Purely consumer packaged goods manufacturers would like nothing better than to send their product out the door, then just sit back and watch the money roll back in. Unfortunately, it doesn't always work that way.

CPG manufacturers are all too familiar with product returns for one reason or another. It could be due to any number of reasons, including poor sales, sell-by date expiration or damage. The latter is generally the cause in the grocery industry. An estimated $8bn is lost each year there due to returns.

Kellogg Co., Battle Creek, Mich., which markets Pop-Tarts, Nutri-Grain Bars, Eggo and too many well-known morning cereals and other products to list here, knew the problem of returns well, so it set about a long-term effort to do something about them. But Kellogg wanted to do more than reduce its unsaleables. It wanted to increase profitability and improve business processes across the board. The Battle Creek, Mich.-based manufacturer feels it did just that with its Closed-Loop Returns Management System. It launched the project in 2000, and over the next five years, the manufacturer says it reduced product damage by 75 percent and reaped millions of dollars in process efficiencies.

In tandem with Carolina Supply Chain Services, a Winston-Salem, N.C.-based reverse logistics solutions provider to the CPG, automotive, footwear, hardware, and healthcare markets, Kellogg conducts failure analysis on product packaging and conditions both at the manufacturer and at customers' warehouses and retail outlets. Learnings are shared with all functional departments of Kellogg and, of course, with the customer.

The manufacturer started its returns management project with its Morning Foods division (cereals and Pop-Tarts) as its 0.8 percent damage rate at customer pick slots represented the largest opportunity to focus on a new approach. The company had already learned the hard way that silos would likely sink the initiative; because not all departments were on board in the late '90s when Kellogg moved to lower corrugated packaging costs, unsaleables rose to outweigh the savings. This time, Kellogg vowed, every department would "own" the returns management system. Employees were brought in from such areas as customer service, DCs, logistics, marketing, promotions, packaging, plants, sales, and quality.

Four separate but tightly interlinked components of what became know as the Returns Management Action Continuum were developed:

1. Data Collection, which involved amassing information throughout the Kellogg supply chain and from customers, including their warehouses, retail stores and reclamation centers. Kellogg's, incidentally, collected data for two years so it could create a baseline before it attempted to make any big changes.

2. Information/Knowledge. This continuing project involves developing analytical tools that allow Kellogg and CSCS to turn massive amounts of data from internal Kellogg processes and CSCS audits of customer sites into meaningful and useable knowledge.

3. Measurements. Because they are ongoing, metrics allow employees to always know where to focus improvement efforts. Two areas in which Kellogg instituted scorecards are at its plants and DCs, and in marketing/sales/quality. In the former, the scorecard shows the issues driving defects. In the latter, mathematical models of ship life, shelf life and expiration were created for different products, SKUs and sales channels, says CSCS. The annual savings that could be had by lengthening shelf life or restricting ship life could be calculated.

4. Accountability, the final component of the system, means that all functional departments at Kellogg are responsible. It may sound like standard boilerplate to say that what gets measured, gets improved, but that clearly isn't the case here. "Every single time we've set measurements, we've made tremendous improvements-every single time," says Gary Piwko, director of returns management at Kellogg.

Together, the four components of the continuum have led to some concrete improvements. For example, it was found that shipping product on slip-sheets resulted in 160 percent more damage in customer warehouses. Slip-sheets were considerably cheaper to use, but the resulting unsaleables were so great due to damage that Kellogg opted to ship only palletized product. Work is under way to develop a model to predict damage levels based on unit load design and dimensions, platform type and method of shipment, according to CSCS.

In another situation, "sweating" on frozen food cases at customers' warehouse docks caused packaging and product damage. A table was developed to show at what point warmer temperatures began to impact frozen foods.

And in one more example, Kellogg opted to ditch cereal cases with gap flaps. Because that kind of box has a rectangular opening at the top, money is saved because less material is required for carton construction. But the manufacturer found that gaps led to more vertical creasing and other damage, not to mention that the openings allowed easier access for dirt and insects. Kellogg decided to stick with full, regular slotted cases.

While it is important to get buy-in from various Kellogg departments, it is just as important for trading partners to do the same. Inspections, or audits, of customer sites may reveal business processes or practices internal to the partner that need to be changed or tweaked. Making those adjustments can be highly beneficial to the partner, says Gene Bodenheimer, who heads the performance research group at CSCS. Information is powerful and should be shared both internally and externally, he says. "We don't play the blame game."

For Kellogg, proof that the program is a success is in the reverse supply chain itself. There's a lot less product and a lot more green coming back.