DRS Business Cases

Unsaleables Management Program Competitive Benchmark Report

August 7th, 201x

 

Background

Benchmarking is a highly valued way to assess a company’s performance to identify opportunities and trends that currently exist. The following is a redacted benchmark report from one of our larger clients (Company X) as its related to their unsaleables management program and how DRS Product Returns identified opportunities to implement in their process to drive improvements and significantly lower this cost.

Call to Action

Before reviewing this report, ask yourself the following questions; are your unsaleables costs increasing and you are not sure why? Is your unsaleables management program on par with your competitive peer set?  If not, are you putting yourself at a competitive disadvantage?  Are you adapting to changing forces in the reverse logistics marketplace like the “Amazon effect” appropriately and fast enough to not lose more profitability than necessary?  A benchmark study from DRS could be the ideal place to begin your series of corrective actions to address any of these opportunities head on.

1       Objective

Compare Company X’s unsaleables management program (overall approach, practices, policies and rates) to other best-in-class CPG unsaleables management programs.  By identifying how your program measures up against other existing programs, this report will highlight any gaps in your current program and provide you with high level recommendations to address these opportunities.

2       Executive Summary

No-return Adjustable Rate Programs (ARP) based on a shared responsibility approach, pressure to deliver new item innovation, product stewardship, sustainability and disposal of potentially hazardous items at retail are just some of the forces being exerted on CPG unsaleables management programs today.  To have a best-in-class approach to the management of unsaleables, CPG manufacturers must continue to evolve and adapt to these forces, which are only becoming more and more complex over time.  As financial pressures and expectations mount, progressive CPG companies look towards their unsaleables management program as a means of establishing a sustainable, competitive advantage.

With your recent acquisition, it is a positive development for your organization that interest in, and visibility to unsaleables management has been increasing as of late.  With your larger size, scope and scale in the OTC landscape, upgrading your unsaleables management approach is necessary for Company X to address your current competitive disadvantage as it relates to unsaleables management.  Gaps identified below are compared to other best-in-class ARP manufacturers, with a focus on your Segment X competitive set.  Recommendations are provided as a means for Company X to close any gaps identified so that Company X’s unsaleables management program can move closer to best-in class during this strategic and pivotal time with the recent integration.  By improving your overall unsaleables management approach now, improved financial performance as it relates to your unsaleables management through a best-in-class program is highly attainable.

Company X’s first opportunity to bring its program towards a best-in class status is to xxxxxxxxx. The rationale for xxxxxxxxx is that it will ensure that your program remains xxxxxxxxx.

As a by-product of your xxxxxxxxx, implementing and embracing an ongoing xxxxxxxxx related to your unsaleable management strategy is your next opportunity as it relates to your unsaleables management program.  This xxxxxxxxx should be the means to xxxxxxxxx, and what impact this has on your unsalable rates.

Building upon this specific opportunity, Company X should look to leverage xxxxxxxxx to reduce your incidence of unsaleables.

In many instances, a well-managed and executed unsaleables program that contains these elements can deliver year over year bottom line profit improvement in the $x00,000 – $x,000,000 range or greater, for a company similar in size and scope to Company X.  Many times, this reduction to your cost of doing business is the equivalent to the profit contribution that would be associated with the addition of a new small to mid-size customer or brand extension / acquisition!

This should then set the stage for Company X to complete xxxxxxxxx, and so on.  Most well developed xxxxxxxxx programs will support the statement that xxxxxxxxx.

As you constantly xxxxxxxxx and are also xxxxxxxxx with your retailer partners on many of these improvement opportunities, their overall unsaleables incidence with your products is also decreasing over time.  This in turn will make you a more valued partner as your focus and resources (funding) can be shifted away from processing returns, reconciling deductions and redeployed towards an enhanced, customer centric operating model.  In this new model, Company X can support driving more profitable sales growth because of your new approach to unsaleables management, putting you on par with other leading CPG ARP manufacturers and giving you a competitive advantage over those manufacturers who still choose not to participate in such a strategic approach to managing their unsaleables related expenses.

3       Unsaleables Management Program Benchmarking

3.1       Overall Approach & Practices Related To Unsaleables Management Overview

Factoring in your previous, xxxxxxxxx with your xxxxxxxxx, we would have to grade your unsaleables management program xxxxxxxxx.  When we narrow our focus to your competitive set in the Segment X space, you are operating at a distinct competitive disadvantage.  The recent activity around xxxxxxxxx, and including the integration of the Acquired Company Y’s business units into this new environment are all positive steps in the right direction to bringing your program up to par in 201x.

3.1.1         Highlights

  • Updating your xxxxxxxxx
  • Company X’s decision to xxxxxxxxx

3.1.2         Gaps

  • Historical xxxxxxxxx
  • Lack of xxxxxxxxx
  • Company X’s lack of xxxxxxxxx for xxxxxxxxx
  • Using xxxxxxxxx and xxxxxxxxx towards lowering your incidence of unsaleables

3.1.3         Recommendations

  • At a minimum, continue xxxxxxxxx so that you bring it up to par with your competitive set to help reduce your annual unsaleables expenses
  • To further maximize the benefit (cost reductions) to Company X, you can xxxxxxxxx could reduce your unsaleables expense during this span more than $x,000,000.
  • Xxxxxxxxx to have more latitude in their Brand’s P&L for investment in top line sales growth
  • Implement xxxxxxxxx to provide greater xxxxxxxxx, both inside and outside of your organization
  • To assist in further integrating xxxxxxxxx, utilize xxxxxxxxx
  • Where not limited to, this is especially important in the X Class-of-Trade given your product line and go to market strategies, as most leading retailers in this class are willing to engage in xxxxxxxxx in your end to end supply chain.  Many best-in-class programs are xxxxxxxxx with at least 6 different retail partners annually.  Additionally, many best-in-class manufacturers will xxxxxxxxx

3.2       Unsaleables Management Policies Overview

Considering the recent xxxxxxxxx.  All indications are that Company X is xxxxxxxxx to be in line with other best in class CPG/OTC manufacturers.

3.2.1         Highlights

  • Xxxxxxxxx

3.2.2         Gaps

  • Xxxxxxxxx

3.2.3         Recommendations

  • Utilize xxxxxxxxx
  • Include xxxxxxxxx
  • Reconsider xxxxxxxxx

3.3       Unsaleables Management Rate Overview

After xxxxxxxxx your xxxxxxxxx rate is above the average in this benchmark study (see table below).  When we focus on your direct competitive set, you are xxxxxxxxx.

3.3.1         Highlights

  • The fact that Company X has xxxxxxxxx is a step towards getting your program xxxxxxxxx
  • Incorporating the xxxxxxxxx

3.3.2         Gaps

  • The fact that xxxxxxxxx is questionable as this indicates that xxxxxxxxx you are xxxxxxxxx
    • In the period since xxxxxxxxx, more of your items are xxxxxxxxx which should translate to xxxxxxxxx
  • Recent consultation revealed that Company X is taking an approach where you are xxxxxxxxx and doing so under a potentially flawed approach when compared to industry best practices. Best-in-class ARP rate calculation will take into xxxxxxxxx.  In the shared responsibility model, if xxxxxxxxx is reflected as such in your rate calculation.  Conversely, if the data indicated that there was xxxxxxxxx would be less favorable to Company X as you would xxxxxxxxx within the industry standard modeling
  • Lumping all other categories outside of your Nutritional business unit into one rate is not a recommended best practice
    • Even if your current data supports xxxxxxxxx, I would suggest that you xxxxxxxxx, leaving the door open for xxxxxxxxx moving forward, with xxxxxxxxx as warranted
    • DRS is only aware of xxxxxxxxx. Their program is xxxxxxxxx, they xxxxxxxxx and their rate is roughly xx% lower than your current rate of xx%
  • Below is a table reflecting current ARP rates across numerous ARP manufacturers and their corresponding category rates (Note – actual table redacted from sample report)
    • Rates listed with a “bold” font Comp are for categories that are direct competitors of Company X categories
    • Rates listed with an “un-bolded” Comp are similar to some of your categories
    • Rates with no “Comp” designation are for additional xxxxxxxxx categories not directly related to Company X’s categories but are provided as an additional point of reference
  • If we compare your current ARP rate of xxx to the overall average, you are approximately xx% higher
  • Compared to your more direct competitive set, you are roughly xx% higher than the average

3.3.3         Recommendations

  • Company X should consider xxxxxxxxx (refer to section 3.1 for more specifics), rooted in xxxxxxxxx, to enable Company X to benefit from the reduction in this expense.
  • Doing so would be a step in the right direction to not only bringing your program in line with best-in-class programs but would also enable Company X to bring their reimbursement rates more in line with other best-in-class programs

4       Conclusion

Unsaleables management continues to evolve over time, bringing forth new challenges and opportunities that need to be addressed.  A well-defined unsaleables management strategy allows a CPG manufacturer to better understand the forces in their end-to-end supply chain that are adding to their unsaleables liability and react to these forces in such a way that they are controlling, and in many instances, reducing these costs over time.    The fact that Company X has engaged DRS Product Returns in this exercise is a great next step in your overall approach to unsaleables management, however, you are only scratching the surface of what a well-managed ARP based unsaleables management can deliver to Company X in the way of significant annual savings through a reduction to you unsaleables expenses.

Company X has a unique opportunity at hand where it can xxxxxxxxx, at a time when your business is dramatically changing with the integration of the acquired company’s business.  For several years now, Company X has xxxxxxxxx.    Now is the time to xxxxxxxxx with a well-developed unsaleables management strategy that can add hundreds of thousands of dollars to your bottom line with no top line sales risk each year with the proper management and oversight.

___________________________________________________________________________________________

Contact DRS Product Returns to schedule your custom benchmark study today.

jschumacher@drsreturns.com

(610) 327-1133

How Independent 3rd Party Resellers on Sites Like Amazon’s Marketplace Are Putting Your Brand’s Equity at Risk

Background Information:

Are you concerned about how your items are showing up on sites like Amazon Marketplace and being resold for less than what it costs you to produce the item in the first place? Two of the leading manufacturers of infant formula in the United States prevent this from happening by being active in managing their returns from retailers by utilizing two of our services (Returns and Financial Management Services) to secure their respective reverse supply chains.

About Our Clients:

Both companies referenced in this study are global leaders in the development, manufacturing and marketing of products that deliver nutritional benefits and care to infants and children globally.  With hundreds of items in distribution, both companies rely heavily on the trust of millions of parents and healthcare providers to perpetuate the good name and quality that their brands have come to represent for decades.

Our Clients’ Challenge:

Due to the extreme sensitive nature of their items, it is paramount that their respective reverse supply chains provide the security needed to prevent their items from leaking into the secondary and tertiary markets.  As a manufacturer, when you are transacting with retailers, certain options exist with regards to how you will handle the aspect of returns.  You may choose to put a retailer on a “Swell” or “ARP” (adjustable rate program) returns policy that pays the retailer an allowance up front in place of accepting returns on the back end.  With this option, you might also direct the retailer to donate or destroy your product to prevent something undesirable from happening with your product beyond that point.

Another option is to accept returns after issuing a credit for the product in question.  This option also requires that you cover some aspect of the cost to the retailer for the processing and handling the removal of your product from the supply chain.

Unfortunately, the consumer goods manufacturer – retailer reverse supply chain often leaves manufacturers with more questions than answers when it comes to ensuring the exact and final disposition of their items.

When you are a manufacturer of infant formula that depends upon the trust of parents and healthcare providers the world over, you can’t afford to leave your reverse logistics processing open ended and unsecured.  You require the confirmation that your product was indeed destroyed per your instructions to prevent your product from showing up in some corner bodega six months expired, or at a flea market with the safety seal compromised or at an illicit drug lab where the powder is used to cut illegal street drugs.  Manufacturers who care about their brand’s integrity do not need more questions than answers when it comes to how their product is being handled in the reverse supply chain.

How DRS Returns and Financial Management Services Benefits These Two Clients:

Due to the risks associated with “leaving their returns to chance”, both manufacturers choose to be extremely engaged and proactive with the management of their respective reverse supply chains.  By utilizing DRS Returns Management Services, they have visibility to the exact quantities of their returns down to the item – retailer combination.  100% of this product is then destroyed by DRS.

In conjunction with this physical processing, DRS will also process and audit for accuracy the claims submitted by the retailers that are associated with the products being returned by way of our Financial Management Services.  DRS will then combine the data from each side of the transaction (physical processing and invoice processing and auditing) to validate the quantities received to the quantities claimed.  This enables the manufacturer to only pay on the validated amount.  The benefits from this include:

  • Only having to pay for accurate, actual amounts void of any discrepancies (quantities, pricing, fees, etc.)
  • Changing the behavior of the retailer and their returns processors that will stop some of the practices that lead to extra expense associated with unmanaged reverse logistics (i.e. using returns as an inventory correction
  • Eliminating the likelihood of post audits
  • Securing the reverse logistics process, keeping your items out of the secondary and tertiary markets AND OUT OF THE HANDS OF 3rd PARTY RESELLERS ON SITES LIKE AMAZON MARKETPLACE AND eBay

The Results Speak for Themselves:

Check Amazon Marketplace or eBay for either of these two infant formula manufacturers’ products, you will be hard pressed to find any being sold through unauthorized resellers.  There is, however a third infant formula manufacturer who’s approach to returns management is different.  They decided a few years ago to change their returns policy to an ARP program.  To refresh your memory, an ARP is a “no returns” allowance based program that allows retailers to control the disposition of your product.  Search Amazon Marketplace or eBay for this manufacturer’s product and it is prominently displayed at costs well below what it retails for in the primary market.

Is there a correlation here?  Yes, there is.  Controlling your reverse supply chain, specifically the disposition of your items will limit the available supply of your items being resold on line without your permission.  Not securing your reverse supply chain and determining the ultimate disposition for your items is one of the primary sources behind your product getting on line in this highly problematic way.

You can protect your brands’ equity, mitigate this specific online risk and protect your company’s bottom line all by choosing to be proactive in the managing of your reverse supply chain.

About DRS Product Returns:

 

Celebrating 26 years in 2017, DRS is a leading provider of Product Return, Remarketing, Financial and Supply Chain based Reverse Logistics solutions to the CPG industry.  We provide our clients with the tools and strategies to secure their reverse supply chains to prevent any unneeded loss of profitability and to mitigate all risk associated with the return of your products.

About the Author:

Jim Schumacher joined DRS in 2012.  As part of the executive management team, Jim currently leads a team of industry experts who are passionate about helping their clients to save millions of dollars each year through more effective oversight of their unsaleables management programs.