How inventory mismanagement is causing $163bn of supply chain waste

Posted by Sino SCS

Food, apparel, pharmaceuticals, automotive and beauty supply chains are producing hundreds of billions of dollars of supply chain waste each year, according to a report.

Over $163bn worth of inventory – or 8% of the total – is discarded each year due to expiry or overproduction, according to the report by materials science and manufacturing company Avery Dennison.

Of the total, 4.3% of inventory is wasted each year due to items perishing or being damaged, equating to $81.6bn. 

The report,The Missing Billions: The real cost of supply chain waste surveyed over 300 businesses on the state of global supply chains and the issue of waste across the US, the UK, France, China and Japan.

The automotive sector saw 4.7% or $13.9bn of wasted inventory, caused by components such as tires having a finite shelf life, parts being shipped to the wrong locations, and suppliers diverging from stipulated transport standards.

For the food industry the figures were 7% and $53.9bn, fuelled by food being stored outside of optimal conditions or damaged in transit.

The pharmaceutical industry loses 3% – or $35bn – of inventory every year due to issues storing and transporting temperature sensitive medical products, such as vaccines.

The report said: “With increasing geopolitical risks, inflationary pressures, labour shortages, spiralling energy and fuel costs, and the impact of climate change on production as well as shipping, manufacturers are bracing themselves for an even more volatile future.”

It continued: “​​Eliminating supply chain waste is key to addressing both the needs of businesses and consumers. Effectively navigating volatile demand increases margins, reduces environmental damage and even gives businesses an opportunity to divert the recouped losses back into better materials, increased worker wages and investment into corporate social responsibility.”

Politicians last year called on Amazon to be barred from public contracts after it was accused of destroying 130,000 of unsold stock a week, while a separate survey found a quarter (23%) of businesses were sending returned items to landfill, and 15% were burning them.

Avery Dennison found overproduction was resulting in $64.5bn of wasted inventory each year alone, with the pharmaceuticals industry responsible for $25bn of the total. The report noted businesses may be actively overproducing “to mitigate supply chain disruptions”.

The research found the beauty category had the highest amount of lost inventory due to overproduction per year – 6.2% – compared to apparel (3.9%), pharmaceuticals (3%), food (2.9%) and automotive (1.1%). 

Waste due to overproduction is largest in the US (4.9%) and the UK (3.7%), while China saw the least amount at only 1.8%.

Furthermore, while over 80% of organisations were investing in tech solutions to address sustainability, only 4.4% of technology budgets on average are being dedicated to supply chain sustainability.

Francisco Melo, senior vice president and general manager at Avery Dennison, said: “These findings demonstrate the importance of taking action now, and those that do will see their supply chains become a competitive advantage.

“Making these incremental improvements can help us collectively strive for a zero-waste future, which is crucial for the bottom line as well as the future of our planet.”

To reduce waste the report recommended:

1. Data can pinpoint where damage occurs 

By ascertaining the type, frequency and validity of damage, supply chain managers are able to take the necessary prevention measures, and reduce waste. Additionally, by using data to educate partners along the supply chain, products with a shelf life or specific storage conditions can be kept for longer and in optimal conditions.

2. Transparency 

By establishing where and how damage occurs, supply chain managers can work with suppliers to solve issues and establish more trusting partnerships.

3. Aligning sustainability and supply chain goals

Sustainability and supply chain initiatives typically sit separately, but if aligned can reach targets more quickly. “There is an opportunity to align supply chain efficiency goals and company-wide ESG targets as a starting point for new investment that benefits people, planet and profit,” the report said. 

Author Sino SCS
中品供应链-Sino Supply Chain Service