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 The prize for any business that combats waste is reduced costs.
In the current environment this is more than a ‘nice to do’ activity but an imperative for business profitability. Reducing waste can lead to cost savings in excess of current levels of profit, when you consider that some 20% of supply chain costs generally add no value to the end product.
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| Businesses can experience both physical and economic waste | |
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The extent and prevalence of waste in all its forms and across the whole supply chain can be difficult to see and to measure. IGD’s Food Chain Centre analysed waste across 33 whole chains and we have drawn on these data to compile a breakdown of how and where waste arises.
Some types of waste are highly visible as they comprise physical losses of product. Other forms of waste cannot be seen as they involve less than optimal uses of capital, time and people.
Physical waste – up to 15% of agricultural product lost through damage
Physical waste across the supply chain is the most obvious form of waste. Our data indicates that for products sourced from agriculture only 75%-95% make their way to retail without damage or loss. In other words between 5% and 15% of product is wasted.
The largest loss occurs on farms followed by losses at retail and then in processing.
Some causes of physical losses are shown below.
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| Farms |
Processing |
Retail |
| Understanding of true enterprise costs |
Inputs of variable consistency |
Products out of sell-by date or best-before date |
| Limited use of data to measure business performance |
Last minute changes to orders because of poor promotions planning for example |
Surplus stock that has to be marked down or discarded |
| High performance variability |
Producing to forecast rather than to actual sales |
Product damage by customers |
| Pro-active use of customer feedback on quality and service levels |
Bad handling procedures for example complex conveyor layouts |
Stacking and shelving can impact on product damage and product selection |
| Understanding of and producing to a customer specification |
Catastrophic failures (though rare) |
Inaccurate forecasts and poor promotions planning |
| Understanding of true consumer demand |
Product recalls |
Palletising and packaging practices |
| High rates of mortality and/or disease |
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Food and packaging waste is taking on a much higher profile partly because of the rising costs of landfill.
Economic waste – 20% of activity could be adding no value to the product
Many activities consume resources, space and time but do not contribute to satisfying customers’ needs. These forms of waste are less easy to see but are more prevalent than physical waste.
We have called them economic wastes (an alternative term is non-value adding activity) and together they can result in further product losses amounting to some 20% by volume.
This type of waste has been classified into seven different categories including overproduction, waiting and inventory. The root causes of economic waste will vary and are less easy to generalise about.
A good starting point is to prepare a process map of the chain for different product categories. This map will show the different steps taken to transform a product from its raw material state. Using maps like this enables non-value adding activity to be identified.
Two examples of how economic wastes can arise are given below.
Uneven sales and production
Production should follow customer demand. If the two are unrelated then it will undercut business efforts to reduce waste.
Demand variability has many causes but it is broadly predictable using profiling and other techniques. But production runs are typically governed by other considerations usually related to obtaining scale economies.
How often on the same graph are sales, orders and production measured for a given product grouping? An example of doing this for a cheese product is shown below.
Production has been amplified when compared to actual demand. This amplification can be a major cause of waste. It prevails in a majority of supply chains.
There are many ways of achieving greater alignment between production and actual sales one of which is to enable the product to flow more quickly through its value adding steps.
Overburdening people and equipment
At the peaks of production employees and machines are working at full stretch. This can lead to mistakes, re-work and downtime.
At the troughs there could be idle time and working capital tied up in stock.
Measuring capital utilisation requires data on:
• availability – how long the equipment actually works for compared to plan
• performance – actual output achieved
• quality – un-rejected items compared with total items made
Our data indicates there is a significant performance gap.
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Machine Performance |
Observed
35 - 45% |
Target
60% |
World Class
85% | |
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Reducing or eliminating both physical and economic waste from supply chains can lead to millions of pounds in actual savings.
Solutions – the waste-free chain?
There is of course no such thing as a waste free chain.
But there are tried and tested improvement methodologies that will lead to reductions in, and sometimes the elimination of, particular forms of waste.
An IGD poll conducted last year indicated the prevalence of ‘lean thinking’ as the main improvement tool used by individual companies in the grocery industry.
Lean Implementation - Food and Grocery, 2007
Tried and tested methodologies exist to apply lean approaches to the whole supply chain. The benefits to be gained are considerable.
As input costs continue to increase at alarming rates and consumers tighten their belts, the time is right to apply lean to your supply chain.
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