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Regular Industry Development Updates, Opinions and Talking Points relating to Manufacturing, the Supply Chain and Logistics.

Bring clarity of purpose to fixing food waste

Identifying the impact that waste has on sales margin and customer perception, and looking at the steps we can take to reduce total waste

24-Jul-2019
Bring clarity of purpose to fixing food waste
Food waste has become a globally hot topic in recent years and a major commitment for most UK retailers through the Courtauld 2025 initiative. Indeed, UK grocery retail leads the way in managing waste, not least through its role in helping consumers manage – even own – waste in the home.

The need for action is sparking a mini revolution in the grocery retail supply chain as organisations increasingly realise that fixing waste means understanding the true cost, and the root cause.

Outdated thinking

Retailers have been gathering and assessing waste data within their businesses for over 20 years; monitoring and acting on waste, damages, and reduced-to-clear rates as part of their range and assortment decisions in order to influence the choice that they offer to shoppers. Unfortunately, understanding the true cost of waste and the drivers which impact it - still proves complex, time-consuming and worryingly opaque to many retailers.

The cause is a combination of disconnected data silos and disconnected, siloed thinking used to power understanding and decision-making. Whilst all grocery retailers determine waste cost as a percentage of sales, and can measure the value of waste versus budget, their ability to assess the true cost and its effect on product margin remains elusive for most.

Indeed, many retailers assess and manage their waste almost exclusively on the infamous ‘Waste Budget’, which (in common with many such budgets) is often seen as an acceptable target rather than the worst acceptable case. Store managers relax when a new range is launched with a ‘sufficient’ waste budget to ensure that they can stock – i.e. overstock - a range to attract the shopper’s eye without worrying about the impact of reduced-to-clear on operating margin. Yet gross margin and operating margin are very definitely impacted by the simplistic, aggregated approach to waste that such (sub)category budgets encourage.

This sort of thinking is outdated. We need to use information in a more responsible, effective and actionable manner. Instead of meeting a waste budget, we should be beating it consistently with the aim of tending towards zero waste. We should be identifying the impact that waste has on sales margin and customer perception, and looking at the steps we can take to reduce total waste on an item-by-item basis.

Aggregated data drives aggregated action

The challenge for most organisations and individuals is how to deal with the vast amounts of data required to identify primary waste drivers using the analytical tools and techniques in place. Traditional business intelligence tools require substantial IT involvement and a protracted implementation project. Spreadsheets are often applied to aggregated data, leading to incorrect actions - a product line that exceeds its waste target is rarely given an opportunity for improvement, it just gets delisted.

This challenge isn’t isolated in waste analysis but is true of most of the decision-making in retail commercial teams today; if you can’t determine why product performance is poor then the simplest solution is to get rid of it.

So how can you collate, analyse, present and act upon large and complex datasets, simultaneously retaining access to fine-grained data, avoiding complex IT projects and empowering commercial decision makers with simple, intuitive tools? Modern technology offers a solution in the form of guided visual analytics; a blend of machine learning and data visualisation which provides the necessary power and speed whilst maintaining simple and effective engagement to enable informed, data-driven decisions.

Waste management applications developed this way can provide a rapid remediation path for products that are responsible for generating excess waste, via their performance over time and across the country, through identification of waste drivers - pricing, markdown, distribution, code life, packaging, case size etc. - to specific actions which protect products when and where they do perform well but remove them where they don’t.

Moreover, as margin metrics are combined with sales and waste data, buyers become aware of the impact that waste has on (theoretical) commercial gross profit, the real ‘discount’ you are giving to customers through markdown from expected price, and what you should do about it; if nothing else does, this will focus buyers’ minds. The approach results in an objective “ability to sell” - a clear picture of what sells where, within the code life of the product, given its case size, and how you can influence this to reduce waste and achieve that theoretical gross margin.

Visualising your waste data

Taking a visual approach to understanding the true cost and cause of waste is incredibly valuable across buying, merchandising and supply chain teams. Instead of just removing a product, everyone can see if waste is being driven by promotional activity, an incorrect price position, whether it is ranged in the wrong stores or formats, or if it simply down to the case size or a recipe change affecting its code life. This is the insight that drives action and positive interventions.

You can see where your product works across the country, in different store types, or formats, or within certain demographics and make a data-led decision on where best to stock it. As a last resort - if the product performs poorly across all factors - then the evidence for a GSCOP-compliant delisting is at hand. Now a supplier and retailer can make a collaborative, informed decision, at speed, and reduce waste by up to 20%, without impacting shopper choice, and improving quality perception.

Buyers and Supply Chain managers who have used this visual approach aren’t just saving time and removing the pain of spreadsheet hell. They are identifying new patterns and trends in the underlying causes of waste, changing store listings (in compliance with GSCOP), and generating significant savings.

More importantly, they are meeting the expectation of their customers in helping them to waste less: how many times have you bought something that has been reduced to clear only to dispose of it yourself at home as the expiry date glares balefully at you from the fridge?

Conclusion

Taking action on waste is not just the right thing to do; it drives significant business results. According to WRAP, every £1 invested in waste management drives a £14 return. Having that objective “ability to sell”, selling ‘imperfect’ products, developing and delivering new lines, reducing the cost of waste, increasing sustainable availability to customers and making packaging more environmentally sustainable, all drive sales.

Moreover, waste ‘know-how’ transforms more than just your retail and brand sales; it changes shopper perception and improves their image of the retailer. Store staff spend less time handling and reducing products to clear and more time serving customers, the right products make their way to the right store, and shopper perception of food quality improves.

Working together everyone benefits: from producers, through manufacturers and retailers, to shoppers and consumers. However, global waste reduction initiatives, such as Courtauld 2025, require clarity of purpose driving informed action. Only this way we can collectively reduce not only the impact of waste on the bottom line but also across the globe.

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