-By Paul Beswick and Matthew Isotta

Up to one in seven of the truckloads of perishables delivered to a store will be thrown out. That's a huge cost, even before factoring in the costs of getting the goods to the stores, handling and stacking them, and then culling and paying for their disposal.

But those costs pale in comparison to the costs of losing customers who care about freshness. Surveys by Oliver Wyman show that over four-fifths of customers have seen bad produce on display in their grocery stores. Nearly 60 percent have found produce they bought unsatisfactory when they got home -- and almost two-thirds have changed their shopping behavior as a result, with few complaining to store management.

High shrink and poor freshness are two sides of the same problem. They share the same causes, and they need to be tackled together. Yet, in practice, supermarkets tolerate shrink and tinker with freshness. Arguably, freshness and shrink together represent the most undermanaged lever in the grocery business. For a $10 billion-a-year retailer, that lever can liberate as much as $60 million annually in pure additional profits.

Tackling the problem

At its root, the freshness/shrink quandary is an inventory management issue, but it goes beyond the door of the supply chain manager. The procurement department, for example, has a big impact because of the quantities it commits to buy and the delivery schedules it negotiates with vendors. Merchandising teams wield influence as they build set display standards or promotion programs.

To set change in motion, grocery executives must take a cross-department approach that brings those perspectives together. What's useful first is a short project that requires no big capital outlay or resource drain, and begins to untangle the complexities, captures data, and gains insights into what limits freshness and drives shrink.

Here are the steps to make it work:

1. Build a formidable fact base. To get around the emotions and the finger-pointing that can follow when change is called for, it's crucial to spend a few weeks developing a robust base of data from all quarters to create a quantitative, cross-company picture. It's also vital to account for variations in freshness and shrink performance among the company's stores, even within a region.

2. Get ready to shock. Executives may be alarmed by inconvenient truths -- for instance, how highly perishable mushrooms often sat for up to three days on the shelf, because of oversized displays. What matters is not the perishables average, but rather what the worst 20 percent of product looks or feels like.

3. Get rapid agreement on the problem. With data on the table, the c.e.o. can now call a high-stakes meeting with the executive team so that everyone owns a part of the shared problem.

4. Craft the agenda; map out change. Every company's plan will be different. Capture as many potential improvement paths as possible, and winnow them to a set of probable change initiatives.

5. Name a "chief freshness officer." Appoint a respected senior executive who will own the initiative and drive it hard. This semi-permanent role (not an actual title) will cross functions, but with a probable bias toward operations. Reporting to him or her will be a team of functional experts from merchandising, operations, procurement, and so on.

6. Pick the right metrics and tools. Metrics are pivotal for change to happen on a broad scale. They will de-average the data to highlight the "20 percent worst" statistics, and they will form the basis of new performance incentives for key employees. For instance, each store manager will be given a shrink target rather than being measured only on sales and gross margin.

We're seeing early benefits at the few retailers taking a cohesive approach to freshness and shrink. They're not just reducing costs, but also burnishing their reputations and thus bringing customers back week after week. Better perishables management should be a priority on every grocer's strategic agenda.

Paul Beswick and Matthew Isotta are partners in the retail practice of Oliver Wyman, an international management consulting firm. They can be reached at paul.beswick@oliverwyman.com and matthew.isotta@oliverwyman.com.