The huge impact of waste on the bottom line

When companies think about sustainability, they often focus on their carbon footprint. One 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 most wasteful sector is the beauty industry, where as much as 10.2% of all products are discarded 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 in particular don’t want their excess products to be sold off at bargain rates elsewhere. So they throw them away,’ said Steve Downes, Manager of Sales & Partnerships at Slimstock.

Downes called for more attention to this form of waste. Research shows that it is not currently a big topic of conversation in the boardrooms 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,’ Downes stated.

3.6% of profits

Besides the beauty industry, the food industry is also very wasteful. As much as 10.0% of food products never reach consumers’ plates. In this sector, spoilage and product damage is the biggest culprit at 7.1%. ‘We all contribute to that. In the supermarket, consumers prefer to choose the freshest, longest-lasting products,’ Downes said. ‘All that waste 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% that got thrown away? How much more could you have sold? How much faster could you have grown?’ asked Downes. ‘In addition, all that waste has a big impact on the bottom line. A lot of working capital is locked 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 worth of stock that is wasted actually results in a double loss. First of all, you can no longer invest that euro in other things. ‘Apart from that, waste takes up 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. Waste just needs a bit more focus,’ Downes said.

He knows companies that have increased their focus on waste, with success. Catering wholesaler Bidfood in the UK saw wastage costs fall from over £5,000 to £2,500 a week. The reason is the implementation of Slimstock’s software. ‘This results in annual savings of £120,000,’ explained 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 for them.’

Left in the dark

What can companies do about waste? Downes outlined 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 produces a forecast that is a lot more accurate,’ Downes claimed.

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

Moving target

Besides improving visibility and collaboration, employee training is the third step. Downes mentioned 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 magic happen.’

Lastly, the key is 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 stated. ‘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.’