Companies Can Save Billions by Reducing Supply Chain Waste
Businesses today face a daunting challenge – how to keep their supply chains running smoothly and efficiently in the face of constant disruptions. From geopolitical tensions and natural disasters to cybersecurity threats and labor shortages, the list of potential supply chain risks seems endless.
However, one area that often gets overlooked is the staggering amount of waste and inefficiency within supply chains. According to recent research, businesses globally are losing a staggering $81.6 billion every year due to damaged or perished inventory. That’s a huge amount of money that could be saved and reinvested to strengthen supply chain resilience.
Let’s take a closer look at the numbers:
– On average, businesses report that 4.3% of their inventory is wasted each year due to items being damaged or perishing.
– In the automotive industry, this figure jumps to 4.7%, with specific components like tires and parts being shipped to the wrong locations contributing to the waste.
– Globally, inventory across just five key sectors (apparel, beauty, food, pharmaceuticals and automotive) is valued at a massive $1.9 trillion. With 4.3% of that going to waste, that equates to $81.6 billion in lost value.
These statistics paint a sobering picture. Businesses are essentially hemorrhaging billions of dollars every year due to inefficiencies and waste within their supply chains. And it’s not just the financial cost – there’s also a significant environmental impact, with all those damaged or discarded goods ending up in landfills or being incinerated.
So, what can companies do to stem this tide of waste and save money? The good news is that there are several strategies they can employ:
1. Improve Inventory Visibility and Traceability
One of the biggest challenges in reducing supply chain waste is simply knowing where all your inventory is and what condition it’s in. Many businesses struggle with “inventory black holes” – gaps in their visibility that make it difficult to track items as they move through the supply chain.
To address this, 35% of firms plan to introduce technologies like RFID and blockchain to enable better item-level tracking and traceability. This allows them to pinpoint where and why inventory is being damaged or lost, so they can take corrective action.
2. Enhance Supplier Collaboration and Communication
Poor supplier relationships and a lack of communication can also contribute to supply chain waste. When suppliers don’t adhere to transport standards or ship items to the wrong locations, it can lead to significant damage and spoilage.
By fostering stronger partnerships with suppliers and improving information sharing, companies can ensure everyone is on the same page and working towards the common goal of minimizing waste. This could involve joint training programs, shared performance metrics, and real-time data exchange.
3. Invest in Predictive Analytics and Automation
Advanced analytics and automation technologies can also play a key role in reducing supply chain waste. By using predictive models to forecast demand and optimize inventory levels, companies can avoid building up excess stock that’s at risk of perishing or being damaged.
Automation, meanwhile, can help streamline processes and eliminate unnecessary touchpoints that increase the chances of something going wrong. For example, automating payment reconciliation can prevent early payments and optimize working capital.
4. Focus on Product Durability and the Circular Economy
Another important strategy is to design products that are more durable and less prone to damage or spoilage. This could involve using more robust packaging, improving the resilience of components, or incorporating repair and refurbishment schemes.
Embracing the principles of the circular economy can also help reduce waste. By finding ways to reuse, repurpose or recycle products at the end of their life cycle, companies can extract more value and minimize the amount of material going to landfill.
5. Empower Employees and Foster a Culture of Continuous Improvement
Ultimately, reducing supply chain waste requires a concerted, organization-wide effort. Companies need to empower their employees to identify and address inefficiencies, and foster a culture of continuous improvement.
This could involve training programs, incentive schemes, and giving frontline workers the tools and autonomy to make decisions that minimize waste. It’s also important to regularly review and refine supply chain processes, drawing on data-driven insights to identify new opportunities for optimization.
By implementing these strategies, businesses can start to chip away at the staggering $81.6 billion in annual supply chain waste. And the benefits go beyond just the bottom line – reducing waste also has significant environmental and social impacts, helping companies become more sustainable and responsible corporate citizens.
Of course, transforming a supply chain is no easy feat, and there will inevitably be challenges and setbacks along the way. But the potential rewards are immense. By taking control of their supply chain waste, businesses can free up resources to invest in other critical areas, like enhancing resilience, driving innovation, and delivering a better customer experience.
So, if you’re a business leader looking to cut costs and future-proof your supply chain, tackling waste should be a top priority. The numbers don’t lie – there are billions of dollars’ worth of savings to be unlocked.
