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NBWA Associate Member VXP discusses in their Associate Member Viewpoint how to reduce Finished Product Loss and improve bottom-line performance.

By Bud Dunn, President, Volume X Profit Technologies (VXP)

 

Finished Product Loss (FPL) is often seen as an unavoidable cost of doing business in beer distribution. But without tight tracking, clear accountability and a well-defined return process, this “cost of doing business” can quietly balloon into a profit killer. For distributors, especially coming out of Q4 and winter months, the timing couldn’t be better to take a fresh look at how to reduce FPL and improve bottom-line performance.

The industry and beer distributors consistently see the greatest FPL spikes in February, March, and April. Why? It’s the hangover from fall resets, seasonal over-orders, and unsold Q4 displays — all aging out post-holiday. But FPL doesn’t need to be a black hole of profitability. Distributors who commit to clear tracking and better accountability often see a 50%+ reduction in FPL within 12 months.

So how do you get there? Start with the basics: tracking, accountability, and simplification.

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Tracking: Keep It Tight and Targeted

If you’re tracking FPL, you’re ahead of the game. But tracking alone isn’t enough — you have to use the data to change behavior.

Most successful tracking systems categorize loss by two dimensions:

1. Location: Trade vs. Warehouse
2. Reason Codes: Why did the product come back?

Here’s what every wholesaler should have:

Core Trade Reason Codes:

• Out of Code: Expired and unsellable — typically preventable through better inventory and rotation practices.
• Close to Code: Still in code, but too short-dated for the current account. These products come back for reallocation.
• Breakage: Broken, damaged, or otherwise unsellable. Varies in whether it’s chargeable to a rep based on state laws.
• Returns (Good Beer): Returned but saleable. Think resets, misorders, or swaps — requires tight oversight.
• Refused Orders: Account closed, didn’t accept delivery, or other anomalies.

The goal is not to create an endless list of codes, but rather to define just enough to clearly differentiate the source of return and guide action. A bloated list causes confusion and invites abuse; tight codes create clarity and accountability.

 

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Accountability: Build a Human Checkpoint

Technology helps, but the back door of your warehouse needs a human judge and jury. That five-minute check-in per truck—where reason codes are verified and product is routed properly — is the lynchpin between data and results.

Best practices include:

• Rep enters credit as a separate transaction, clearly coded and labeled with notes (e.g., “3 OOC, 2 breakage”).
• Product returns organized on the truck (pallets for breakage, out of code, etc.).
• Warehouse supervisor or lead verifies reason codes at check-in. Some use the handheld to adjust codes in real time before the driver clocks out.

Yes, it takes a few minutes. But those five minutes can prevent thousands in hidden losses, especially when scaled across dozens of trucks over 250+ delivery days.

 

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Why “Close to Code” Deserves Special Attention

Many reps ask, “Why are we tracking close to code if it’s not expired yet?” Because reverse logistics are expensive.

Each time product goes out and comes back, it adds touches—re-stocking, warehousing, re-delivering—each with labor and equipment costs. That churn can silently drive up your operational overhead. Even though it’s not “technically” a loss, the financial impact is real.

By tracking close to code separately, you begin to identify patterns: wrong products for certain accounts, overordering habits, or lack of rotation. This allows for preventative action, not just reactive cleanup.

 

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Warehouse FPL: A Hidden Opportunity

The same logic applies inside the warehouse. If you’re only tracking trade returns but ignoring warehouse losses, you’re missing a key piece of the puzzle.

Warehouse reason codes should include:

• Out of Code (Warehouse): Inventory that expired before it ever left.
• Breakage (Warehouse): Product damaged in-house.
• Oversupply or Slow Turns: Particularly for seasonals or limited-time offerings.

Tracking these can help you fine-tune your ordering and forecasting, especially with limited-order windows from suppliers. You also gain leverage when negotiating with suppliers who push aggressive order quantities — giving you hard data on past losses so you can set realistic expectations.

 

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Handling Driver Resistance

Every operations leader has dealt with it—drivers refusing to pick up product, questioning reps’ orders, or grumbling about recurring pickups.

While some feedback is valid (e.g., “Why are we picking this up every week?”), most of it comes down to role clarity. Drivers are delivery specialists, not product gatekeepers. The rep owns the account relationship and the sales outcomes — including returns. A good process honors that division of responsibility while building feedback loops between teams.

 

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Keep It Simple, Keep It Smart

Don’t let FPL become an afterthought. Here’s a quick checklist:

Have reason codes for trade and warehouse—and keep them tight.
Train reps and drivers on the process—especially credit creation and labeling.
Assign a backdoor audit leader—someone to verify reason codes daily.
Track “close to code”—understand the churn and hidden labor costs.
Use the data—don’t just collect it. Monitor trends, adjust orders, and hold people accountable.

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Bottom Line: Finished Product Loss is inevitable—  but large-scale loss is not. The best operators don’t just accept FPL as a cost of doing business. They treat it like any other performance metric: one they can influence, measure, and improve.