Reducing the Cost of Damaged Goods

Cutting the cost of unsaleable products is a constant challenge. MeadWestvaco Coated Board (Stanford, Conn.) is developing packaging material that better protects frozen food. H. J. Heinz Company (Pittsburgh, Pa.) conducts internal and external audits aimed at locating the root causes of product damage. Dunkin Donuts (Westampton, NJ) moved to a cross-dock facility designed to minimize product damage.

The 2005 Unsaleables Benchmark Report sponsored by the Joint Industry Unsaleables Committee that includes members of the Grocery Manufacturers Association (GMA, Washington D.C.) and the Food Marketing Institute (FMI, Washington D.C.) revealed the cost of unsaleables—damaged, expired, outofdate and seasonal merchandise—for consumer packaged goods manufacturers was reduced by $50 million between 2003 and 2004. Efforts are being made to reduce the remaining $2.5 billion cost of unsaleables cost.

In another study, Genco (Pittsburgh, Pa.) and Mead-Westvaco used Six Sigma methodologies to track frozen food products from the point of manufacturing to the supermarket shelf. The study evaluated paperboard compression-strength and concluded that more is better. The study also demonstrated that nearly all of the packaging damage occurred after the product reached the store loading dock.

In fact, says Gene Schachte, unsaleables manager, H. J. Heinz Company, product damage starts the moment a lift truck handles the product. He points out that the entire process of reducing damage and how companies do it is interconnected with every stop a product makes in the supply chain. Communicating changes in product case size along the supply chain is essential.

For example, if the size of a case is increased to better protect the product it carries, the manufacturer will need to make sure its elevator can still carry the case from the factory to the warehouse. Retailers need to know that the case is larger, too. If they don't know the case is bigger, Schachte explains, "A customer is going to try to put the case in its rack and tear the top of the case off because all of a sudden it is too big."

Heinz looks at its products at each stage of its internal material handling process to determine where damage occurs. "We watch the case packers and look at how the cases are transferred from the case package to the palletizer," Schachte says. The company also observes how product is handled at customer locations. Stores use many different types of equipment to move product, such as elevators and elevated lines with suction cups to pull product up.

Dunkin Donuts reduced much of the internal damage to products when it moved two years ago from a 125,000 sq.-ft. warehouse to a new 300,000 sq.-ft. cross-dock facility with separate picking and receiving areas. The additional space and a less-congested traffic flow have reduced product damage, reports Warren Engard, Dunkin Donuts' director of operations. The new facility has dedicated pick and putaway aisles that separate lift truck traffic from pick traffic. Product is now stored off of the floor and on pallet flow rails, away from lift truck traffic.

The operation uses bar codes and a warehouse management system from Retailx USA (Plano, Texas) to track dated inbound goods and available shelf life. When items are picked, the software makes sure products will have adequate shelf life when they are received at the store. Engard says they are considering using radio-frequency identification, but are still waiting for the technology to mature.

Dunkin Donuts has implemented Voxware's voice picking technology to improve picking accuracies and reduce product damage. In the past, Dunkin Donuts slotted coffee flavors in various locations throughout its facility. Engard says that voice technology lets Dunkin Donuts slot items better and pick more accurately, which results in building sturdier pallets that experience less damage as they travel through the supply chain.

Voice technology helped Mitchell Grocery (Albertville, Ala.) reduce the amount, and cost, of its unsaleable, reports David Mitchell, president. Mitchell Grocery is a wholesale grocery distribution center that serves more than 250 independent supermarkets in the Southeast. It distributes more than 20,000 items, including a full line of grocery, fresh meat, fresh produce, dairy, frozen food, ice cream, health and beauty care, and deli-bakery items.

The cost of unsaleables at Mitchell's can be significant, based on its volume. Mitchell Grocery ships 80 truckloads each day, and delivers 500,000 cases per week. "About half of our outbound product is perishable product," Mitchell says. He explains that one-quarter percent to one-half percent of his total sales go back to the manufacturer. He loses one-quarter percent of sales at his stores.

The company reduced its unsaleables cost when it installed Voxware's VoiceLogistics to voice-enable its logistics operations. Mitchell says the technology has let it reduce its miss-picks from four per thousand to two per thousand. "Our goal is one per thousand," he adds. Voice technology keeps all workers on task and focused, says John Morton, Outbound Manager, Mitchell Grocery. "By confirming location and item, the system dramatically reduces inaccuracies, and the use of voice for perishable items in the refrigerator/freezer environment provides tremendous benefits."