The United Nations Food and Agriculture Organization (FAO) estimates 33% (no, that is not a ‘typo’) of all food produced globally is lost or wasted between the farmgate and the plate. This number rises to 40% in Europe and developed markets, amounting to “roughly US$680 billion”, or slightly more than the GDP of Switzerland, the world’s 19th largest economy. Unsurprisingly, therefore, food waste and sustainability is not only of increasing public and legislator concern, but moving rapidly up the agenda for retailers and manufacturers. The Anthesis Group, for example, estimates that food wastage at various stages of the production process accounts for about a third of this total, equivalent to over USD$220 billion (more than the GDP of Portugal). The question, therefore, is: 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?
Anthesis say that within the “Market System” (i.e. processor/producer to store door) about 20% of the total loss occurs with “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 food, or now commendably donating short-date stock to charity 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 benefits everyone throughout the supply chain by not only reducing the associated unnecessary costs of production and logistics, but importantly minimizing the amount of wastage. For producers of short-shelf life products such as dairy or bakery, for example, enabling technologies can help improve the understanding and forecasting of demand down to day level, which is particularly important when a product is on promotion.
The variables driving promotional demand and incremental volume range from the depth of the discount, feature within store or on the website, to what competitors are doing at the same time. Forecasting promotional uplift from normal “base” sales, whilst also considering cannibalisation of SKU’s from the same product range, can almost be a black art: ask any FMCG national account manager or supply planner. Get it wrong and you have out-of-stocks resulting in lost sales and profit, or overstocks resulting in unnecessary costs and wastage.
Technology that provides accurate revenue forecasts will not only deliver better promotional insights and ROI, but, if also integrated with demand planning systems, can increase the efficiency of entire businesses, with the benefits seen across both the P&L and supply chain. 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 this year ended up as landfill, wasting not only the 105 billion gallons of water (enough to supply San Francisco for three years), but producing 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.