Unsaleable - Reducing the Cost of Damaged Goods

Even with improvements in packaging, shipping practices, warehouse design, and software, cutting the cost of unsaleable products is the constant challenge for those in the grocery industry. According to the June 2005 issue of Occupational Health, the Food Marketing Institute estimated that the grocery industry sustains nearly $20 billion annually in damaged merchandise.

For Mead/Westvaco Coated Board in Stanford, Connecticut, the challenge translates into developing packaging material that better protects frozen food. Both Mead-Westvaco and Genco in Pittsburg, Pennsylvania, conducted a study to track frozen food products from the point of manufacturing to the supermarket shelf. Evaluating paperboard strength, the study concluded that more paperboard compression-strength would be better. The study also revealed that most package damage occurs after the product reaches the store loading docks.

The H.J. Heinz Company identified that product damage even begins when a product is handled by the lift truck. 

Companies seeking to reduce damaged good must evaluate every stop a product makes in the supply chain. And as companies such as Mead/Westvasco determine that a larger box will increase protection, they must also make sure that the elevator can still accommodate the case from the factory to the warehouse. Companies must also observe how the product is handled at customer locations, as stores utilize varying types of equipment to move product. Retailers also unaware that the case size has expanded to improve its protection could cause damage to the product when placed in a rack.

A move to a cross-dock facility with separate picking and receiving areas has reduced much of the internal damage to products for Dunkin Donuts. The new, roomier facility cut down on congested traffic flow, which has also reduced product damage. A dedicated pick and putaway aisles that separate lift truck traffic from pick traffic. Product is stored off the floor on pallet flow rails, away from lift truck traffic. In an effort to track outdated goods and available shelf life, the company also uses a warehouse management system with barcodes. The software checks that items picked have adequate shelf life when they are received at the store.

Mitchell Grocery in Albertville, Alabama, is a wholesale grocery distribution center serving more than 250 independent supermarkets in the Southeast. It distributes more than 20,000 items, including fresh meat, produce, dairy, ice cream, and deli-bakery items, to name a few.

Based on its volume, the cost of unsaleables at Mitchell's can be significant. Each day, Mitchell Grocery ships 80 truckloads and delivers 500,000 cases per week. About half of the outbound product is perishable. One-quarter percent to one-half percent of sales goes back to the manufacturer.

The company was able to reduce its unsaleable cost by installing Voxware's VoiceLogistics, a voice-enable logistic operation. The technology has allowed the company to reduce its miss-picks from four per thousand to two per thousand. The system confirms location and item, dramatically reducing inaccuracies.

When it comes to reducing the cost of damaged goods, some challenges don't call for high-tech systems or indepth studies. Of the $20 billion lost annually in the grocery industry alone, 30 percent was caused by careless box cutting. Product damage from box cutters translates into unsaleable goods, and the high costs associated with product returns is an issue also faced by industries including fulfillment, catalog, and pharmaceutical industries.

As many workers never report minor injuries produced by inappropriate knife use, an estimate of injuries is not available. However, businesses which have instituted safety-knife programs in their stores and warehouses report huge annual savings. According to the same June 2005 Occupational Health article, a 300-store retail chain can save $5-10 million per year with these types of programs. Savings come in the form of reduced injury claims and from fewer incidences of damage to stock.

The use of safety procedures and the correct tools are inherent to program focused on reducing unsaleables. While there's no substitute for well-trained workers, there's also no substitute for safety knives that have been developed with safety features which can be used even by untrained workers.