There are many areas in the food-distribution industry that call for cooperation between food distributors (retailers and wholesalers) and manufacturers, but perhaps none more than unsaleables, the flawed products that end up being removed from the distribution stream.
Only by working together to identify the specific factors causing a product to lose its sales appeal -- whether from shipping, handling, date rotation, among others -- can distributors and manufacturers make a dent (pun intended) in what amounted to a $2.5 billion problem last year. It calls for leadership at the highest level of companies.
But my impression from covering the 2002 Joint Industry Unsaleables Management Conference last month in Newport, R.I., is that rather than cooperation, there is a growing split between distributors and manufacturers about how to deal with unsaleables. I describe these issues in a feature story that begins on Page 15.
One thing is certain: Unsaleables, while seeming to be a fairly straightforward issue, is anything but. Because there are so many ways that a product can become an unsaleable, it is often difficult and costly to isolate the particular factors in each case. That makes it hard to know who should bear the cost and responsibility. Each trading partner tends to shift responsibility to the other side.
The upshot is that the problem keeps escalating. As reported in last week's SN, manufacturers' unsaleables rate, as a percentage of sales across retail channels, has grown consistently since it was first tracked in 1994 to a record high of 1.14% last year, according to the 2002 Unsaleables Benchmarking Study. While the manufacturers' rate for supermarkets held steady at 1.27% last year, it's greater than the average and hasn't shown any sign of decreasing.
What's more, some of the approaches being taken by manufacturers and distributors to address the problem could turn out to make it worse. More manufacturers, for example, are applying swell allowances and adjustable rates as caps on the reimbursements they are paying retailers for unsaleables. Retailers, in response, have turned in greater numbers to salvage operations as alternative outlets for unsaleables. But that does nothing to address the causes of unsaleables.
I can understand manufacturers' motivation for cutting back on reimbursements -- they are trying to give retailers an incentive to take more responsibility for unsaleables, especially those retailers who view it as a revenue stream and even as a profit center. And that does work to some extent, as retailers, for example, cut the funds they offer to their own stores for unsaleables. But it also has created resentment among distributors, who claim that in many cases manufacturers are not covering their (distributors') costs and are walking away from addressing root causes.
One sign of distributors' discontent is that they participated far less in this year's Benchmark Study than they have since their input began to be collected two years ago. As a result, only manufacturers' results were reported in the study for the overall unsaleables rate across channels. That surely does the industry a disservice.
While it is easy to say and hard to execute, greater collaboration between trading partners is certainly needed in this area.
