Transforming waste in the supply chain

Last week, Wiseman Dairies, who control one third of the milk market in the UK announced a serious profits warning; their bottom line will be reduced by £7 million less this year and £16 million next. The shareprice fell to 330p (16/09/10) from a high of 536p in July. This is a 20 per cent fall and, though competitors Dairy Crest differ on the reasons for such competitive trading conditions it is likely that such an impact is due to the intensification of a price war between the major multiples – supermarkets and convenience stores. The three leading suppliers in the UK milk market have a 90 per cent market share and yet, they have absolutely no control over the price and very little control over short term retail tactics that are destroying shareholder and stakeholder value alike.

It may seem perverse to link this plunge in share price to food and drink waste but, here goes.

A few weeks ago, one of the UK’s celebrity chefs held a Charity Dinner for VIPs. On the menu, dishes were made exclusively out of throw away food. You see, Britain is a land of leftovers. Over eight million tonnes of food and drink are thrown away and wasted each year and five million tonnes of that could have been avoided. According to the UK Department for Environment, Food and Rural Affairs we throw away 440,000 tonnes of meat and fish; 400,000 tonnes of potatoes; 560,000 tonnes of dairy products; 390,000 tonnes of cereal products, 610,000 tonnes of fruit; 630,000 tonnes of bread and 730,000 tonnes of vegetables; 250,000 tonnes of desserts, cakes and sweets and 140,000 tonnes of alcohol – only 6 per cent of the total. In terms of retailers, Tristram Stuart’s important book Waste estimates that Sainsbury’s send an estimated 60,000 tonnes and Asda 75,000 tonnes to landfill every year. According to UN figures the food and drink wasted in the UK in 2009 could have fed 35 million flood victims in Pakistan for a year. Estimates vary between £400 to £700 per family per year.

From field to ... landfill

Why do we waste so much? T L sees these price wars as part of the problem. Here’s why. 

Waste food comes from various sources but all too often it is generated by the narcissism of small details such as physical aspect or “look” and then, the oversensitivity of sell by dates. Why are we buying tomatoes that are so highly polished and perfect in shape they would be better placed on a table at the Crucible World Snooker Championships? Ask around the suppliers and there are endless examples of them being forced to reject raw materials that do not comply with aesthetic rather than nutritional guidelines. Several retailers, for example, require their sandwich suppliers to discard 4 slices per loaf – the crust and the first slice at each end. A well known brand of crisps causes its suppliers to throw away an estimated 30 per cent of the raw material because they have blemishes; courgettes that are not between 17 and 21 cms are in the bin. More significantly, Greenpeace estimate that of the 186 million fish caught in UK waters 117 million are thrown back into the sea dead – too small for consumption, the wrong species or part of a quota that is not allowed to be caught. I could go on but common sense says that this approach has led to unnecessarily high raw material costs; high waste disposal costs and, wasted energy used in the end-to-end process that leads to nowhere. One estimate puts this “avoidable operational waste” at up to 5 per cent of turnover. What does this mean in terms of value lost end-to-end of the supply chain?

Waste extends to all retail categories and is as much to do with energy and water as it is the food itself. A recent study on a well known brand of toothpaste analysed the uses of water in the sourcing of raw materials; processing, packaging and distribution to the retail outlet. In minute detail the specific ratio of water consumption was there for all to see. It was all quite bewildering. Then, someone from the floor asked the consultant point blank – what IS the biggest waste of water in the toothpaste business and, what can we do about it? The answer was … leaving the tap running when we clean our teeth. And this accounts for over 97 per cent of the water in the toothpaste business.

Then, move from the fridge to the wardrobe. This is a huge industry with sales for clothing in the UK running at an estimated £43 billion per year. Picture yourself in front of the garment racks in your Retailer of choice. You have filled our trolley with Fair Trade coffee and chocolates. Now for the T shirt to wear for the weekend – and, if studies on disposable fashion are anything to go by, it will be just for the weekend! Half of the goods we buy each year are clothes and, various estimates indicate that we chuck away 30 kilos of clothes per year – most of which goes to landfill.

Well, the era of ever falling prices for garments is about to fall. Clothing chains Next, Primark, Debenhams are all expected to raise their prices over the coming year blaming soaring costs in energy, raw materials and labour costs. A 45 per cent rise in the price of cotton to a 15 year high cannot be ignored, they say; neither can the weaker pound and a rise in VAT to 20 per cent in January. For the first time in something like 15 years, the price for clothes is about to rise and, in briefings on the ahead of the retail reporting season, Next’s CEO Lord Wolfson estimates that a predicted rise of 8 per cent in prices will make for a 10 per cent reduction in units sold. The Governments consumer price index, the official measure of inflation, stands at 3.1 per cent.

They say that we wear 20 per cent of the clothes that we own. Check this out for real and you’ll find that this figure is optimistic. I own x [it feels better to put it this way] ties and, I wear about 5 on a rotation basis. And soon, that may be down to zero as fashion dictates. Meanwhile, in Bangladesh in July 2010 the minimum wage for garment workers had to be doubled taking it up to £28 per month. How much did I pay for each of those ties? Let’s move on. Hold it. Much of our wardrobe has been made in sweatshops in Asia – they sweat, we shop.

Globalisation has stretched supply chains and far more of them are “asymmetrical” – small scale and low-tech suppliers often from the informal shadow economy linked to sophisticated high-tech and listed corporates. Very little is known about these asymmetrical realities and this is what T L is seeking to open up. Take the M&S Plan A as an illustration.

This impressive approach to reduce the carbon footprint of this world class Retailer includes the plan to achieve full transparency of their textile supply chain by … 2020. This is considered a tough call. Let’s face it this black box is the context in which seriously tough working conditions thrive. Action Aid published a Report recently making clear that many Asian garment workers are earning a wage that is too low to feed, clothe and educate their families.

The story so far is a heady mix of Retailer and Consumer behaviours that are forcing better, cheaper and faster supply chains but, at what cost? Have a look at the price of coffee since the 1970s. Back then, the small holder farmer was able to earn just over 20 per cent of the price on the shelves in the developed world. By 2009 this had fallen to about 7 per cent.

If we are not careful we will turn these ever more globally stretched and better, cheaper, faster supply chains into the jugular vein of the whole global system. Not every company has the resilience of a Wiseman but what they have gone through in the past week has huge implications for the whole retail model. In effect, all of the work they have done on their operations – just take a look at their impressive website and performance enhancing initiatives – has gone to the metaphorical scrap heap.

We need a significant movement to build ethical and inclusive supply chains that deliver value for consumer and supplier alike – in all types of firm. And that means retailers as well as suppliers because there are always exceptions to any rule. Lifestyles  are all too often riding rough shod over livelihoods in places that are far from the High Street and, wrecking business models of even the most sophisticated operators.

It is time to look more closely at inclusive value networks and transform the business model into a more viable approach delivering a triple bottom line of economic, social and environmental benefits. This more balanced approach would have an impact on retailers and their price wars. It would focus our attention on the collateral damage of short term gain in the same way as it should with bankers and their short term bonus bonanzas. This is not competition; it is behaviour that impacts our communities as a whole.

In terms of logistics – a key variable in the whole equation – there is massive scope to transform business models for all sectors by taking asymmetrical supply chains more seriously. Waste is not just about leftovers. Waste has become an integral part of the supply chains that deliver those perfectly polished tomatoes and exactly sized courgettes. Meanwhile, away from the supermarket shelves, there is a place just off the Plaza Mayor in Madrid that sells crisps that they fry before your very eyes. There are dark brown blemishes all over the place and the taste is glorious. No potatoes are thrown away. Retailers AND consumers take note – we are what we eat … and throw away. Get this wrong and it is not just food that ends up on the scrap heap.

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8 Responses to Transforming waste in the supply chain

  1. Brian Gilliland says:

    All of this is as mind-boggling as it is concerning. The problem is so vast, and so intimately tied into contemporary lifestyles that it is hard to see how to find a solution.

    The disposable nature of modern consumerism that you mention in relation to clothing is, of course, a much wider ill. It staggers me that we are told that the most environmentally friendly way to be a motorist is to buy a new car with lots of green gizmos on it. If we all buy new cars, then an equal number of old cars, many entirely serviceable, will have to be disposed of, I think I am an environmentally friendly motorist because I have driven the same car since 2003!

    I was discussing this very fact with a friend the other day. His Ipod, which he spend £250 on 4 years ago, had developed what seemed like a hardware fault. He went along to an Apple shop to be told, “Yeh, it’s a hardware problem, but it’s 4 years old. You don’t expect them to last much longer.” It’s just accepted that after 4 years he should shell out again for a new Ipod.

    Clearly this kind of retailing is just great for the large companies who sell us our mountains of disposable rubbish. It’s less good for the environment.

    So, how do we change it? How can you mount a campaign that will have any impact on global brands, and the latest fashion in rampant consumerism?

  2. James Henry says:

    This is timely. Today, in the UK, the Business Secretary Vince Cable highlighted “corporate short termism”. The reaction from Banks and Corporates has been furious. Just maybe VC was highlighting the impact of some of the things you raise here. Big Banks and Corporates live in a very different capitalist world than smes – who can’t get credit and cover to export in so many cases – and, those who “supply” the developed world.

    It is time that the great and good of the Developed World realise that capitalism comes in various flavours and the neo liberal version is shot and no longer fit for purpose. The sudden fall in Wiseman’s shareprice; the sheer waste due to aesthetics and rampant consumerism are NOT anomolies they are symptoms of a far deeper malaise.

    Capitalism has to stop being so tribal and accept a little more diversity. And, Big Corporates and Big Banks are not helping out! By the way, I am not a communist – I am a non-vanilla capitalist working in an sme. As I said, a very very different capitalist world.

    T L … well done!

  3. “of the 186 million fish caught in UK waters 117 million are thrown back into the sea dead – … part of a quota that is not allowed to be caught” – well, that’s one of the many examples when so called “environment protection” in reality causes much more harm to the envirorment!

    And, by the way, that’s the area (fishing) where leftovers can be relatively easy curbed – just by easing regulation – unlike in consumer habits, which are very hard to change (unless widespread hunger occurs).

  4. Constantin says:

    Free trade, advanced technology and political and social liberalization have brought the world closer than ever before despite the late beginnings of economic globalization. Internet shopping, foreign holidays and international share trading are now open to the majority of people in rich countries, as well as to a growing minority in poor ones. Globalization is also more intense and immediate. In a mass-media world, people and events across the globe feel closer. Unfortunately, globalization has remained within the parameters of corporate agenda in which disparities exists in global wealth and well-being. For economic globalization to achieve a true democratic and egalitarian global order, the current global apartheid that divides the world into a privileged North and a disadvantaged South must be challenged.

  5. Constantin says:

    My earlier comment was meant for a different topic.

    In terms of supply chain and waste I would like to ask how do the ideas presented in this blog sit with organizational strategy and the concept of cost-efficiency. Is this article suggesting that organizations should perhaps consider more differentiation based strategies instead of price-focused ones?

  6. Deeso says:

    Use&Throw culture matured and spreading across continents were to blame to some extend, (prior to emergence of Organized/Big Box retailers) for both solid & bio-degradable waste accumulation all over the world.
    Post emergence of organized retail czars or chains and imprved business of near-to-luxury, platinum luxury eateries/restaurants/QSR’s food dumping is on a YoY exponential growth. Since this bunch “LEAD” the conscience formation for the “HEALTH” “AESTHETICS” & “QUALITY” conscious emerging purchase-power wielding populace, like bull whip effect these wastes also choke our planet along with additional choking all along the related supply chains….

    Kudos TL for keeping this point in public domain with somuch facts & figures..
    Rgeret that i started looking TL very late….

  7. Michael says:

    Hi Rob,

    I have a question regarding providing content for a blog post on the environmental solutions of transporting goods and food. If you could email me back about this issue then that would be great (I couldn’t find a direct email address for you, hence this comment!)


  8. Pingback: GST can be the catalyst to transform Indian logistics « Transformational Logistics

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