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5 Ways to Reduce Fresh Produce Inventory Waste Right Now
5 Ways to Reduce Fresh Produce Inventory Waste Right Now
“Sometimes the simplest lessons are the most groundbreaking.” That truth is over 30 years old, but its words still resonate loud and clear.
The goal of today’s post is to share a some surprising, yet logical ways to reduce inventory right now…
The key to reducing inventory is not to buy LESS; the key is to buy LATER. Teams that use this inventory reduction strategy and mindset will free up incredible amounts of capital for their organizations.
THE KEY TO INVENTORY REDUCTION IS NOT TO BUY LESS; THE KEY IS TO BUY LATER.
So as you might guess, the opposite absolutely holds true:
The key to raising service levels is typically not buying MORE; it is buying EARLIER. Perhaps we’ll save that breakdown for another day. Here we’ll explore ‘buying later’ as a strategy to reduce inventory and challenge you to see if there’s opportunity to do so in your organization.
How to reduce inventory in supply chain planning: those first few days
Let’s start with a quick word about your initial days using an advanced supply chain planning solution. Most companies experience a dramatic and welcome inventory reduction when they first move from the world of old buying reports and spreadsheets to a best-in-class inventory planning solution. The advanced forecasts offer dramatic results as expected, and the proper safety stock amounts finally being placed on each item often offer a shocking inventory reduction.
This common benefit is based on the fact that most companies carry too much safety stock on their fast-moving, or smooth ‘A’ items. Once those victories are realized, much more opportunity typically unfolds. Even a strong team with an advanced inventory planning and replenishment solution will continue to see deeper results as they increase their knowledge and be more open to coaching and growth.
When safety stock gets inflated, here’s why
The issue is all about the difference between a balanced vendor line and an unbalanced vendor line.
If you have one item in your vendor, your line is balanced. You replenish when that item reaches its low stock point or reorder point. You replenish it to the order-up-to level (OUTL). If your order cycle is 21 days, in about 3 weeks, that item will deplete again to the low stock point, and you start the cycle over again.
However, you normally have multiple items in the line. With strong forecasts, proper safety stocks, correct lead times and an order cycle strategy, the items have a strong chance to work together in rhythm and deplete at a similar rate.
If these components are incorrect, or unknown, you may believe you are buying them all up to the same 21-day OUTL. But actually, they are all sitting at very different time supplies. When this is the case, some items will reach their low stock points and likely trigger the order early. Your replenishment solution then works to buy everything up to the same level. This includes ‘topping off’ items that are only days below their OUTL.
The result is the unfortunate picture that you never let your items deplete down to where they want to be ordered. Add in the common need to hit a vendor’s required minimum order quantity (MOQ), and the inventory can really inflate.
Read more about replenishment optimization
Replenishing too early is like purchasing a full-cart grocery list every time you walk into the store just because you ran out of bread early. Your refrigerator would work overtime!
Reasons why we replenish too early
We would probably all agree that this happens more than we’d like to admit. If you want to kick this costly habit, let’s start by creating a list of the pitfalls that trigger us to place replenishment orders too early:
- Avoid Cushioned Lead Times
Hey, we’ve all been there. A little cushion is understandable. However, you have to know the impact of that on your inventory investment.
If you are sitting on 3 or 4 days of cushion, those 3 or 4 days act as extra safety stock days and the dollars can add up.
Start by always knowing this key number: What is 1 day of inventory in dollars (or your currency) for your business? If 1 calendar day of inventory is $250,000, then 4 days of cushion is $1,000,000.
By reducing that cushion, you will reduce that secret safety stock and you will replenish later, on the next order or beyond. The inventory will drop.
- Avoid Fixed Cycle Buying
There are several reasons to set up suppliers for replenishment on a fixed cycle. Some of those reasons are good; many are not. Hopefully, you are being compensated by your supplier in such a strong way that it exceeds the added inventory expense.
Let’s say you set the supplier to replenish on Wednesdays. Typically, the line does not actually come ‘due’ on that chosen Wednesday. It will most likely either come due before that Wednesday or after. Therefore, you establish the rules in a way to replenish the previous Wednesday or the Wednesday after.
We know which it will be! If you ever tried risking things a bit, you probably got burned and you won’t let that happen again. You will always replenish the line early. The result is that the inventory stays higher than it would if you removed the fixed cycle rule.
In addition, you might have to hit a supplier minimum bracket. Let’s say, for example, that bracket is a truckload. And of course, you don’t control the size of the truck. You also don’t control the fact that it takes 10 days to sell a truckload of product based on your forecasts.
So every time you buy, you are buying 10 days of supply. Despite sitting on 3 days of excess inventory, you replenish again next Wednesday. Now you have 6 days excess. You do this a few times until you can feel the excess and then you ‘skip a week,’ which is a common practice.
Though you probably don’t watch the build of inventory during these weeks, the build-up is happening. Inventory analysts who have experienced the opportunity to remove fixed cycle rules on lines like these can share plenty examples of the dramatic inventory reduction that follows.
- Avoid High Buying Multiples
We can all agree that the slow-moving items will often buy far above your OUTL because of typical buying multiples. An item with a forecast of 1 and a buying multiple of 6 has no option but to replenish up to 6 months’ supply. Fortunately, most of those items do not have a heavy impact on your inventory investment.
However, if your A and B items also have high buying multiples, you might find that you often ‘top off’ items far above the OUTL. Let’s stick with our supplier line that has a 21-day order cycle. If an A item is only sitting 7 days below the OUTL upon the purchase of the line, and the item has a 17-day buying multiple, it will extend 10 days past the OUTL.
You should maintain a continuous analysis of Buying Multiple days across your item groups and item forecast ranges. Buying Multiple Days should become a common measurement and reporting guide to the team.
In addition, don’t forget to include a study of large Minimum Quantities and Manual Minimums.
- Avoid Overreacting to Item Checks
Today’s supply chain planning solutions provide timely and relevant information. However, when you move from an antiquated process to an advanced process, you have to avoid the temptation to overreact.
Your replenishment system might have the ability to show you every item that could potentially run into trouble; however, you can’t afford to hit the panic button every time the system tells you to react to a situation.
You may have gone years without seeing these items, so you better have a smart inventory reduction strategy for how you react to the information.
Once example is the ability to see Low Stock Point checks. You might have a supplier of 100 items. Very possibly, a handful of items will reach their Low Stock Point well ahead of the rest of the line. These are often slow-moving, low-impact items that might suddenly sell 3 months’ supply after having not sold any for 3 months.
The line might still be in fine shape, but the items show up as a warning. Given that you prefer to keep your warning list clean, you replenish the line much earlier than you planned. The system does not want to replenish again for one full order cycle, so it takes along many items that were not yet sitting in a position of need. Thus, you ‘top off’ the rest of the line. Doing this often ensures that your inventory will always stay high.
Result: buying too early and tying up capital along the way.
- Avoid Demand Forecasting Inaccuracies
The category of demand forecasting is a big one, so we’re breaking it down into 3 parts:
- Overall demand forecasting,
- Seasonal forecasting, and
- New Item forecasting
Forecasting overall items
Your supply chain planning solution wants to bring you into the demand conversation from time to time. It delivers report cards to you and offers exception-based replenishment optimization tools. It wants you to continually work together toward excellence.
If you don’t play your part of the equation, you might never see the full potential for demand forecasting accuracy that is possible.
Remember, the demand forecast is the most important component, as it combines and influences every other replenishment component. When you replenish everything up to a common order-up-to level, you want to trust that strong demand forecasts will ensure that the line depletes down as close together as possible.
With poor demand forecasting, the 21 days of supply level which you believe you are buying might actually be a much different time supply on numerous items. The result can be an order triggered much earlier than planned.
Perhaps the perfect example of a poor component that puts a line out of balance is the lack of quality Seasonal Demand Profiles on items with true seasonality. For many demand planning analysts, forecasting seasonality is one of the last areas to master. That is understandable, but it does not reduce the need for quality Demand Profiles.
One of the common ways the analysts find seasonality in items with surprising seasonality is when they continue to hit their Low Stock Points ahead of the rest of the line during their season. In fact, close attention should be paid to Trending Item Exceptions, as item seasonality is sometimes misdiagnosed as a trend.
This topic points to the advantages of a world-class supply chain planning solution that helps you easily understand and find seasonal patterns, and then apply the proper Demand Profiles.
New item forecasting
New items continue to be an area of poor performance for many inventory teams and analysts.
Demand forecasts on new items require a similar level of attention you’d give to an infant. We recently blogged about New Item Excellence, where we encouraged the “3X strategy” which says that:
IF 5% OF YOUR ITEMS ARE NEW, THEY REQUIRE AT LEAST 15% OF YOUR INVENTORY PLANNING ATTENTION.
Poor initial forecasts, or a lack of close attention in their early weeks, can cause items to reach their Low Stock Points early and potentially be a source of buying too early.
Watch your Average Delay Days
When you replenish a ‘Due’ supplier, what is the $Average Delay Days on the line? Create a visual of the line and start to watch where the average inventory sits when you place the order.
Continue to watch that value when you replenish the line to see if you are bringing the inventory down or if it is moving up. For more on inventory analytics, listen to the podcast: “10 Inventory Analytics Numbers Every Exec Should Care About.”
What are your potential savings?
As we said earlier, numerous inventory teams have made this a great area of focus and analysis. They found they were often replenishing too early, refined and improved their awareness, and reduced millions of dollars of inventory across teams.
How digitalisation of the supply chain will reduce global food waste
To combat the global food waste crisis, the supply chain must look towards adopting a digitalized approach.
Dr Felix Flemming from TOMRA Food, has investigated why a digital transformation can help reduce food waste and loss.
The scale of the global food waste problem is staggering. According to reports, 1.6 billion tons of food are lost or wasted every year, equating to a total value of $1.2 trillion being wiped from the supply chain. With one-third of the total amount of food produced globally being misused, the industry needs to look towards innovation and digitalization to combat this ever-growing trend.
Through embracing technology and digitalizing the food supply chain, a move can be made towards reducing the amount of food waste and loss within the industry. Not only that, but it can also help ensure there’s enough resource to sustainably support the future global population.
With the UN’s Sustainable Development Goals setting a target of halving food loss and waste by 2030, I’ve looked at how the digitalization of the supply chain could help decrease global food waste.
Main topics of investigation:
The need for innovation to reduce waste
Utilizing IoT in the supply chain
Using innovation to improve current infrastructure
Going digital to fight food waste
PMA virtual town hall: industry efforts to fight food waste and loss
Tackling food waste becomes even more important during pandemic
Food waste has been a topic that has received much coverage in the media in the past months, especially due to the increased need for food in some communities due to the pandemic. That is why this week’s PMA virtual town hall focused on the industry’s efforts in fighting food waste and loss.
Holistic, all-in approach proves effective
According to this week’s panelists, the biggest motivation for working to reduce food waste is personal values and passion. While governmental legislation can make the process easier, the companies who are driven by their own passion for food waste reduction are always going to be ahead of the curve. The biggest reason for governments to put legislation in place to aid the fight against food waste and loss is to level the playing field – to ensure that those companies who aren’t working to reduce their waste are forced to do so. But overall, legislation is not the driver for change, that change comes from within, says one panelist.
Tackling food waste is an enormous task. One of the biggest investments required is that of time. The waste needs to be addressed holistically rather than independently from one another. Making independent changes throughout a company might have an adverse effect. For example, a packaging improvement might bring a negative outcome for the product’s shelf-life. That is why it is important to follow specific programs, to be all-in, rather than make small changes here and there. There will be monetary investments as well, such as trainings for the staff. The most important aspect to consider is that all levels of the team need to be fully involved for the process to be effective. In order to achieve zero-waste certification, to really address the issues and inefficacies, and to bring about the most cost savings, the work needs to be done at all levels.
Food waste during the pandemic
In the pandemic, food waste was a topic that was highlighted because the temporary loss of the foodservice industry made it so that a lot of products weren’t distributed, and sometimes weren’t even harvested. In addition to this, the change in consumption and purchasing patterns from the consumers also made it difficult for the industry to plan how much volumes to supply and when to do so. The initial raise in sales dropped back down, and extra product that was supplied to cover shortages became redundant. This has shown the importance of strong forecasting and ordering tools to help prevent food waste. Navigating the reopening of the foodservice industry throughout the US, will be the next challenge.
Steps to take
At a retail level, there are many steps that can be taken to help reduce food waste. Using a strong forecasting and ordering tools to help improve inventory flow, for example. The store fixtures should be set up in a way that helps to increase turnover and customer appeal. Store associates should to be provided with resources and education on how to care for the foods and manage the shelf-life. Finally, standardized date labeling is very important. Dates are often required for quality reasons only, but packages that have a ‘best by’ date help consumers know when to eat it and help to eliminate food loss and waste in the home – which is one of the biggest places where food loss occurs.
Food that can’t be distributed through its normal channels should be redirected to a different outlet. Keeping the food destined for human consumption is often the main goal – this can be done by bringing it to foodbanks, for example. If that doesn’t work, the next step is to designate it for animal consumption by turning it into feed. Then, if that doesn’t work, it’ll be turned into energy. While it is often seen as a last resort to use the food as a soil regenerator, one of the panelists pointed out that this is something that should be valued and be seen as an opportunity rather than as a last resort; it helps us to rebuild soil without chemicals and brings about a regenerative system that uses 100% of the food in the systems.
Next week’s virtual town hall will focus on the global impact of COVID-19. Panelists will look at how key regions have been affected and look to the future of essential global markets, the impact of ongoing consumer concerns, and the need to anticipate supply and demand challenges. Click here to sign up for next week's virtual town hall.
Spain: Pilot project to reduce food waste
According to figures from the European Commission, every year 100 million tonnes of food are thrown away in Europe, and this figure could reach 120 million by 2020. It is estimated that the food resources that are lost or wasted might be enough to feed all the hungry people in the world twice over. Food waste is also the third largest emitter of carbon in all EU countries.
The CREDA (Research Centre for Agro-food Economy and Development of IRTA and the UPC) is one of the partners of the REFRESH project (Resource Efficient Food and Drink for the Entire Supply Chain), funded by the European Union in the framework of the Horizon 2020 program. Its aim is to compile a broad scientific knowledge that can serve to analyse the keys to food waste in all stages of the value chain, and to design practical strategies to reduce it in the future. REFRESH aims to contribute to reducing food waste across the EU by 30% by 2025 while reducing waste management costs and maximising the value of unavoidable food waste and of the packaging material.
Pilot project in Spain
Spain is one of four pilot countries of the project, together with Hungary, Germany and the Netherlands. CREDA (UPC-IRTA) is working on a qualitative study of practices, perceptions and motivations of consumers in these regions, while analysing the understanding of the information provided in packaging and the acceptance of food waste as a by-product. Moreover, it is compiling qualitative data using a common methodology to understand household waste in its entirety.
In parallel, the project aims to create a platform formed by the key players in the food chain (producers, distributors, industry, social organizations, consumer associations and public institutions), which will use the results of the pilot projects to develop protocols to be applied at European level.
The pilot project in Spain has the participation of a number of important industry organizations, administration and associations:
• Banc d'Aliments (Food bank)
• ARC (Waste Agency of Catalonia)
• AMB (Metropolitan Area of Barcelona)
• PAA (Platform Aprofitem els Aliments)
• ADICAE (Association of Bank, Savings bank and Insurance Users)
• FIAB (Spanish Federation of Food Industries)
• ASEDAS (Spanish Association of Distributors, Self-service stores and Supermarkets)
• FCAC (Federation of Agricultural Cooperatives of Catalonia)
• AECOC (Association of Manufacturers and Distributors)
• HISPACOOP (Spanish Confederation of Consumer and User Cooperatives)
The project, which started a year ago, addresses the problem of food waste from an interdisciplinary perspective (politics, economics, consumer behaviour, environment, communication, etc.) and has 2019 as the year when the final results will be published. REFRESH brings together 26 research centres and offices in 12 European countries and China.