managing New Product

Introductions/Discontinued

Items

Capturing and Providing the “Right” Data


Enabling Effective

Collaboration Internally and

Externally

Enabling Effective

Collaboration Internally and

Externally

Ensuring Proper

Accountability and Incentives

Ensuring Proper

Accountability and Incentives

Top Unsaleables Challenges


Better management of product shelf life is required to reduce the amount of unsaleables. This includes education and execution in four specific areas.

• Remaining Shelf Life Disconnect Study found that the disconnect resides in the material master set-up on both sides either due to process failures and/or as a result of the differences in shelf life guarantees provided by manufacturers.

• Product Rotation Execution 77 percent of consumers claim they regularly check product code dates.Majority of retailers proper product rotation is occurring; however, the data collected suggests room for improvement.

• Product Dating Variances When new products are developed, manufacturers want to get them on the market as soon as possible without waiting a year for the product information needed on the packaging.

• Consumer Confusion o 76 percent of U.S. consumers mistakenly believe certain foods are unsafe to eat after the date

printed on the packaging has passedo 61 percent of consumers mistakenly believe the printed date (sell-by) is the final date they can

consume the product.o Retailers prefer the sell-by date

Finding 1 - Shelf Life Management Required


New Product Launch 28 percent of manufacturers do not address key aspects of new product launches to ensure

full retailer involvement 20 percent do not include unsaleables benchmarks to identify new product introduction

execution results

Finding 2 - Coordinated Planning Required

Some identified opportunities• Using retailer data to track new

products through the supply chain, all the way to the shelf and register

• Collaboration with retailers on planogram, quantities, shipment timing, retail reset support requirements, and promotional support/pricing

• Working with retail buyers to review comparable launches to estimate demand and then shipment timing

New Product Launch Components


The decision to discontinue a product is either triggered by profitability, seasonality, velocity, or new item offering decisions from the manufacturer or the retailer.

Strong coordination is required to ensure discontinued items are managed efficiently to minimize unsaleables.

Discontinued Products

Discontinued Products


Manufacturers apply exit strategies to varying degrees dependent on the type of product (new item, seasonal, discontinued)

Over the past 15 years less than 3 percent of new products achieved more than $50 million in one-year sales; while 78 percent achieved less than $7.9 million in one-year sales

Exit Strategies

Exit Strategies Used


Companies should also plan and forecast for the termination of the promotion to ensure inventory is in balance and that excess product is not on-hand resulting in unsaleables.

Retailers report success when promotions are presented by the manufacturer, sales goals are agreed upon, and processes and supporting measures are in place.

Sales Promotions

Promotions Planning


Manufacturers and retailers have yet to completely formalize a collaboration process to achieve sustainable and repeatable results.

Thirty-nine percent of manufacturers and 17 percent of retailers report having either no collaboration or informal collaboration with their trading partners.

“Fire-fighting” approach is used to reduce unsaleables.

Finding 3 - Opportunities to Formalize Collaboration

Collaboration


Manufactures assign unsaleables responsibility to the head of sales and marketing (38%) or supply chain (25%).

The majority of retailers (56%) assign unsaleables responsibility to the head of operations/supply chain

Finding 4 - Accountability, Incentives and Education Drive Behavior

Unsaleables Accountability


Financial incentives in terms of a performance bonus are in place for two-thirds of organizations and all include unsaleables as part of individual performance reviews.

One of the gaps cited by retailers is that the buyer/category managers may not be properly incented to reduce unsaleables.

Incentives

Incentives


Successful companies are striving to understand the total cost of unsaleables and create internal ownership opportunities and commitment to ensure action is taken to reduce unsaleables.

Successful sales organizations are evolving from specific unsaleables goals to including unsaleables in the customer profitability model supported by performance metrics.

Organizations recognize that education supports the process.

Manufacturers are educating field sales representatives regarding the impact of overselling accounts and the importance of supporting discontinued SKU‟s with markdown funds.

Retailers are working with procurement to outline process improvements and coordination

Procurement Accountability


CPFR and VMI potentially offer two methods to better managing interactions and the impact of unsaleables.

Shared information: o Aids in planning and satisfying consumer demands through a system of shared

information. o enables continuous updating of inventory and requirements

Finding 5 - Demand Chain Management Opportunities

CPFR Program


CPFR Elements

CPFR Elements

Strategy and Planning To establish the ground rules and identify significant events that affect supply and

demand. The Analysis component

To monitors the execution, aggregates results, and shares insights for continuous improvement.


RecommendationsWhen > Where >How


The five major challenges organizations experience are significant and will require continued commitment from manufacturers and retailers to affect change:

The 5 challenges

Managing Open Code Dating/Expired Products

Managing New Product Introductions/Discontinued Items


Enabling Effective Collaboration Internally and Externally

Ensuring Proper Accountability and Incentives


Synchronize Product Data • Synchronize product data with partner to ensure product shelf life is understood

• Ensure a product data review process is established to account for changes in data

Drive consistency in product shelf life

• Guarantee a reasonable amount of 'minimum shelf life' to ensure sell through and collaborate with partner

• Explore the potential to base minimum code life on a product's sales velocity and quantities sold to the customer

Adopt targeted product rotation

• Identify top 10% problem SKU‟s, conduct root cause analysis and target for rotation plan or other action

• Ensure accuracy of planograms and customize to fit fast/slow items with high/low volume stores

• Reward department leads for reducing out-of-code/expired product

RecommendationsShelf Life Management


Consistently apply exit strategies

• Communicate exit strategy in writing during program sell-in and obtain agreement from the retailer buying agent

• Include exit strategy for any item being replaced

Plan Discontinued Product • Implement regular portfolio performance reviews to identify and monitor potential product delist risks or planned exits

• Include accountability for cost of discontinuation in new item introductions • Determine product markdowns with trading partners and a establish a time limit • Timely communicate decision to discontinue a product • Jointly explore product redeployment options

Coordinate New Product Launch

• Establish clear hand-over points for each New Product Introduction (NPI) from the „project‟ team to line operations

• Reflect optimal store mix in distribution strategy • Identify course correction opportunities throughout the product launch/checkpoints • Continually monitor actual versus projected sales growth in aggregate, across consumer

segments and by store

Optimize Sales Promotions

• Establish joint coordination for promotion execution • Monitor results at specific touch-points

RecommendationsCoordinated Planning


Establish a formal collaboration process

• Assign dedicated resources • Define roles & responsibilities • Establish regular meetings • Openly share data • Assign relationship owner/leader • Share cost to optimize ownership and involvement

Recommendations

Match accountability and incentive structure to desired goals and outcomes

• Assign SKU profitability goals and accountability metrics to procurement

• Assign customer profitability and metrics to sales

Formal Collaboration

Accountability Incentives Education

Optimize demand chain • Include strategy/planning and analysis in collaborative efforts

Demand Chain


Customer Takeaways


• Supporting proper product rotation is the need for customized planograms to fit fast/slow moving items with high/low volume stores.

• Retailers should ensure policies and procedures are in place to avoid rotating items off the shelf prior to the shelf life limit being reached.

• Strong coordination is required to ensure discontinued items are managed efficiently to minimize unsaleables.

• Manufacturers must consider educating field sales representatives regarding the impact of overselling accounts and the importance of supporting discontinued SKU‟s with markdown funds.

• The time is right for collaboration between manufacturers and retailers as both are experiencing the challenges associated with managing unsaleables.

• The establishment of a formal collaboration process should also be applied internally between functional areas as sales, merchandising, procurement and operations.

• Align accountability and incentives within cross-functional areas to address opportunities, gain an understanding of total cost, and ensure commitment to take action to reduce unsaleables.

Customer takeaways


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