© 2011 Wipro Ltd - Confidential Impact of Sales & Procurement on Reverse Logistics July 20, 2011.

© 2011 Wipro Ltd - Confidential

Impact of Sales & Procurement on Reverse

LogisticsJuly 20, 2011

© 2010 Wipro Ltd - Confidential2 © 2011 Wipro Ltd - Confidential2

Study Overview Objective Methodology

Key Findings Current State Common Challenges Summary Findings

Recommendations

Contents

© 2011 Wipro Ltd - Confidential3

Study Overview


Raise Industry awareness of the impact of sales/procurement practices on the escalating amounts of unsaleables in the CPG industry

Obtain objective comparisons and analysis to provide insights and recommendations to further engage and/or educate “sales” in their development of future trends in unsaleables management

Publish a Report on “The Impact of Sales and Procurement on Reverse Logistics Management”

Objectives


The approach for this study consisted of 4 phases:

Data Collection: Development and issuance of a 28 question survey specific to manufacturers and retailers

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

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

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

Methodology


Survey Statistics

43% Response

Rate

Manufacturers Retailers

Survey Results48%

Response Rate

Issued to 48 Companies

Issued to 14 Companies

8 Interviews

+8

Interviews+


Key FindingsCurrent State & Common Challenges


Industry Perspective on WasteOverall rates holding steady, mix changing

Average unsaleables rates, as a percent of gross sales, have held relatively steady the past 7 years (.96% for manufacturers and 1.13% for retailers)

However, rates for discontinued and out-of-code products continue to increase

IncreasingDecreasing

Q: Please indicate the percentage of unsaleables in each category for the most recent fiscal year.

Source: Adapted from the GMA, FMI and Wipro Technologies Study – The Impact of Sales & Procurement on Reverse Logistics


Industry Perspective on WasteManufacturers / Retailers agree on scope of issue and 5 common challenges

1. Managing Open Code Dating/Expired Products

2. Managing New Product Introductions/Discontinued Items

3. Capturing and Providing the “Right” Data

4. Enabling Effective Collaboration Internally and Externally

5. Ensuring Proper Accountability and Incentives

Q: What are three major challenges facing your company in managing unsaleables effectively?Source: GMA, FMI and Wipro Technologies Study – The Impact of Sales & Procurement on Reverse Logistics


Key FindingsShelf Life Management


Remaining shelf life disconnect between manufacturers & retailers (actual days vs. % shelf life remaining)

Inconsistent product rotation execution by retailers

Product dating variances by manufacturers Continued confusion by consumers regarding product code

dates

Shelf Life Management Companies continue to struggle with open code dating/expired products

Expired and out-of-code products contribute approximately one-third to the overall cost of unsaleables resulting in an estimated $700

million in expenses for the study group


Shelf Life Management Remaining shelf life – how much is sufficient?

“Most manufacturers don’t address shelf life”

“Products are coming into warehouse with 30 days shelf life”

“ Inconsistency by suppliers & outdated supply chain systems which were not designed to efficiently manage dated shelf stable products is creating issues”

“The trend is towards a high percentage remaining when it arrives at retailers DC … Needs to be tailored to the specific SKU”

“ One retailer demands 80% remaining shelf life…creating issues”

“The issue is we can’t control rotation at retail”

Retailer’s Perspective Manufacturer’s Perspective

“This is an area we are looking at closely. Today we have minimum guaranteed remaining days…. We are reviewing the potential of offering a minimum guarantee based on percent of manufactured code life”


Shelf Life ManagementWhere does the consumer factor in?

1Source: ShelfLifeAdvice.com and Harris Interactive 2Source: Journal of Consumer Research3Source: Parade Magazine

A new study says that 76 percent of U.S. consumers mistakenly believe certain foods are unsafe to eat after the date printed on the packaging has passed1

61 percent of consumers mistakenly believe the printed date (sell-by) is the final date they can consume the product1

“Endowment effect“ - consumers are still more likely to eat or drink expired products that are already in their possession2

33% of people ignore expiration dates3

Best-if-used-by date preferred by consumers; Sell-by date preferred by retailers


Key FindingsProduct Planning


Product Planning

New Product Launch Lack of cross-collaboration related to new product introductions (category management, replenishment, store operations, reclamation)

Discontinued Products Fragmented process and delayed communication

Exit Strategies Formal exit strategy not used by 23% of manufacturers

Sales Promotions 75% of survey respondents report a challenge with promotions execution


New Product LaunchEnd-to-End planning required for New Product Launch

28% of survey respondents do not address/include any of the below in their new product launches

Q: Do most of your new product launches include? (Check All That Apply)Q: How do you collaborate with partners in managing new product launches?

“Five percent of new product introductions fail due to inventory

shortage and availability and another 11 percent fail due to an inefficient

commercialization process”


Discontinued Products

Q: What categories are classified as unsaleables in your organization? (Please check all that apply)

“Discontinued is not included in our unsaleables compensation but as we understand the industry shift from damage to expired/discontinued product at reclaim, we are proposing a more holistic approach that will ensure all players have some skin in the game for Product Lifecycle Management.” – Manufacturing Executive


Exit Strategy

Formal exit strategy not used by 23% of manufacturers

Q: Retailer - Please indicate in what areas the manufacturer routinely advises you on the product exit strategy?Q: Manufacturer - Please indicate for which products your company utilizes a formal exit strategy with your partners.

“Product exit is not “failure,” but should be part of a carefully honed strategy”

“While companies have been building their new idea development and execution skills, very few have focused on the equally important and equally frequent ability to successfully remove products from the market.”


Sales Promotions Trends

Issues: 75% of survey respondents report a challenge w/promotions Excess volume Over-buying/selling Poor planning/forecasts and execution Brand & Price Dilution

Q: What has been the recent trend/impact of sales promotions on unsaleables? Q: At what point in the promotion cycle is further purchasing halted, to ensure minimal unsaleable stock at the end of that cycle?

“The biggest issue we have is not having visibility to real time inventory.”

“Some customers are getting more sophisticated and working more closely with us to improve promotion planning….. These changes have all lead to reduced unsaleables related to expired product.”

“Sales promotions that fail show up in the unsaleables line up to 6 months later so this is an area that must be identified sooner.”

“Purchasing Teams and Sales Teams need to coordinate better” to ensure minimal unsaleable stock.


Key FindingsCollaboration


Industry Perspective on WasteProgress slow due to limited formal Waste collaboration

Q: Which of the following best describes the unsaleables collaboration process with your trading partners. (Please Select One)

Formal Collaboration

Defined

Roles

Defined

Responsibilities

Regular

Touch-Points

Shared

Data

Source: GMA, FMI and Wipro Technologies Unsaleables Sales & Procurement Study Results


Collaboration Components of Success

CHANGE

CONFUSION

ANXIETY

FALSE STARTS

INCENTIVE

INCENTIVE

INCENTIVE

INCENTIVE

INCENTIVE

FRUSTRATION

SHARED

VISION

SHARED

VISION

SHARED

VISION

SHARED

VISION

SHARED

VISION

SKILLS

SKILLS

SKILLS

SKILLS

SKILLS

PLAN

PLAN

PLAN

PLAN

PLAN

LEADERSHIP

LEADERSHIP

LEADERSHIP

LEADERSHIP

LEADERSHIP

GRADUALCHANGE

RESOURCES

RESOURCES

RESOURCES

RESOURCES

RESOURCES

Source: J.P. Kotter & P&G ECR


Key FindingsAccountability & Incentives


AccountabilityNo direct correlation between success and executive responsibility

Functional Group

Senior Executive

No Correlation

Unsaleables Rate

Level of Commitment

Indirect Correlation

Cross-Functional Alignment


Incentives

Q: What financial and non-financial incentives are in place for Sales/Procurement to manage/limit unsaleables? (Please check all that apply)

“Volume smoothing incentives with Sales have resulted in less volume spikes”

- CPG Company

Because sales reps are paid on net sales, they are paying more attention to Unsaleables

- HPC Company

“The weight of unsaleables in that process ………has raised awareness, attention, cooperation, and commitment for improvement amongst our field sales team” – F&B Company

Providing incentives to manage/limit unsaleables has an impact Opportunity to ensure unsaleables is included in the process


Procurement - SKU ProfitabilityAssigning accountability to Procurement

Majority of respondents indicate Procurement is not accountable for profitability at the SKU level*

Q: Is procurement accountable for profitability (net profit) at the SKU level?

*Note: Either due to process exclusion or system limitations


Key FindingsDemand Chain


Collaborative Planning (CPFR)

Of those that utilize CPFR approximately 30% of Retailers and 25% of Manufacturers do not include Strategy & Planning nor Analysis as part of their solutions

Q: What elements of CPFR does your organization use with partners? (Check All That Apply)

Q: Does your organization have a Collaborative Planning, Forecasting and Replenishment (CPFR) program?


Vendor Managed Inventory

67% of Respondents indicate they have made progress with partners

Q: Are your unsaleables rates lower of higher with those partners with VMI/CPR?

“In most cases the unsaleables have decreased”

- Retailer

“Promotions can be more easily incorporated into the inventory plan”

- Manufacturer


Recommendations


Recommendations

Shelf Life Management

Synchronize Product Master 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


Recommendations

Coordinated Planning

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


Recommendations

Formal Collaboration

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

Accountability, Incentives & Education

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

Demand ChainOptimize demand chain

Include strategy/planning and analysis in collaborative efforts

© 2011 Wipro Ltd - Confidential

Thank You

David Lambert

Practice Lead, CPG Consulting

[email protected]

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