Software Rescues Groceries - How optimal inventory management prevents capital and resource waste

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The Inventory & Supply Chain division at the Aachen-based INFORM GmbH is taking this year’s ‘SAVE FOOD Congress’ as an opportunity to show what possibilities IT-driven optimization has for grocery logistics. The initiators of the congress, ‘SAVE FOOD’, hope that the event, taking place on May 7th and 8th 2014, will spark interest in the sustainable use of groceries. They also emphasize the level of resource waste. According to a recent study from the University of Stuttgart, every year over 11 million tons of groceries end in landfills rather than on dining tables. 61 percent of the waste is produced by private households and large consumers (such as refectories, hospital kitchens). But grocery retailers also contribute their fair share of the waste: commerce and industry are responsible for 22 percent of the total food waste. Fortunately, there are opportunities to optimize demand planning and warehouse costs for enterprises, making overproduction and waste a thing of the past.

Along the complete value chain, losses occur everywhere, from manufacturing and warehouse storage to sales. Approximately every eighth grocery item gets thrown away. This is precisely why the initiative ‘SAVE FOOD’ has set itself the ambitious goal of reducing food waste by 40 percent by 2020. The Inventory & Supply Chain division at INFORM expresses its support for the aim. ‘Modern IT solutions can be hugely beneficial for achieving a sustainable groceries business. By using foresighted demand planning and optimal inventory management, food waste can be reduced. Apart from the ethical concerns raised by the throw-away mentality of our society, it also makes sense for enterprises to keep the quantity of disposed commodities to a minimum,’ says Ludger Schuh, head of Inventory & Supply Chain at INFORM.

Sustainable Inventory Management

But what does sustainable management mean? – For groceries to not disappear before they reach customers, it is necessary to optimize demand planning and inventory management in such a way that overproduction and spoiled items on stock become a thing of the past. Add-on systems such as add*ONE by INFORM complement existing ERP systems with foresighted planning. This way, the overstock of perishable groceries can be avoided. As Schuh explains, ‘Reduced inventory, coupled with high availability and an increase in the service level benefits customers as well. Furthermore, intelligent add-on systems such as add*ONE offer precise forecasts and cost-optimized order quantity and order time proposals. The result: minimum stock combined with maximum availability. At the same time, the planning overhead is greatly reduced.’

Real-world Retail and Wholesale Examples

Through the introduction of add*ONE, the retail and wholesale distributor Okle has managed to reduce the amount of wasted fresh groceries by 12 percent. The Singen-based company supplies more than 450 grocery stores with approximately 11,000 different dried, fresh and frozen items from its assortment. In the past, groceries were more often either taken out of stock  and disposed of or sold to retailers at a discount. . The  amount of unsaleable’ total stock was unacceptable.

Minimum stock translates into a lower level of risk for perished or unnecessary groceries in the long run. Grocery businesses can follow these recommendations to minimize uncertainty:

Do’s

  • Interlink all relevant planning information in your enterprise
  • Try to create transparency to guarantee optimal supply chain management
  • Deploy time-tested forecasting methods to achieve foresighted planning
  • Always revise order quantities from a costs point of view to make sure you maintain stock levels adequate to demand

Don’ts

  • Avoid manufacturing according to production capacities instead of demand
  • Steer clear of large production batches
  • Do not overstate service efforts: ‘We have absolutely everything on stock’
  • Do not overemphasize security thought
  • Do not let planning quality drop
  • Abstain from unrealistic planning
  • Avoid a lack of information along the supply chain

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