Concepts such as Just-In-Time, Kanban, Vendor Managed Inventory, Continuous Replenishment Planning and Efficient Consumer Response have all been having a positive impact on the fmcg industry and the one thing they all agree on is the need to eliminate excess inventory. The most desirable outcome for all trading partners is a position of zero stock, whatever point they are in the supply chain. Patently desirable, it is also obviously unattainable. Manufacturers continue to use long production lines to gain efficiencies of scale, minimise unit costs and optimise production and distribution, while forecasts are by necessity over-optimistic. Who can make provision for an unexpectedly wet summer that reduces demand for soft drinks? Who can tell whether the film that spawned the latest merchandising will flop at the box office? New product launches are carefully modelled on existing like products ­ but despite careful planning, their failure rate is notorious. When the “pull” becomes a “push” ­ and push comes to shove ­ stock gets backed up the spout. Call it what you may ­ surplus stock or residual product ­ the result is excess. Every manufacturer has it. And something has to be done with it. There is plenty of published advice about how to eliminate excess stock from the supply chain but remarkably little guidance about what to do with it when you’ve got it. Given the paucity of research, my company cfa conducted some of our own among marketing management in the top 100 UK grocery manufacturers. We learned that for many, the subject of residual product management was far too sensitive to engage in ­ even anonymously. The very existence of surplus stock was often denied. As a result, the impact of retention and method of disposal are being under addressed by some and completely ignored by others. So what are the issues? Holding on to unwanted stock is costly. Yet selling heavily discounted products into regular channels risks destabilising the market, and, without doubt, erodes brand values. It might be as plain as the nose on your face that this route cannibalises demand, yet this is precisely what 17% of the marketers we surveyed said they had been doing. There are distributors, wholesalers and cash and carries more than willing to take short-term advantage of their embarrassment, of course. The button marked Destroy supply chain. Under no circumstances press this button’ is irresistible to some. But the point about brand values is applicable to all supply chain partners. The delta/estuary supply chain model demonstrates the way the management of residual product should work. The river of product flows irresistibly downstream through the supply chain to the sea of consumers. But some product flows back up the supply chain from the customer interface ­ like an estuary. It’s called reverse logistics. There are wholesalers, distributors and cash and carries who would dearly love to catch a bucketful of that wave. But like the Severn bore, it is a powerful flow and there are few equipped to withstand its impact, let alone reroute its course. The organisational strength required to turn the tide and create a delta to conduct product up or down the coast well away from regular channels, is dependent on several things. The company must first have a scale of operation sufficient to absorb the whole flow, as and when required by the supplier. It must have an IT system capable of tracking not only a product’s course, but the ability to recall product, if required. And an ISO9002 quality control system must be in place to maintain brand integrity for consumers and for the security of all supply chain partners. While this is a difficult sector to quantify, an analysis derived from turnover of all known distributors in the field identified some £450m of residual stock released in the UK annually. This is quite apart from the product sold through factory outlets, given to charity, dumped or discounted through regular channels. There are many suppliers with between them a quite remarkable amount of product. And the world and his mate would like to be a customer, but evidently few can be. The key is to find a specialist partner not merely prepared, but geared, to acting as a huge funnel. If classic marketing demands you use segmentation to identify potential partners, and deploy a substantial budget towards the wooing, winning and keeping of customers, then residual product management is marketing in reverse. n l If you wish to contribute to research on reverse logistics or would like to obtain a copy of Invisible Link: Residual Product Management in the Supply Chain, please contact Charlie Farrow on 01635 551754 or e-mail {{MANAGEMENT FEATURE }}