Loss and waste management in supply chains

Businesses have to implement disciplined methods to manage loss and waste in their inventory. This article provides an overview of how businesses might do so, focusing on the two main forms of loss and waste: environmental exceptions such as the failure of refrigeration and product contamination, or sub-par quality, both of which result in a recall.

But first, let’s consider the business problem in more detail. 

Business problem

In the context of this article, loss and waste management is principally focused on ensuring that food and food-related products remain fit for consumption at the time they are sold to the end consumer. However, external factors outside the control of the business can cause food items to be marked as spoiled or damaged. The problem faced by the business is ensuring the overall loss and wastage is minimized.

To prevent spoilage, food products must typically be stored and transported at temperatures within well-defined ranges. For example:

• Frozen food must be kept below a specific temperature (0°F) at all times. If the temperature rises and food defrosts, it cannot be refrozen.
• Chilled food must be kept within a temperature range (34°F to 39°F). The temperature can sometimes go above the higher limit for a short space of time before returning to the correct temperature without the food becoming spoiled. If the high temperature is exceeded for a specified duration, the food must be considered spoiled.
• Shelf-stable food does not require chilling, but does need to be stored within a temperature range to ensure the product’s shelf life isn’t shortened. A shelf-stable food product's shelf life can be six weeks to five years, depending on the product.

To keep food at the correct temperature, refrigeration and chilling during transport and storage are the primary options. But, power outages can happen. Dealing with that situation—or other types of equipment failure—within well-defined time periods is critical to minimizing loss and wastage. If the problem can be rectified quickly, there is every chance the product can remain in perfect condition and be sold to a consumer. Failure to act quickly, however, will result in spoilage and loss of the product.

Between the farm and the end consumer, food products generally go through multiple stages which vary depending on the end product. For convenience foods, there can be several manufacturing steps. For fresh produce, packaging and transport are the main stages. 

At any stage in the process, there is a possibility of contamination through foreign objects or bacteria. Contamination can trigger a recall of food products from either the supplier or a regulatory body. With any kind of contamination, a fast and efficient recall process is vital to prevent the products being purchased by consumers. 

All retailers handling and selling food products need processes to reduce food waste caused by external factors and to ensure recall procedures in the event of contamination are fast, efficient and minimize any risk to public health. Mishandling products in such a way that they become a health risk can lead to penalties and fines in addition to causing expensive reputational risk. 

Automated documentation of compliance is preferred over manual, error-prone documentation. The balance of this article outlines what a modern inventory management system—incorporating sensors that can mitigate risks before they create exposure—might look like.

Solution overview

The solution uses the following technologies, which can be grouped into three main categories as shown in the following diagram:

• Core application systems. These are often customer-provided technologies, such as order management and facilities management. These systems can include standalone applications, on-premises and cloud services, and databases.
• Foundational infrastructure. The Red Hat/IBM solution is built on Red Hat OpenShift with data routed through API management and events routed through business automation tools such as Business Automation Workflow.
• Inventory Optimization platform. This consists of a Supply Assurance Control Panel, Fulfillment Optimization, and Inventory Analysis and AI.

Food loss information and event flows 

The following charts demonstrate the interaction of customer systems with supply chain optimization platform systems.

In the case of food loss due to an environmental exception, the first step is to detect the exception, whether it’s the temperature going out of range or a loss of power. This triggers a notification to be sent to Supply Chain Risk Management via the API management service; the Inventory Control Tower is also notified of the risk which starts a process to manage the issue. Inventory Analysis determines the remediation action and notifies Facilities personnel to take that action. The Inventory Control Tower is updated to close out the incident.

In the case of a contamination recall, the trigger is an external notification of a food safety event which is sent to Supply Intelligence and Inventory Analysis via the API Management service. If it’s determined that the supply was affected, the next step is figuring out which locations received the affected product. Inventory Control Tower is then notified, processes the event data, and starts remediation with company personnel to remove product from inventory. Remediation Inventory then places orders and applies financial reimbursements as needed. 

Summary

Inventory optimization is making sure that loss and waste management are integrated into your inventory management processes. The result leads to the business being able to respond quickly to unexpected events, automated processes providing up-to-date transparency into inventory, and mitigates risks to the company and the public. If loss and waste management is not integrated, it leads to exposed risks to reputation, financial risk of regulatory fees and fines, and in the worst case, eventual collapse of the business.

If you are interested in more solutions built with these and other Red Hat products, visit the Portfolio Architecture website and the Loss & Waste Management Portfolio Architecture in particular.

Supply chain blog series

This article is part of a supply chain blog series:

• Supply chain optimization imperative - Read the blog
• Supply chain optimization - See the blog and associated Portfolio Architecture
• Demand risk – See the blog and associated Portfolio Architecture
• Loss and waste management this blog and associated Portfolio Architecture
• Product timeliness (coming soon)
• Perfect order (coming soon)
• Intelligent order (coming soon)
• Sustainable supply (coming soon)

References

• McKinsey: How COVID-19 is reshaping supply chains
• Harvard Business Review: Three steps to prepare your supply chain for the next crisis
• Gartner: What is a Supply Chain Control Tower and what's needed to deploy one
• Gartner: Fulfillment Forecasting: The Key to Optimizing Retail Inventory Positioning
• Gartner: Supply Chain Risk Management (SCRM): What & Why Is It Important
• IBM Institute for Business Value: Own your transformation
• IBM Institute for Business Value: Balancing sustainability and profitability
• What is sustainability in business?