A blog from Ed Bishop, Business Development Manager, UpClear Ltd…
The United Nations Food and Agriculture Organisation (FAO) estimates 33% (no, that is not a ‘typo’) of all food produced globally is lost or wasted between the farm gate and the plate. This number rises to 40% in developed markets, amounting to “roughly US$680 billion”, or slightly more than the GDP of Switzerland, the world’s 19th largest economy. Unsurprising then that food waste and sustainability is not only of increasing public and legislator concern, but is moving rapidly up the agenda for retailers and manufacturers. So, how can all of us involved in the FMCG sector work to reduce this wastage, not only because it is financially beneficial, but more importantly, ethically, the right thing to do?
The Anthesis Group, estimates that wastage at various stages of the food production process is equivalent to over US$220 billion (about the GDP of Portugal), with 20% lost between the processor/producer and the store door. This portion is due to “shrinkage” occurring at the “point-of-sale and with goods that are past their use-by date”. We have all seen media stories of supermarkets skipping short-date stock, or increasingly, commendably donating to charities and food banks, however these surpluses are often ultimately the result of poor S&OP processes.
Improving the ability of producers and retailers to accurately forecast consumer demand, thereby reducing overstocks, benefits everyone throughout the supply chain. For producers of short-shelf life products, such as dairy or bakery for example, enabling technologies can help improve demand forecasting down to day level. Not only does this reduce the associated unnecessary costs of production and logistics, but importantly minimises wastage.
This is particularly important during promotional periods. Forecasting promotion uplift from “base” sales, given the number of variables that drive demand, can almost be a black art: ask any FMCG national account manager or supply planner. Get it wrong and an under forecast will lead to out-of-stocks and empty shelves, resulting in lost sales and profit. Over forecasting though results in surplus stocks, unnecessary costs and wastage.
Technologies that enable accurate forecasts not only delivers better promotional insights, more profitable activities and ROI, but if also integrated with demand planning systems can have wider benefits. Better forecasting means more efficient production, fewer trucks on the roads and less overstocks; ultimately reducing waste, pollution and landfill. For example, the US Department for Agriculture estimated 35% of the turkey produced for Thanksgiving last year ended up as landfill. This over stock wasted not only the 105 billion gallons of water used to rear the birds (enough to supply San Francisco for three years), but then as landfill, produced greenhouse gases equivalent to driving 2 billion miles: about the distance to Saturn. And back.
Tackling a problem as large and as pressing as food wastage makes sense on every level; financially, environmentally and morally. Improving S&OP processes, forecasting and planning is far from the only answer, but is nonetheless an important small step. Globally, a 3% improvement in efficiency (equivalent to the GDP of Iceland), would reduce food wastage across mature and emerging markets sufficiently to feed 100m people. That can only be a good thing.
UpClear provides clients worldwide with the best-in-class ‘BluePlanner’ solution to optimise sales revenue, manage trade promotion spend and drive value growth. Using a cloud based, Software-as-a-Service model, UpClear are able to bring our unique global understanding of revenue management to consumer goods companies across North America, Europe, Asia, and Africa.