Liquidation programs have been a staple of the Consumer Packaged Goods (CPG) manufacturing industry for decades as a strategy to handle excess inventory, but a majority of these companies’ programs are outdated and inefficient. As a result, companies are not recovering money on inventory that doesn’t get sold to primary retailers, and are instead disposing of excess inventory and contributing to food waste.
An introduction to liquidation and food waste
Excess inventory will always be inevitable, whether it’s caused by supply chain disruptions, consumer behavior changes, or mistakes in demand planning. So what happens to excess inventory, particularly perishable goods?
Unfortunately, many manufacturers rely on disposal to landfill as a method to increase space at warehouses for new products, and to save money on logistics costs associated with donations if the excess inventory can’t be sold into the secondary retail market. And if a company’s secondary sales, or liquidation programs, aren’t efficient enough, this can result in even more products being sent to landfill.
While there are various solutions in place that help mitigate climate change, such as alternative proteins and vertical farming, solutions specific to food surplus and waste remain underfunded. (Analysis by ReFED finds that $14B is needed each year to fund solutions that can reduce food waste by 50% in accordance with national and international goals.) As Project Drawdown finds combating food waste as the number one solution to fighting climate change, efforts to stop food waste in the supply chain are needed now more than ever.
It’s essential that we find ways to reduce food waste throughout the entire supply chain, as 63% of food is lost before it even reaches the consumer at home.
In the U.S., ReFED finds that manufacturers contribute 14% of surplus food. Liquidation programs, if efficient enough, can help divert food from being disposed of at the manufacturing level and instead redirect it into secondary retailers or nonprofits. Since these processes remain largely outdated, manufacturers have an opportunity to decrease the amount of waste they contribute by leveraging automation and technology.
How can manufacturers leverage technology and software to reduce food waste?
Understanding why and how food waste occurs is critical to solving the food waste problem, which is why leveraging technology and AI is an important first step for manufacturers to take.
Not only does technology provide companies with data to make better-informed decisions, but automating outdated processes eliminates administrative tasks to allow businesses to focus on results. Digital tools can also enable companies to integrate their sustainability teams more effectively in other parts of the business and make waste reduction efforts more easily manageable and reportable.
For example, Spoiler Alert’s software solutions helps CPG companies streamline sales of their excess inventory by leveraging advanced analytics and automation. By optimizing and digitizing their liquidation processes, Campbell Soup Co. experienced a 27% shift to donations vs. disposal of their finished goods inventory.
Time is of the essence when dealing with perishable goods, so with less time spent on outdated methods, a more efficient sales process means excess inventory has a longer shelf life and is therefore more likely to be consumed than wasted.
It’s a win-win: manufacturers can sell excess inventory faster and at higher prices and less food goes to waste.
Although many digital tools are relatively new, widespread adoption by manufacturers can drastically reduce food waste while increasing food accessibility.
The current state of CPG companies’ liquidation programs
Spoiler Alert’s latest report, Technological maturity in the secondary CPG market, surveyed 100 senior leaders in the food and beverage industry that handle liquidation programs to discover how they are currently managing their excess inventory.
The report found that the majority of these CPG companies’ liquidation programs lack technological maturity and rely on outdated methods of moving excess inventory.
In fact, only 18% of companies rated their liquidation programs as very mature or best-in-class, highlighting a disparity between how companies are managing excess inventory today and how they could be saving more money and reducing more waste with digital tools.
Many companies don’t allow nonprofits to select specific charity items
One of the limitations that a lack of technology creates is not being able to accommodate donations effectively, and therefore allowing food to go to waste. Many manufacturers make it difficult for nonprofits to accept their excess inventory by not allowing them to choose which items they can take. Some charities don’t have the resources necessary for a “take-all” approach, and as a result there is a greater risk that the food will go to waste instead of being donated.
Additionally, 36% of companies indicated that they do not currently donate any inventory to nonprofits. That’s surprising considering everyone has excess inventory to donate.
Few companies link liquidation with their ESG commitments
Companies need to be aware of their liquidation process and how it impacts their ESG commitments. Only 36% of companies see liquidation as part of their ESG or waste reduction efforts, illustrating that there is a lack of awareness, resources, and analytics making it difficult for most CPG manufacturers to link their liquidation processes with their ESG commitments.
Companies can use their liquidation program as a way to reduce their carbon footprint by reducing the amount of inventory that gets sent to landfills.
Making liquidation programs more effective is not only beneficial to the environment but also has positive social implications. Discounting inventory and selling it to the secondary market, instead of disposing of it, provides food-insecure and cash-strapped families more access to affordable food and products. Additionally, if excess inventory can’t be sold to the secondary market, donating it to non-profit organizations is a more socially responsible option that also allows a company to be eligible for tax incentives.
The first step towards bridging this gap between teams is to increase visibility, which can be done with advanced analytics and reports that can be easily shared between teams.
By bridging this knowledge gap and providing information in real-time, companies can avoid wasting goods where time is of the essence, particularly with perishable products.
Automation and analytics can help solve food waste on the manufacturing level
As one finance director noted in Spoiler Alert’s survey, “When it comes to any platform associated with liquidity and inventory, automation becomes the most important choice or preference feature.” This illustrates the need for automation in the excess inventory space to drastically reduce food waste.
HelloFresh’s Director of Sustainability, Jeff Yorzyk, highlighted automation and analytics as a critical component of their efforts to donate surplus or nearly expired food to alternative outlets such as hunger relief organizations, as well as giving them better data to inform purchasing decesions.
When we look at all the data, it is clear that many companies are still struggling with how to manage excess inventory. As manufacturers are constantly launching new products and dealing with supply chain disruptions, technological innovation can help reduce financial losses incurred through inefficient and outdated excess inventory management systems and reduce overall food waste.
The views and opinions expressed in this guest blog post are those of the author and do not necessarily reflect ReFED's views and opinions.