By Anil K Sharma
Overproduction and inventory waste through damage or destruction of items in the global supply chain has become a pressing issue for global organisations. As much as USD163 billion worth of inventory per year is lost within the supply chains of the apparel, beauty, food, pharmaceuticals, and automotive sectors alone, according to research from Avery Dennison, the US-based materials science business. This is larger than the economies of Croatia, Costa Rica and Iceland combined. Technologies to track, monitor and manage the movement of inventory are paramount to generating more sustainable supply chains, but the budgets currently being allocated to ‘greening’ these are insufficient, leaving far-reaching consequences for businesses, people, and the planet.
Supply chain waste spans all industries with substantial costs and huge environmental impacts
A survey by Avery Dennison on supply chain waste, in five major economies including Japan and China, highlights staggering levels of wastage across all industries surveyed. Almost 10% of inventory produced is wasted due to over-production or through damage or perishing during transit. The problem is particularly acute within the food sector, where overproduction remains a mammoth problem, and products can easily spoil if stored in suboptimal conditions, if they spend too long on supermarket shelves, or are damaged during transit. Annually this wastage is valued at US$90 billion – just over half of all supply chain waste.
Other industries are not immune either. The automotive industry loses US$13.9 billion a year from accidental damage or destruction of inventory alone. For example, components such as tyres have a finite shelf life while parts may be shipped to the wrong location and then discarded.
The impacts of excessive waste extend beyond financial losses; there are profound environmental consequences. Wasted wares not only contribute to landfill, but the environmental footprint of their production process is also stark – from wasted water resources and greenhouse gas emissions to loss of biodiversity.
Consumer demand is increasingly unpredictable, straining supply chains
The prevalence of such large-scale overproduction among companies begs the question: why are organisations producing in excess? The answer may lie in changing consumer patterns and dynamics. Consumers are adopting new shopping behaviours particularly when it comes to groceries and essentials. They are less loyal. Frequently switching between favoured brands or stores is now the norm and the continued growth and uptake of digital shopping provides consumers with a plethora of new options. This has created a more dynamic and unpredictable business environment which is leaving supply chain practitioners struggling to manage and track inventory and forecast stock requirements.
In addition, consumers now rank ‘availability of items’ as a top five priority when making a purchase, according to Avery Dennison. Concerns regarding product scarcity mounted during Covid, particularly with respect to food. Almost 60% of consumers surveyed still express apprehension about potential food shortages, surpassing figures in the fashion industry (40%) and the beauty sector (39%). Attuned companies fear leaving consumers empty-handed and dissatisfied, and are consciously maintaining surplus inventory in warehouses, which often is left unsold or spoiled.
Only 4.4% of technology budgets are invested in supply chain sustainability
Although companies recognise the pressing issue of overproduction and supply chain waste, the budgets being allocated to materially improve the situation, through investment in technology and innovation, are simply not large enough.
Over 80% of organisations are investing in sustainable technologies, but only 4.4% of this is currently dedicated to improving the sustainability of supply chains, according to Avery Dennison. Companies in China are investing significantly more (7%) than their counterparts in Japan (3.6%) and the UK (3%).
These low levels of investment come despite almost 30% of companies acknowledging that their value chains form a significant proportion of their company’s sustainability impact, and 90% of global business leaders feeling the heat around improving the sustainability of their organisations.
There is growing realisation that sustainable supply chains are essential for companies reaching their net-zero targets, and this recognition is seeping into the regulatory space. Globally, businesses are feeling the pressure to pay more attention to the carbon footprint of their supply chain. Reporting on scope 3 emissions, which monitors indirect emissions that occur in the upstream and downstream activities of an organisation, will become mandatory in Europe in 2025, for example. Asia is likely to follow suit.
As scrutiny of supply chains grows, so too will the pressure on companies to minimise waste and further inefficiencies across their value chains.
Transparent supply chains improve visibility, reduce costs and build brand loyalty
Embracing data-driven technological solutions, which enhance visibility and promptly identify irregularities and anomalies within supply chains are crucial to improve supply chain visibility. More commitment from management and a large-scale growth in funding directed at sustainable supply chains are the only fix for solutions to be adopted at scale.
In turn, transparent value chains will empower supply chain practitioners to refine their forecasting accuracy and determine optimal stock levels. Striking this balance will ensure that consumers do not go empty handed and minimises the risk of excess waste.
It also allows businesses to substantiate their commitment to environmental, social and governance (ESG) goals and strengthen stakeholder trust in their brands. Consumers too will be equipped with the information they need to make more informed purchase decisions, fostering much needed brand loyalty in the process.
Anil K Sharma is senior vice president and general manager (Asia Pacific), labels and graphic materials at Avery Dennison