Unsaleables Reduction: Kellogg

MICHAEL GARRY

• Kellogg’s data-driven collaboration with Harris Teeter last year reduced unsaleables significantly.
• On an annual basis, Kellogg conducts at least 84 weeklong unsaleables audits with retailers.
• Kellogg has completed more than 150 major unsaleables studies with retailers over the past decade.

The issue of unsaleables — products taken out of distribution because of damage, expiration or discontinuation — has always been a contentious one in the food industry.

Needless to say, all retailers and manufacturers want to keep unsaleables to a minimum. But they are often stymied by uncertainty about whether the supplier or retailer is more responsible for creating the unsaleables, which in turn impacts how much the retailer should be reimbursed.

Retailers and manufacturers have also grappled with whether the reimbursement should be based on an examination of unsaleables collected at retail reclamation centers, or in an up-front payment designed to cover anticipated unsaleables (the adjustable-rate approach); the latter method has prevailed in recent years, though retailers often take issue with how it is used.

In 2005, the Food Marketing Institute and the Grocery Manufacturers Association issued a report, “Improving Unsaleables Management Business Practices — Joint Industry Recommendations,” which laid out steps manufacturers could take to establish adjustable rates that retailers would consider more acceptable. For example, it suggested that manufacturers should collect “statistically sound data” throughout the supply chain and share non-confidential details with retailers. The report also asked retailers to give manufacturers unfettered access to stores, warehouses and reclamation centers.

One manufacturer that contributed to the creation of the report — and took its recommendations to heart — was Kellogg, Battle Creek, Mich., winner of SN’s Supplier Leadership Award in the unsaleables reduction category. “The report promotes a process that focuses on much more than delivering an unsaleables rate,” noted Gary Piwko, Kellogg’s director of remarketing and returns management. “Instead, it endorses audits that provide information on how you are performing, where you can improve, and how you can work with trading partners to reduce unsaleables.”

Since 2008, Kellogg has pursued a national Customer Satisfaction Audits program, a series of weeklong unsaleables audits that take place once a month over a six-month period for each participating retailer. A minimum of 84 audits are conducted annually with retailers receiving dry and frozen warehouse-delivered products. Kellogg also shares other audit information to employees who have an impact on unsaleables.

By collaborating with its trading partners and employees in this way, the cereal giant has reduced the amount of damaged products more than 30% since the Joint Industry report was released six years ago.

In one example of its unsaleables-reduction efforts, Kellogg participated in the second half of last year with unsaleables auditing service Inmar, Winston-Salem, N.C., and Harris Teeter, Matthews, N.C., a 203-store chain, in a program to reduce the degree of damaged and expired warehouse-delivered products in their mutual supply chain; the program resulted in a “significant reduction in unsaleables,” according to a 2011 paper by Kellogg, Harris Teeter and Inmar called “A Collaborative Roadmap.” For this effort, the three companies shared a Reverse Logistics Collaboration Award from the GMA at the 2011 Joint Industry Unsaleables Management Conference in July.

Harris Teeter’s overall unsaleables rate is now 29% better than the industry average, said the Collaborative Roadmap paper.

Kellogg and Harris Teeter have partnered before on unsaleables studies over the past decade and worked closely together on the GMA/FMI Joint Industry Unsaleables Leadership Task Force, said Piwko. “It is exceptional to see this level of extended commitment,” added Jeff Pepperworth, president, supply chain services, Inmar. “When partners engage over time, as they have, a synergy is created resulting in year-over-year reductions in unsaleables.”

“Mature programs, like the one between Harris Teeter and Kellogg, are more likely to identify opportunities and produce results,” said Piwko, who added that Inmar played “a key role in identifying opportunities.”

Kellogg also partners with “the majority of retailers and wholesalers in the country,” said Piwko. “Over the last 10 years we have completed more than 150 major studies with trading partners. We share the results and work collaboratively to improve the collective performance.”

In the paper, Kellogg, Harris Teeter and Inmar outlined the steps they took in their joint unsaleables program. For example, Inmar’s role was to collect data throughout Kellogg’s supply chain and at Harris Teeter’s reclamation center. Harris Teeter also opened its distribution centers and stores to Inmar and Kellogg, and calculated an “unsaleables rate” based on damaged and out-of-date products.

The trading partners held quarterly meetings, including Kellogg salespeople, to share data and discuss findings. (Many companies, noted Inmar’s Pepperworth, lack the data to “identify issues and begin conversations.”) In this case, Kellogg and Harris Teeter used data to decide that out-of-date product in particular would be a key area of focus — and to come up with a plan for sharing responsibility for this product, according to the paper.

Under this plan, Kellogg as the manufacturer would be expected to provide sufficient shelf life to make it through to consumer usage; it if didn’t, then expired product would be deemed Kellogg’s responsibility. If Kellogg provided ample shelf life and then the product expired, the expired product would become Harris Teeter’s responsibility.

Using Harris Teeter’s expired-product data, the trading partners identified products with a high percentage of expired units. Kellogg then worked with Inmar to develop an audit program to collect data on “days prior to expiration” and “days beyond expiration” for selected products. “The goal was to use the data to analyze where improvements on shelf life should be implemented,” the paper said. Kellogg and Inmar also applied a measurement tool to assess case/package damage at several points along the supply chain and apply preventative measures. This led to less distribution damage inside cases, with an 18% improvement in cereal and a 23% improvement in Pop-Tarts, according to the paper.

Piwko attributed the majority of the unsaleables reduction in the Harris Teeter program to the collaboration between Kellogg and the chain. “A driving factor is the involvement of the Kellogg sales team with the corresponding Harris Teeter departments,” he said. “There is a laser-like focus on how products are performing and when intervention is needed to ensure an SKU is not disproportionately driving unsaleables.”

During this process, he added, Kellogg and Harris Teeter “have learned that we both have the same objective — to reduce waste and to be more profitable. And to best accomplish this objective, we need to collaborate.”