Stock inefficiencies and inventory ‘black holes’ are exacerbating the supply chain crisis for food companies according to new research. Nearly 10% of stock is lost – either through the 7.1% which is damaged or perished or the additional 2.9% which is overproduced. This loss is the equivalent of 3.5% of annual profits, which equates to $114.7 billion in terms of the sale value of lost stock.
This data has been published in a new global report released today (November 10, 2022) by Avery Dennison, a leader in materials science and digital identification solutions. The Missing Billions: The Real Cost of Supply Chain Waste is an in-depth report assessing the state of global supply chains and the issue of waste across the US, UK, France, China and Japan.
The data analyzed 61 global food firms including manufacturers, wholesale and distribution firms and retailers. Respondents said that spoilage of perishable items and concerns over product packaging are their two main concerns in relation to supply chain waste (on a scale of 7 both concerns were ranked as 5.3). Respondents are in a good position to judge this, since nearly all (97%) track supply chain waste.
But transport issues were listed as the biggest concern by nearly half of respondents in terms of the ‘most disruptive to supply chain operations’. The increased cost of transportation was stated by 24.6% with an equal number citing ‘availability of transportation and logistics capacity’ (24.6%).
A massive 92% of respondents said they are coming under pressure to become sustainable and they estimate that a third (32.4% on average) of their total company sustainability impact comes from their supply chain activities. But despite this awareness of the problem, they are not investing the budget required to fix it. Just 3% of technology budgets are specifically dedicated to supply chain sustainability improvement.
When asked about the greatest challenges to achieving supply chain resilience, the largest barrier by far is integrating disparate systems (stated by 21.3%) ahead of ‘budgetary limitations’ (13.1%).
The report highlights an intention to address these issues with a step change in the breadth of technologies used over the next three years to boost efficiency. For instance, while 51% currently track unique items in their supply chain, a further 46% plan to in future. When asked which of these technologies would you consider ‘most strategic to address supply chain waste over the next 24 months’, RFID (selected by 33%) topped the list followed by autonomous delivery vehicles (31%) and delivery drones (15%). Passive UHF RFID is used by 25% of respondents today but this will triple to 74% in three years.
Use of blockchain can help with supply chain tracking and is used by 8% of those surveyed for the report today but this will increase 11x to 95% within three years. Other technologies that can help with broader efficiency are also major investment targets. The use of delivery drones and robots will see a 17x rise in the next three years from just under 5% today to 84% by 2025. Robots and cobots use will rise 14x from 6.6% today to 94% by 2025. Autonomous delivery vehicles will see a 13x increase from 6.6% today to 85% in three years. By 2025 all companies will use predictive analytics (an 8.7x increase from the 11.5% using it today) and 98% will use machine learning (a 6x increase from the 16.4% using today).
Nestlé participated in the research. Mr. Tony Domingo, senior vice president: supply chain & procurement for Nestlé Zone Greater China, says: “Given the highly fragmented routes-to-markets/shoppers, Nestlé China’s supply chain is embedded with its insightful data-enabled platforms and tools such as the indigenous DSCC, QR coding, Intelligent-program-interactive tools equipped for better decision-making, drive visibility from farm-to-chopsticks & transparently optimizing the flow of data, intelligence, information & brands.”
Mr. Arik Mo, head of supply chain for Ice Cream business, Nestlé Mainland China, adds: “We are in the process of implementing RFID technology within the Nestlé China supply chain, we believe in its potential and ability for visibly optimizing efficiencies and managing waste throughout the value chain. It’s evident that the use of such advanced technologies, including those we’ve developed internally i.e. the Digital Supply Chain Centers (DSCC); enable us to detect demand signals, ensuring effective replenishments of products to the marketplace, therefore responding to the needs of customers.”
Shoppers driven by better choices for longer lasting products
The Missing Billions: The Real Cost of Supply Chain Waste also surveyed 7,500 shoppers globally to understand shifts in consumers’ spending. Unsurprisingly, cost is a high priority for consumers globally when it comes to buying products. However, quality is ranked equally alongside cost as the number one concern at 22%. UK consumers are the most cost-conscious with 28% listing it as the top priority followed closely by France and Japan, both at 25%. China is a significant outlier with just 6% of shoppers surveyed stating cost as their number one concern.
The data also reveals some concerning trends around sustainability with just 16% of shoppers putting sustainability in their top three deciding factors and only 12% prioritizing the ethical sourcing of their products. However, the research also signaled the importance of transparency with 44% of food shoppers saying transparency about a product’s origins and journey is important to them and over a third (37%) stating that if brands are transparent about ingredients in their food products it would encourage them to make more sustainable purchases.
Mr. Francisco Melo, senior vice president and general manager at Avery Dennison Smartrac, says: “The current supply chain disruption is leading to a waste crisis in the food industry and elsewhere. Having visibility is key to optimizing supply chains for efficiency and sustainability, as well as helping to build trust and transparency with consumers. Digital identification solutions play a vital role in supply chain planning strategy and it is encouraging to see that companies are committed to further drive this change through the increased use of RFID technology in the coming years.”
Melo adds: “Digital triggers such as Radio Frequency Identification or RFID, provide unprecedented end to end visibility in a highly efficient and accurate way. Connected products not only shine a light on supply chains but also reveal valuable new information to enable consumers to make better decisions, including transparency and carbon footprint data.”