Food manufacturers: Include waste in final cost of product

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Courtesy of Normandy Waste Management Systems

Over the past year, the momentum of food waste reduction has become a forefront concern on a global, national and industry level. In the United States, the United States Department of Agriculture (USDA) and Environmental Protection Agency (EPA) launched the U.S. Food Waste Challenge “to lead a fundamental shift in how we think about and manage food and food waste in this country.” Industry leaders such as the Food Marketing Institute (FMI), the Grocery Manufacturers Association (GMA), and the National Restaurant Association (NRA) joined forces in the Food Waste Reduction Alliance (FWRA) to release their first survey, providing sound industry waste and recycling data across the manufacturing and retail/wholesale sectors. This data will drive businesses to not only consider its commitment to food waste reduction, but also the way it assigns cost to the waste.

According to the FWRA, the U.S. food manufacturing sector generated over 44.3 billion pounds of food waste in 2011. Waste generation creates obvious environmental impacts, resource inefficiencies and lowered profits throughout the supply chain. With food manufacturers donating or recycling 94.6% of the waste, the industry has clearly found higher uses for food waste. The greater issue at present is locally identifying/reducing specific product waste and linking it back to the final cost of the product.

Product costs are generally calculated by materials, labor costs and overhead. Food manufacturers use the bills of materials (BOM) to determine the cost of materials such as raw ingredients and packaging supplies. In addition to labor costs, overhead generally includes facility/equipment expenses, insurance, utility costs, depreciation and salaries. In the food manufacturing industry, the cost of waste is typically spread among all products using traditional BOM. For example, there is no delineation between the waste produced by a costly niche bread and the waste associated with the inexpensive white bread. The cost of the waste per product does not impact the price of the product.

Government and industry initiatives in 2014 will continue to externally pressure food manufacturers, retailers/wholesalers and the restaurant/foodservice sector to consider environmental and societal costs of food wastage. Internally, the constant momentum to increase profits and reduce costs will be driven by the identification of the source of waste. Waste tracking systems, such as the Normandy, offer businesses the opportunity to track specific product waste volume from the manufacturing floor to the last step of disposal. By identifying the cost of a waste stream, a manufacturer can relate this data directly back to the cost of a particular product line. Ultimately, the pricing structure will then be a more accurate indicator of price as influenced by the cost per product.

In summary, food waste calculated on a higher level with all operations creates an ineffective pricing strategy. The cost of food waste must be correlated to the product causing it.  

About the Author

Jim Seley is the President at Normandy Waste Management Solutions in Tacoma, Washington, which offers waste tracking systems to large food processors and food manufacturers. To learn more, visit normandywms.com.

Summary:

Waste generation creates obvious environmental impacts, resource inefficiencies and lowered profits throughout the supply chain. With food manufacturers donating or recycling 94.6% of the waste, the industry has clearly found higher uses for food waste. The greater issue at present is locally identifying/reducing specific product waste and linking it back to the final cost of the product. Using waste tracking software, manufacturers may identify the cost of a waste stream and relate this data directly back to the cost of a particular product line.

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