The business case for reducing food waste in the supply chain

Nicole Hardin, director of product management, Sage, talks us through the invisible supply chain costs of food waste in logistics.
Up to $700-billion is wasted by food spoilage during transport.
Up to $700-billion is wasted by food spoilage during transport.

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As anyone familiar with the manufacturing supply chain will know, food waste is nothing new. Food companies have generally accepted a certain amount of waste as part of the cost of doing business, thereby relegating the issue down the c-suite priority list.

As a result, waste has become an invisible cost for many in the industry, largely because it has been normalised as an overhead for too long. That said, food and drink manufacturers work in an unstable landscape, forecasting weeks or even months in advance and having to cater to unpredictable weather conditions and constantly-changing customer preferences.

Nicole Hardin, director of product management, Sage.

However, with sustainability now high on the agenda for regulators and consumers alike, there is increased pressure on manufacturers to reduce waste and make their operations more environmentally friendly. But going green isn’t the only driver – there are also plenty of valid business reasons for cutting down the amount of waste that is being produced, including reduced costs and profit increases.

But change won’t happen by itself. Companies need to actively seek to understand the real implications of wastage and explore opportunities to effect change. So, with that in mind, why should businesses be looking to reduce the amount of food wastage in the supply chain and what tools can help them achieve this goal?

Food for thought

According to research from the Food and Agriculture Organization of the United Nations, roughly one third of the food produced for human consumption around the world every year gets lost or wasted somewhere along the supply chain.

Globally, this is equivalent to approximately 1.3 billion tonnes and more than $1 trillion (3,672,500,000,000 AED) in wasted food.

But why should this matter to manufacturers? From a financial point of view, with the cost of running a business continuing to grow, reducing food waste can have a larger-than-expected effect on a company’s bottom line, either through reducing purchasing costs or allowing a company to produce more finished product.

Indeed, improving supply chain efficiency across key areas such as production, handling & storage and processing & packaging, is believed to be able to cut food waste by $700bn globally, which would have a direct monetary impact on the businesses involved.

What’s more, according to a 2017 report from Champions 12.3, over half of businesses that invested in reducing food waste earned a 14-fold or greater return on their investment.

Then there is the environmental aspect, which has quickly become more important to businesses and consumers alike. For example, if food waste was a country it would be the third biggest emitter of greenhouse gases after the USA and China. If that wasn’t enough, food loss and waste generates more than four times as much annual greenhouse gas emissions as the entire aviation industry.

Manufacturers that are seen to be taking steps to reduce their carbon footprint will likely be looked on favourably by today’s consumers, who are more interested in environmental issues than previous generations – potentially resulting in increased sales and customer loyalty.

So, the business case for reducing food waste in the supply chain is clear, and the good news for sustainability advocates is that more and more businesses are recognising the potential benefits on offer. The challenge for manufacturers, is how they actually make change happen.

Putting plans into action

With more and more supermarkets and manufacturers around the world pledging to reduce “farm to fork” waste, positive steps are certainly being taken to drive change at every stage of the supply chain. But how do they go about meeting this pledge?

Ultimately, it all comes down to reducing inefficiencies and generating insights, which is where technology can play a key role. For example, implementing digital tools to better match supply and demand, track loss and waste, and allow for dynamic pricing could save manufacturers millions in lost food.

More specifically, manufacturers should be deploying business management solutions such as ERP software to connect all areas of their business, enabling the factory and the supply chain to work more effectively. Business management tools bring critical information from different systems together – inventory and order management, for example – to significantly increase operational insight through real-time data analysis.

As a result, manufacturers will be able to identify the most inefficient areas of the supply chain, as well as streamlining processes and improving collaboration.

Manufacturers can also turn to the handful of start-ups now offering food waste management software to track and monitor freshness or deploy IoT solutions to monitor the temperature and location of containers in real time.

Whichever road manufacturers choose to go down, it’s vital that they take an integrated approach by looking across the entire supply chain. Successfully reducing food loss and waste lies in the ability to streamline the different stages and ensure that they are all connected.

Software will be central to making this happen, enabling manufacturers to modernise their business processes, improve collaboration and drive greater efficiency – all of which will contribute to a reduction in food waste and, ultimately, increased profits.