Waste costs companies huge sums of money

waste

When we talk about sustainability, it is often about a company’s carbon footprint. An underexposed aspect of sustainability is waste. As much as 8% of all stock is thrown away. During Webinar Wednesday, Steve Downes of Slimstock explained how companies can boost their profit margin by paying more attention to waste.

By Marcel te Lindert

The beauty industry is the most wasteful sector. As much as 10.2% of all products are disposed of unused, 6.2% due to overproduction and 4.0% due to spoilage or product damage. ‘This is an industry with a lot of promotions and therefore a lot of overproduction. The higher-end brands do not want their excess products to be sold elsewhere for a trifle, so they throw them away,’ said Steve Downes, Sales & Partnerships Manager at Slimstock.

Downes calls for more attention for this form of waste. Research shows that it is not currently a big topic of conversation around the boardroom table of large companies. ‘One topic that does come up is sustainability. Many companies have a chief sustainability officer who tries to reduce or offset carbon emissions, but waste is a topic that is often forgotten, yet the impact on sustainability is huge,’ comments Downes.

3.6% of profits

Besides the beauty industry, the food industry is also a big waster. As much as 10% of food products never reach consumers’ plates. Spoilage and product damage are the biggest culprits at 7.1% in this sector. ‘We all contribute to that. In the supermarket, consumers prefer to choose the freshest, longest-lasting products,’ Downes says. ‘All that wastage costs businesses 3.6% of their profits.’

Waste should be a concern for several reasons. ‘First of all, wasting stock means a missed opportunity. What could you have done with the 8% we throw away? How much more could you have sold? How much faster could you have grown?’ asks Downes. ‘In addition, all that waste greatly impacts the bottom line. A lot of working capital is tied up in dead stock. Maybe you discover that early enough, and you can still sell those products at a discount. But even then, waste comes at the expense of the bottom line.’

Double loss

Every euro of stock wasted actually results in a double loss. First, you can no longer invest that euro in other things. ‘Apart from that, wastage requires time and attention. And actually disposing of those products also costs money these days. We tend to underestimate the real cost of waste. And worst of all, those costs are unnecessary if we just focus on waste,’ Downes adds.

He knows companies that have actually focused on waste. Catering wholesaler Bidfood saw wastage costs in the UK falling from over £5,000 to £2,500 weekly. The reason is the implementation of Slimstock’s software. ‘This results in annual savings of £120,000,’ explains Downes. ‘Wholesaler TSAS saw waste reduced by 40 to 50%. They sell fresh produce with a limited shelf life, so accurate stock levels are essential.’

In the dark

What can companies do about waste? Downes mentions four steps. The first is to create visibility. ‘How can you run a business today without sufficient visibility? Without the right insights, you cannot make the right inventory decisions and so you create waste. Therefore, look for a tool that creates visibility. That will produce a much more accurate forecast,’ Downes claims.

He also advocates better cooperation. ‘Internally, but also externally. If we send our suppliers better forecasts, they create less waste. And if we cooperate better with customers, they in turn send us better forecasts. Maybe those forecasts are not always accurate. But if you don’t share information with each other at all, everyone is completely in the dark.’

Moving target

Besides improving visibility and better collaboration, employee training is the third step. Downes points to research showing that 11% of all food waste is caused by human error. ‘We all know we make mistakes, but most are avoidable with trained and motivated employees. Give them the knowledge, skills and tools they need. Give them an S&OP process where they can work with colleagues as a team, and you will see the magic happen.’

Lastly, it is important to keep paying attention to waste. ‘Look at Novak Djokovic. He has been the best tennis player in the world for years but continues to train extremely hard every day. Why? It is relatively easy to go from 60 to 95%, but it is very difficult to go from 95 to 99%. That requires an ongoing effort,’ Downes says. ‘Reducing waste is also a matter of continuous improvement. We have to keep working on that because waste is a moving target. We have to keep chasing it.’