Supply Chain
Supply Chain Waste, Consumer Demand Highlight Business Case for Transparency

Overproduction and waste are exacerbating the supply chain crisis and hitting businesses to the tune of 3.6 percent of their annual profits, as nearly 8 percent of stock perishes or is discarded. This significant loss includes 4.3 percent of stock that spoils in the supply chain before it even reaches the shelf with a further 3.4 percent discarded due to overproduction. This loss amounts to $163.1 billion worth of inventory.

This disheartening data is from a new report by Avery Dennison — a Fortune 500 materials-science and digital-identification solutions company. The Missing Billions: The Real Cost of Supply Chain Waste assesses the state of global supply chains and the issue of waste across the US, UK, France, China and Japan. The company says it conducted this research to better understand the global supply chain waste challenges that companies face, and explore the innovative ways these issues are being tackled. It also wanted to understand how consumer priorities have an impact on waste.

The report analyzes the average level of waste across five sectors — automotive, beauty and personal care, apparel, food and pharmaceutical — and finds an average of 8 percent. 10.2 percent of stock is thrown away in the beauty sector (6.2 percent due to overproduction and 4 percent due to perishing or damage), while 10 percent of food is discarded before it reaches the consumer (2.9 percent is overproduced and 7.1 percent perishes or is damaged).

The data analyzed 318 global firms and found that while companies are acutely aware of the problem, they are not investing the budget required to fix it. Respondents say that on average, 28.9 percent of their organization’s sustainability impact comes from the supply chain. However, only an average of 4.4 percent of technology budgets are specifically dedicated to supply chain sustainability improvement.

Over nine in ten businesses surveyed stated they are under pressure to become more sustainable, with 60 percent claiming it as a ‘high’ priority. However, respondents cited challenges to achieving supply chain resilience including ‘integrating disparate systems’ and ‘insufficient coordination among internal stakeholders.’

The urgent case for transparency

The report highlights an intention to address these issues: 61 percent of organizations have already deployed solutions to track unique items; but a further 34.6 percent ‘plan to,’ as companies seek to improve supply chain visibility and traceability. Blockchain investment will see the single biggest leap — 97 percent of companies surveyed plan to invest in this area within five years (compared to 12 percent today); some 99 percent of companies surveyed plan to use smart devices (including sensors and drones); and 97 percent will use industrial IoT.

“The current supply chain disruption is leading to a waste crisis, making the case for sustainable practices even more urgent and necessary — there is a huge opportunity for organizations to accelerate digital transformation that will help to create longer-term systemic change,” says Francisco Melo, SVP and general manager at Avery Dennison Smartrac. “The moral and economic case is clear; and the study shows the desire from organizations to embrace technological advancements for the benefit of business and the planet.”

Shoppers driven by better choices for longer-lasting products
The report also examined shifts in consumers’ spending, which continue to play havoc with inventories and send mixed signals about consumer shopping habits. Unsurprisingly, cost remains a high priority for consumers. However, the report, which surveyed 7,500 consumers globally, ranks quality equal to cost as the number-one concern — at 22 percent. The data also reveal some concerning trends around sustainability — just 16 percent of shoppers put sustainability in their top-three deciding factors; and only 12 percent report prioritizing the ethical sourcing of their products. Sustainability concerns seem to have taken a back seat to durability, which 48 percent cited as a top-five concern — suggesting a major opportunity for companies to shape the future of sustainability by putting a greater focus on product durability and circularity.

Improving product and supply chain transparency can benefits consumers, too: Over two in five surveyed (43 percent) agree that when buying clothing, “transparency about a product’s journey to the consumer is important to me;” and “being more transparent about materials/ingredients used” was ranked as the top driver for making more sustainable decisions when buying food and beauty products — by (37 percent) and (35 percent) of shoppers, respectively.

Download The Missing Billions: The Real Cost of Supply Chain Waste here.