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How to tell if your company’s wasting excess inventory (and money)

It’s probably not much of a surprise to anyone that food is the world’s biggest market, valued at an incredible US $8 trillion[1]. After all, it’s something that we all need, every day.


While price will probably always be a defining factor in the shopping habits of consumers, their mindset is also becoming more environmentally conscious. Which means there are considerable advantages for companies that introduce more sustainable practices. 


This is especially true in Australia, where the food sector already enjoys the reputation of being clean, green and environmentally friendly. This helps local companies win over consumers and remain competitive But our nation’s reputation isn’t always going to be enough.



Social media and a digital-first lifestyle have changed the landscape. Companies must evolve and demonstrate that they’re doing their part to contribute to sustainability and the good of the planet. If they don’t, they will lose customers and damage their reputation.


Food manufacturers need to implement sustainability initiatives all across their operations in order to deliver on their sustainability targets and most importantly meet consumer expectations. 


With so many competing priorities, it is easy to overlook the role that food waste reduction plays in building a more sustainable world. The impact of food waste on both the economy and the environment is startling. While it's easy to dismiss as just spoiled or unused food, the implications are far-reaching. For perspective, research highlights that the global emissions from the aviation sector account for about 2%, yet those from food waste are alarmingly higher at 6%. This comparison underscores not just a problem of inefficiency and profit loss but a significant global environmental challenge.


Focusing closer to home, in Australia, the statistics are equally concerning. A substantial 42% of food waste originates in the farming and manufacturing sector. This is not just a marginal issue but a major inefficiency that not only affects the environment but also the profitability of these industries. 


But why does food waste in manufacturing occur?

There are a variety of factors across the supply chain, each stemming from different stages of the process, from production to consumption.  From items nearing expiration, damaged goods, work in progress, NPD, raw materials, and by-products, every supply chain has leakage points where food waste occurs. Much of this is invisible, written off, or devalued.


Manufacturers already have some processes in place to prevent the waste that occurs specifically during processing & manufacturing. However, managing excess products and preventing them from being disposed of is not as easy as it sounds. 


In fact, our research has indicated that there are five common pitfalls around managing all types of excess inventory. 


Read on to learn how you can stop writing off excess stock and how it can benefit your business.

1: Your processes can't flex and scale with excess bubbles.

Look, we get it: sometimes things don’t go according to plan. A new NPD that didn’t perform as well as expected, a de-ranged product line by one of the majors, or simply a forecasting error. However it happens, bubbles of excess finished goods are real. They happen to every manufacturer.


Most have existing solutions that allow them to sell small amounts of excess stocks on a regular basis. But what happens when you suddenly discover that your business has a large amount of excess stock - a stock “bubble”? Most solutions don’t account for this sudden spike in excess, and you’re left with a large amount of excess which come with their own problems.

One Australian Manufacturer overturned their processes to account for this bubble, and lifted their average prices by 60% as a result - read about that here.

2: Stagnant pricing is resulting in reduced returns.

The process of selling surplus inventory is a complex one, involving several detailed steps. You need to identify the inventory, conduct negotiations, process orders (hope that your desired inventory hasn't been snapped up already!) and then coordinate logistics. Much of the process remains manual, bombarded by an endless exchange of spreadsheets.


Given these challenges, it's understandable why many food manufacturers end up making this processes more “manageable” for their over stretched teams. Often resorting to selling through just a few clearance houses. However, this approach has its drawbacks. By not leveraging a competitive market to offload their surplus, these manufacturers often find that prices stagnate and the financial returns fall short of expectations.

3: Processes are manual and inefficient for your team.

Processes to clear excess stock are manual, lengthy and inefficient. But most importantly they tend to be laborious for employees. Our research indicates that employees involved in these clearance processes, find it tedious and laborious and rank it no higher than a 3 out of 10 in terms of job satisfaction. It seems the thrill of the clearance chase isn't quite as exhilarating as one might hope!


A typical excess process looks like this:


It's a lot, isn't it.


This leading Australian Manufacturer overhauled their excess stock processes and sold 150,000 kilograms of excess stock as a result. Read more about that here.

4: …and you have limited visibility of when and where excess stock is occurring.

It’s the impossible question: how can you fix inefficiencies when you can’t see them? Because there are so many teams involved – supply chain, sales, customer service, operations and logistics, and food waste occurs across so many areas in your supply chain (like imperfect, by-products, close to code)  – managing excess stock is a task that can easily slip through the cracks.


Our research shows that many manufacturers lack a holistic view of all types of leakage points that occur in their supply chain. Furthermore, excess inventory and clearance sales are blended as part of their total sales portfolio, so it’s hard for the senior teams to understand how well their clearance processes are performing specifically. Are they getting the best results possible? Are they clearing all stock? How much of it is going to waste?

5: All this leads to higher food waste, which misaligns with your sustainability goals

Your business could have set significant goals around sustainability. But making these a reality is hard. After all, there are so many shifting priorities for manufacturers.


But the effectiveness with which you liquidate or dispose of inventory can significantly influence your environmental, social, and governance (ESG) outcomes. 

Food manufacturers should also consider the social impacts of managing excess inventory.


Reducing prices on surplus items can make essential products more affordable for economically disadvantaged consumers. And while donating products might not have much economic value, it’s the ethical and socially responsible alternative to simply disposing of them.


This leading Australian Manufacturer had ambitious sustainability and food waste reduction targets, but their inefficient processes completely undermined those goals. Read what they did to overcome this here.



So, what next?

If this article motivated you to start thinking about just how much food your company might be wasting, how inefficient your processes might be and how that might be affecting your bottom line – as well as your sustainability efforts – then we have some good news.


At Yume, we’re on a mission to prevent food waste, and we’d love to collaborate with you. We can help you reduce write-offs and increase your profits, giving you a unique point of difference – sustainability – over your competitors.


Learn how a leading Australian lifted their average prices by 60% by overcoming the pitfalls:



Want to learn how we can help your business improve their returns and reduce food waste? Our team will examine your business's unique situation and guide you through our tailored solutions. Contact us today


We partner with leading companies like Unilever, Kellogg’s, General Mills, and Mars Food to revolutionise how they handle surplus inventory. By digitising and automating their surplus management processes, we help these industry giants enhance their returns and significantly cut down on food waste.


 

References:

  1. Australian Food and Grocery Council Sustaining Australia Report 2030

  2. Our world in data: https://ourworldindata.org/food-waste-emissions

  3. Poore, J., & Nemecek, T. (2018). Reducing food’s environmental impacts through producers and consumers. Science, 360(6392), 987-992.



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