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How the Right KPIs Can Help Eliminate Food Loss and Waste

Image credit: Lum3n.com

Spoiler Alert is a Boston-based software company that helps the world’s largest food businesses better manage unsold inventory. This week, the company released a new ebook, A Strategic Guide for Using Data to Drive Food Loss and Waste Reductions, intended to arm food manufacturers, wholesale distributors, and grocery retailers with the tools and strategies to develop data-driven food waste prevention and reduction programs. Topics featured include:

  • Motivations for quantifying food waste
  • Actionable insights to maximize the ROI of food recovery
  • Key Performance Indicators (KPIs) for assessing food recovery programs

The following is an excerpt from the ebook that highlights two of the many KPIs food businesses can use to understand how operational improvements impact food waste reduction.

A simple but foundational KPI to establish is Shrink Ratio, which highlights loss as a percentage of inventory. The definition of Shrink varies by industry: In the food manufacturing and distribution sector, the term is often used to refer to finished goods that manufacturers or distributors cannot or will not sell. This can occur for a number of reasons, including but not limited to product spoilage (or surpassing a product's expiration date), product damages (such as in warehouses with forklift misoperation or breached packaging), quality considerations (such as produce aesthetics), or poor demand forecasting. While standards vary between industries regarding what level of shrink is “acceptable,” a sustained high ratio indicates a potential problem in the area of sales, merchandising or operations.

We can calculate Boylston Foods’ Shrink Ratio for 2015 using information from the table above:

By calculating Shrink Ratio, Boylston Foods can establish a baseline picture of its food loss and waste (FLW) reduction performance. Monitoring performance against this baseline enables the business to identify opportunities for improvements in sales, merchandising and operations that may decrease this ratio.

To continue with our example, let’s assume that, in 2015, Boylston Foods established a goal of reducing FLW. To achieve this goal, the company began tracking Shrink Ratio as a KPI and experimented with initiatives in the merchandising department to reduce unsold inventory while growing sales. Below are the initial results of these efforts:

As shown above, Boylston Foods documented a decrease in Shrink Ratio from 2.0 percent to 1.61 percent following the implementation of a procurement efficiency initiative. In other words, through better merchandising processes, Boylston Foods was able to maintain its sales at 2,450,000 cases per year in both FY 2015 and FY 2016, but purchased 10,000 fewer cases in 2016, leaving the company with less surplus fruit.

While Shrink Ratio is a useful KPI in evaluating the success of FLW-reduction initiatives, a second KPI, Recovery Ratio, is critical in evaluating the success of initiatives that seek to recover a greater share of a food company’s surplus inventory. A sustained low Recovery Ratio indicates that recovery efforts are ripe for improvement. Furthermore, a Recovery Ratio that fluctuates significantly from week to week or month to month highlights the need to invest in training and the establishment of Standard Operating Procedures (SOPs).

To further advance its FLW-reduction program, Boylston established a partnership with a local food bank at the beginning of FY 2017 to facilitate the donation of its edible surplus inventory. The potential value of this recovery initiative is significant, as the company stands to benefit financially from the associated savings due to enhanced tax deductions while simultaneously reducing spend on waste hauling fees. In addition to these financial gains, Boylston Foods wants to contribute positively to its community, and donating surplus food to local families and individuals in need helps the business achieve this goal.

Just as tracking its Shrink Ratio helped Boylston Foods measure the success of its procurement efficiency initiative, establishing and tracking the Recovery Ratio as a KPI will help to measure the success of the business’ donation program.

As noted above, the Boylston team reduced its Shrink Ratio from 2.00 percent to 1.61 percent pre-donation. In 2017, the business began its partnership with the local food bank. Below are the results of this donation program:

We can calculate Boylston Foods’ Recovery Ratio for 2017 using information from the table above:

As demonstrated by its results, Boylston Foods improved its Shrink Ratio between FY 2015 and FY 2016, and maintained this improvement in FY 2017. Following the launch of its donation initiative in FY 2017, the business donated 10,000 cases of fruit, increasing its Recovery Ratio from 0 percent to 25 percent. Should the team at Boylston Foods continue to build out its recovery program while maintaining a consistent Shrink Ratio beyond FY 2017, its Recovery Ratio will reflect this improvement by increasing.

To learn more tools and strategies for leveraging data to capture value from unsold food and reduce the volume of product sent to landfill, download the ebook.

Matt Greenstein is the Director of Business Development at Spoiler Alert, a Boston-based technology company helping the world’s largest food businesses better manage unsold inventory. Matt is responsible for growing Spoiler Alert’s work within the food manufacturing and distribution industries.… [Read more about Matt Greenstein]

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