How to Reduce Waste



Sales were going up but not profits. The company was losing money at a fast pace despite having more customers.
They had just completed an expansion plan and opened a second distribution centre three hours driving from the main warehouse. Orders were going out fast and so was inventory received. Fast, too fast to be thoroughly checked.

After a few weeks the director decided it was time to investigate the problem and called me in to see if there was anything we could have done to help. We first checked that both sales and purchasing prices had not changed and that running costs were also under control. But all was fine. So why, despite all the effort and the sales, was the company not making profits?
It did not take long before we realised it was a matter of inventory wastage. An ethical issue first but also a business issue. This was in Rome about 2012

It might not be obvious, but inventory wastage is not just a loss, something that we have bought and then disposed of.

Wastage impacts profits because loss of inventory value inflates the COGS

Easy example: Assume we operate on a 50% margin on product A. For every Pound (Our Euro…) of inventory wasted we need double the money in sales to make a profit.

The reasons why waste happens can be several. Often, it’s a combination of many, this company was no exception.

  • Excessive inventory was bought consistently due to bad planning
  • Lack of care when handling goods received resulted in inventory being damaged by the company’s staff
  • Too often inventory was received with not enough remaining shelf life. Within few days it was unusable
  • Sometimes, because of bad storage practice, stock just received was consumed before what was already in. Resulting in old stock to pass its expiration date on the warehouse shelves.

In business there is no “One size fits all”. To reduce the wastage problem, we decided to work on the following

A new planning process that involved checking demand forecasts, stock inventory and availability, any goods in transit and give planners visibility of average remaining life on receipt, minimum order quantities and transit time.
Food handling and warehouse health and safety training was given to all warehouse personnel. Including the requirement to renew the training every year and to pass a test
A more accurate and regular inventory checks policy that required users to check inventory daily (Yes, it’s daily!) and report any bad stacking or stock damaged
A strict first-in-First-out policy of stock replenishment where products received first had to be used first
Set-up a budget for inventory wastage to factor this in the costing plan and monitor the wastage figure against it .

We began to see the first results after a few weeks
A different way of planning and raising orders resulted in a leaner purchasing policy. Goods were received safely an more frequent inventory checks resulted in better inventory rotation. All the above ultimately resulted in the company to become profitable again

In conclusion...


All the solutions implemented helped the company to reduce waste. Yet no food company can expect to operate on a zero wastage. Therefore, in addition to work towards reducing wastage, food companies must be able to manage the waste

The most valuable tool food companies can use to manage waste is to have a budget. A waste budget.

Usually defined in terms of a percentage of the total inventory value to be measured weekly or monthly. By checking our real wastage figures against the budget, we can spot any problem or trend before it becomes an issue.
Again, the secret is measure it, so it can be managed.


All the solutions implemented helped the company to reduce waste. Yet no food company can expect to operate on a zero wastage. Therefore, in addition to work towards reducing wastage, food companies must be able to manage the waste

The most valuable tool food companies can use to manage waste is to have a budget. A waste budget.

Usually defined in terms of a percentage of the total inventory value to be measured weekly or monthly. By checking our real wastage figures against the budget, we can spot any problem or trend before it becomes an issue.
Again, the secret is measure it, so it can be managed .


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