How to tackle the costs of supply chain waste
Speed is crucial for made-to-order businesses, but the rush to meet targets could lead to expensive problems with waste
Boutique gin and vodka brand Silent Pool Distillers could tell you plenty about bottlenecks and broken glass.
Fed up with both, in 2021 it became the first distiller in the world to use paper bottles, reducing waste and supply chain issues by switching its Greenman Gin brand from hard-to-source glass bottles into foldable paper cylinders.
The eco-friendly Frugalpac bottles are smash-proof and can be stored more easily. They’ve also removed a bottleneck for the company, which sells to 40 countries from its Surrey Hills base.
“Bottle supply is very tight and expensive,” says Ian McCulloch, managing director of Silent Pool Distillers. “A Ukrainian bottle plant was taken offline and demand is now chasing supply from other plants.”
Greenman Gin’s high-wire act of delivery speed versus cost will sound familiar to many SMEs. Norwegian e-grocer Oda, for example, has cut waste almost to zero.
The grocer was founded in 2013 and delivers in Norway and Finland, soon to launch in Germany. It bakes every loaf of bread to order, leaving no back-up supply on shelves. This demands a bake speed of 1500 loaves per hour.
Every pallet of fruit and vegetables is also sold the day it arrives, meaning a waste surplus of only 0.5%, way ahead of many other European e-grocers. No plastic bags are used in customer deliveries, with reusable cardboard boxes taking their place.
This approach helped generate revenue of €200m (about £170m) last year, allowing Oda to open its biggest factory - the size of 70 supermarkets - in Liertoppen, Norway. The grocer covered the whole exterior of the site in solar panels, meaning one-third of its future total energy needs could be met from a single location.
The 10 founders combine different backgrounds in data software and car assembly line manufacture to fine-tune every inch of the process, one of the key factors in the company’s success. The made-to-order model kills waste on the shelves, too, says CEO Karl Munthe-Kaas. There isn’t enough wastage to require flash sales or buy-one-get-one-free deals, which helps reduce the company’s carbon footprint.
But having only limited back-up stock depends on a consistent and reliable flow of goods, says Alex Saric, smart procurement expert at Ivalua, whose data-driven platform allows organisations to test decisions and savings. “Like the just-in-time model, made-to-order exposes supply chains to potential shocks if manufacturers aren’t prepared for disruption. Organisations need to be in constant communication with suppliers as customer demand fluctuates.”
It is incredibly difficult to gauge customer demand and plan effectively every time, says Saric. “While the model may bring efficiency benefits and reduce wastage at first, without any backup supply, organisations can struggle to meet unexpected surges in demand or adapt to sudden shortages.”
This can be offset by onboarding supply chain technology. Woohoobox allows consumers to create their own stationery sets from 20,000 potential product types and gift them in bespoke packaging. A sudden surge in demand placed stresses on warehouses and packing, resulting in significant waste, says co-founder Azar Shirinov.
“As the variety of our products increased, we started having issues with complexity and not being able to fulfil orders correctly. As we could not accept returns correctly, we encountered product loss, stock loss, and imbalance in stock numbers.”
To resolve the issue the company handed some control to a supply chain technology called OPLOG, which provides SMEs Amazon-like fulfilment services which gave digital transparency to the whole process and reduced waste. “OPLOG saved us from the problems in returns management, inventory management, storage process, stock controls, picking, packing, value-added service, and shipping operations,” Shirinov says.
This allowed Woohoobox to cut waste and mass deliver while maintaining the bespoke touch to its business.
Made-to-order businesses can also make savings by taking their equipment from - or selling it to - the circular economy. A typical small to mid-sized facility will often hold parts inventory worth £200,000, but many industrial businesses have mountains of surplus spares in case of an outage, with much eventually sent to landfill.
To put these spares to use, the Machine Compare marketplace allows firms to sell unused spare parts directly to other buyers, reducing the need for warehousing on both ends. This also creates a way for wannabe made-to-order firms to make more things in-house at reduced cost, either in the short or long term. By sharing parts across industries, Machine Compare can also offer shared data, says Ben Findlay, the company’s CEO.
“An industrial business might only have 3-5% of the data relating to their own stock of spare parts, meaning that they only really know a tiny fraction of information about their own stock. We can increase that to 70% with a bit of extra work. It’s an insight that makes the whole world your spare parts storeroom.”
Made-to-order can cut costs in some areas. But if it isn’t managed with perfect demand forecasting and hyper-efficient communication, it can unwittingly increase costs and waste, says Saric. “On paper, the made-to-order model can offer environmental benefits, as it minimises the amount of surplus stock. However, in practice, manufacturers can be forced into unsustainable transport and logistics solutions as it relies on smaller and more frequent shipments, rather than in bulk.”
Silent Pool Distilleries has found that by keeping everything in-house, there are savings that can’t necessarily be put on a spreadsheet, says McCulloch. “We create at greater volumes, we better utilise machinery, we hire better staff – all of that has reduced our cost per bottle.”