CINCINNATI -- Procter & Gamble's Streamlined '97, a new initiative designed to reward efficient practices in a wide range of supply-chain interactions, received mostly positive reaction from major retailers even as they sought details on how the programs would affect their own operations.
The goal of eliminating waste in the areas of returns, damaged and discontinued products is a positive step for the industry, in line with the broad goals of Efficient Consumer Response, executives told SN.
Some questioned, however, whether the new programs from P&G here, scheduled to take effect July 1, reward those already benefiting from efficient supply-chain practices at the expense of smaller retailers.
"Procter & Gamble's latest initiative continues to get waste out of our system. I applaud their commitment to lead the industry in this direction," said Danny Wegman, president of Wegmans Food Markets, Rochester, N.Y.
"The whole thing is a positive move for the industry -- it rewards those who are efficient, and doesn't reward those who are inefficient," Dave Herriman, senior vice president at Giant Food, Landover, Md., agreed.
One independent retailer, however, was strongly critical of the new initiatives. "Basically, I see 99% of the benefits going to Procter & Gamble, and it's just going to be another cost for retailers," said Dick Rinehart, president of Dek Enterprises, operating as Dick's IGA, a one-store operation in River Falls, Wis.
The Streamlined '97 program aims at trimming costs in several areas by replacing current allowances for unsalables, delivery exceptions (overage, shortage and damage) and discontinued product transition (markdown) programs with a quarterly payment to retailers dubbed the Logistics Development Initiative.
To cover restocking and other costs for shipped-as-ordered refusals and unsalables from specific retailers, P&G will reduce their LDI payments. These quarterly LDI payments will be made based on five product groupings -- grocery, chilled juice, over-the-counter medications, cosmetics, and health and beauty care and oral care. Each segment has different payment rates based on its unique characteristics.
One retailer who requested anonymity noted that the broad scope of the program meant it would have very different results for different retailers and wholesalers. "It's a program that will lead the industry, but it's going to have a plus and minus impact. Some companies will make money on it, and some will be hurt by it.
"Logically, the program makes a whole lot of sense, but in terms of its real impact we haven't finished studying it yet," the retailer added.
"I think there is certainly room for both the retailer and P&G to reduce costs in the whole system," said Gary Hawkins, chief executive officer of Green Hills Farms, Syracuse, N.Y. "I know P&G has made many efforts in this area already, and this is a further effort. I think their initiative will encourage retailers to improve their practices."
Many elements of Streamlined '97 aim to simplify smaller claims that nevertheless require significant amounts of time and money to settle. For example, P&G studies have determined that it costs the company approximately $250 to process a retailer claim for overage, shortage or visible damage to an order -- a cost that often exceeds the amount of the claim. P&G said it received 15,000 OS&D claims last year, of which 75% were for less than two cases of merchandise.
Streamlined '97 will eliminate all OS&D claims for under $175, replacing them with a quarterly payment as part of the LDI. First-year payments will be based on historical claim levels, while future payments will be audit-based.
This change is part of a general P&G effort to reduce claims for damaged, expired or otherwise unsalable products, via retailer incentives and improvements to its own processes. P&G will eliminate its current Damaged Merchandise Program, again substituting quarterly payments as part of the LDI.
Regular audits will monitor the proportion of product damage caused by P&G's practices, including "hidden" damage such as expired products or packaging errors. P&G will offer its customers assistance in reducing or eliminating claims for unsalables at the source.
"Streamlined '97 represents real change in how the industry handles damaged goods, when you consider the amount of time and manpower executed to move the product through the supply chain for credit," said Danny Barnwell, vice president of merchandising at Piggly Wiggly Corp., Memphis, Tenn.
Barnwell predicted that the move would be positive in terms of "eliminating all the extra work in handling those goods and the cost incurred for that. Against it would be the perception that [P&G] is measuring the payments they make to retailers against a historical payment system. What happens if you have more damage than what you have had historically? It's too early to tell what the end result will be."
The new initiative will also provide strong incentives for retailers to sell through discontinued products rather than return them to P&G. The manufacturer has committed to providing a minimum of three months' advance notice prior to discontinuing a product, with the goal of having retailers use the lead time to take markdowns or other actions to sell through the product.