Introduction This Good Practice Guidance is underpinned by WRAP’s activity and research through waste prevention reviews (WPRs) undertaken at 26 UK sites in the food and drink manufacturing sector between 2010 and 2012. Preventing and reducing waste in the supply chain not only produces carbon savings, but also financial savings. This easy-to-follow guidance can help your business achieve waste reductions and save money. The Guidance focuses on:

1. Production ready packaging;

2. Secondary and tertiary packaging;

3. Raw material yield loss prevention; and

4. Stock keeping unit rationalisation.

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Guidance

page 1

Waste Prevention Good Practice Guidance for retailers and manufacturers on how to reduce waste and cut costs

Introduction

1. Production of ready packaging

2. Secondary and tertiary packaging

3. Raw material yield loss prevention

4. Stock keeping unit rationalisation

Start reducing waste and saving money today by

following this step-by-step guide.

sacks to bulk bags or similar delivery mechanisms were observed to yield:

Reductions in packaging waste – e.g. evidence indicated that moving to bulk bags resulted in packaging material savings of over 60%;

Reductions in residual losses, saving up to 2% of raw materials, as less

product is left in the bottom of bags; Reductions in manual handling for operatives – saving on labour costs

and increasing efficiency; Reductions in material handling such as managing the packaging waste;

and Increased throughput and reduced lead times – as there is no longer a

need to slow the manufacturing process to open more ingredients bags. Similar benefits can be seen when converting small delivery units to other ‘industrial’ sized systems and formats.

What are the different types of PRP? There are many forms of PRP packaging designed to address varying business needs and functions. Some examples of PRP formats are discussed next. Silos – fully automated for high volume use, they require no

handling and generate zero packaging waste when supplied

by tanker.

IBCs – widely used intermediate bulk containers in steel or

plastic encased in a steel cage. Can be single trip, reusable,

rigid, foldable, bought or leased.

What is production ready packaging? High or medium-volume ingredients in relatively small packaging formats leads to increased handling for operatives, as well as the generation of waste from residual product left in, say, bags and from the tertiary packaging used for delivery (e.g. stretch wrap). Often the growth in the use of some ingredients and materials occurs slowly over time and the original format may no longer be fit for purpose. Production ready packaging (PRP) is defined as packaging formats that require minimal handling prior to production. PRP is an effective solution for the delivery of high or medium volume raw materials that are currently supplied in non-bulk, small quantities. The key to implementing PRP is close engagement with suppliers to determine the right PRP solution for your business. This can be done by identifying the most efficient packaging size and format for incoming raw materials. What are the benefits to using PRP? PRP formats can be tailored to your company’s requirements, products and ingredients; and implementing PRP reduces manpower, enables buying in bulk, and reduces ingredient and packaging waste. WRAP’s waste prevention activity observed a widespread use of 25 kg bags or sacks for the delivery of ingredients that were used in substantial volume. The practice of ‘ripping and tipping’ of 25 kg bags to make up high-volume batch quantities ready for production was seen to involve unnecessary manpower, more expense through not buying more cheaply in bulk, and generated waste from residual material and packaging. Some of the benefits resulting from businesses moving from small 25 kg

Good Practice Guidance for Reducing Waste

Reduce waste with production ready packaging

Guidance

page 2

Introduction

1. Production of ready packaging 2. Secondary and

tertiary packaging 3. Raw material yield loss prevention

4. Stock keeping unit rationalisation

back : forward

How do I get started? Once the target materials have been identified, you must work with suppliers to get ingredients delivered in optimal sizes with appropriate packaging that complements production and is either reusable or recyclable. The challenge is to move away from the ‘business as usual’ systems and renegotiate the supply. Suppliers may already be using alternative formats for other clients and therefore have proven systems in place. Overseas suppliers need not present a barrier to PRP; many providers fully understand the global nature of the supply chains and have developed products to match. For example, flexitanks can now be shipped in standard twenty-foot equivalent unit (TEU) containers, enabling more overall liquid to be shipped per container.

Trial PRP and carefully measure and monitor results. Be sure to communicate the benefits and roll out solutions to other suitable areas.

Good Practice Guidance for Reducing Waste

Figure 1. Diagram showing purchased units versus purchased volume for each SKU; SKUs in the red ring represent opportunities for PRP

Pallecons – foldable IBCs, typically 1,000 l capacity and can be used for liquid or dry ingredients. They comprise a foldable rigid plastic outer and a single use inner liner. Customised systems –bespoke delivery systems, e.g. conveyor belts integrated in trucks to direct offload potatoes to holding areas. Bulk/jumbo bags – 1 tonne capacity typically used in situations that require bulk delivery but don’t warrant investment in silos. Flexitanks – used for bulk import of liquids for packaging closer to the consumer market.

How do I know if PRP is right for my business? The first step in the review process is to identify materials that potentially fall under the category of undersized packaging formats. This can be done by following the simple, three-step approach outlined below.

1. Obtain data on the 20 or 30 highest volume raw materials and determine the packaging size in which each material is supplied. This is typically extracted from Goods Received Note (GRN) data in a company’s information system;

2. Use this information to calculate the total units supplied over a set period – ideally this will be one year to avoid seasonality issues; and

3. Use scatterplot diagrams to show purchased units versus purchased volume for each SKU (stock keeping unit), to identify the significant opportunities for PRP.

In Figure 1, the data point shown furthest to the right shows 40 tonnes of product supplied in 4,000 10 kg bags. The ring highlights the SKUs (e.g. ingredients, raw materials, etc.) that should be focused on first – those that are high volume and supplied in small unit quantities.

Guidance

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Introduction

1. Production of ready packaging 2. Secondary and

tertiary packaging 3. Raw material yield loss prevention

4. Stock keeping unit rationalisation

back : forward

Secondary packaging Packaging additional to the primary packaging and that is used for protection and collation of individual units during storage, transport and distribution. It can be used in some sectors to display primary packs on shelf. It is sometimes called grouped or display packaging. This category also includes packaging purposely made to display multiple product units for sale, in order to speed restocking from storeroom to shelf. Also known as retail-ready packaging (RRP), shelf-ready packaging (SRP), or counter-top display units (CDUs). Tertiary packaging Outer packaging, including: pallets, slip sheets, stretch wrap, and strapping and labels used for the shipment and distribution of goods. It can be referred to as transport or transit packaging and is rarely seen by the final consumer. The recipient of the goods will often deal with this packaging via its own internal reuse or recycle routes. How can ‘performance packaging specification’ be deployed? Start optimising secondary and tertiary packaging by following these steps: 1. Understand the role and impact of the packaging with the

product – do not consider these as separate, product properties. Functionality and vulnerabilities should be considered along with packaging functionality and performance in order to deliver product safely and in prime condition to the consumer.

2. Understand the total supply chain. It is not sufficient to specify packaging based on the demands of part of the supply chain. The performance demands of the entire supply chain (from filling operations to distribution, retail and consumer stages) need to be considered in order for packaging to be optimised and appropriate performance elements to be detailed in packaging component specifications.

Secondary and tertiary packaging that is not ‘fit for purpose’ in the entire supply chain can lead to waste arising in terms of materials, through failure or over-engineering, or product loss incurred through the inability to protect the product from the point of manufacture to store shelf display. Optimisation of secondary and tertiary packaging is a science where many variables in the supply chain need to be taken into account. These variables range from product design to on-shelf display, with a host of parameters to be satisfied throughout. It is not sufficient to specify packaging based on the demands of just part of the supply chain. The performance demands of the entire supply chain (from filling operations through to distribution, retail and consumer stages) need to be considered in order for secondary and tertiary packaging to be fit for purpose and optimised by detailing appropriate performance criteria in packaging component specifications. Understanding the role and impact of secondary and tertiary packaging as an integral part of the product and its supply chain is fundamental to achieve this. Functionality and vulnerabilities should be considered alongside packaging functionality and performance in order to deliver products safely and in prime condition to the consumer. This approach is often referred to as ‘performance packaging specification.’ What is secondary and tertiary packaging? The definitions of both secondary and tertiary packaging are described next.

Good Practice Guidance for Reducing Waste

Cut waste by optimising secondary and tertiary

packaging

Guidance

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Introduction 1. Production of ready packaging

2. Secondary and tertiary packaging 3. Raw material

yield loss prevention

4. Stock keeping unit rationalisation

back : forward

3. Collect and analyse data from the entire supply chain and identify

critical performance criteria in conjunction with your suppliers and other sources of expertise.

4. Utilise simulations and trials. Verify material and distribution pack performance against the identified needs.

5. Work in cross functional teams and involve all key stakeholders in the total supply chain.

6. Buy on the basis of performance needs not material specification. You may be missing out on the opportunity to reduce total costs if you do not.

7. Regularly review secondary and tertiary packaging, ideally every two years.

8. Specify packaging as a unit – primary, secondary and tertiary should work as one unit. The required performance, particularly in retail and distribution phases of the supply chain, can be provided using a combination of the performance of different levels of packaging.

9. Utilise trained staff to identify opportunities and communicate effectively.

What resources are available? There are many variables and solutions to optimising secondary and tertiary packaging and considerations are best taken on a case-by-case basis. WRAP have compiled a number of works that are useful reference points to

consider when approaching optimisation of secondary and tertiary packaging. These resources include: Reusable packaging

Stretch wrap optimisation

Reducing corrugated cardboard weight without compromising

performance Optimisation case studies: cardboard packaging optimisation: best

practice techniques and cutting costs and waste by optimising packaging use

Good Practice Guidance for Reducing Waste

Guidance

page 5

Introduction 1. Production of ready packaging

2. Secondary and tertiary packaging 3. Raw material

yield loss prevention

4. Stock keeping unit rationalisation

back : forward

Realise opportunities in raw material yield loss prevention Raw material losses are typically incorporated within the budgeted Bill of Materials (BoM) and, since these losses are already costed in to the system, are frequently overlooked from both an operations perspective and when reviewing waste prevention opportunities. Food and drink manufacturing companies typically use material variance reporting to monitor raw material yield losses. In many cases these reports do not include the embedded waste allowances (or shrinkage rates) that are commonly applied and that are set on the basis of historic performance. These ‘waste allowances’ can be significant, with some organisations

Good Practice Guidance for Reducing Waste

having allowances of up to 25% on some raw materials. Some common causes of product yield loss include: start up/changeover waste, defective products, floor waste, giveaway and QA sampling. Others are: sale or return strategies, lack of contingency for rework and production line breakdowns. The relative significance of each of these factors will be site, shift, production line or product specific; hence a review is necessary to identify and quantify opportunities to reduce losses. There will always be some unavoidable loss of product associated with QA sampling, for example, but there must not be any more than is necessary, or it becomes an avoidable loss. Table 1 shows some key causes and potential solutions.

Guidance

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Introduction 1. Production of ready packaging

2. Secondary and tertiary packaging

3. Raw material yield loss prevention 4. Stock keeping

unit rationalisation

Table 1. Key causes and potential solutions for product yield loss

Issue Impact Example solution

Start up/changeover waste

Stopping and starting a line involves loss of product and can account for up to 0.7% yield loss.

Balance line production, i.e. high volume product on high speed line and minimise the level of expediting. Minimise run out and start up losses.

Defective products

Due to the nature of the industry, the food sector must operate to tight product specifications, leading to high level of rejected product.

Regularly assess specifications.

Floor waste Product rendered unusable when falling from a line. Fix ill fitting or missing guide rails and catch trays.

Giveaway The fear of falling foul of the weights and measures legislation results in many companies running plants with an excessive level of product giveaway.

Take care not to overfill with high value items especially, such as coffee, spices, etc.

QA sampling In many cases this can be regarded as avoidable waste. Sampling regimes should be challenged regularly.

Overproduction Due to the level of process variability and the tight demands by customers for guaranteed order completeness, a safety buffer is often included on a ‘just in case’ basis.

Final order confirmation from customers is often well within production order lead times – good production processes will ensure product is made in time.

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Good Practice Guidance for Reducing Waste

Guidance

page 7

Introduction 1. Production of ready packaging

2. Secondary and tertiary packaging

3. Raw material yield loss prevention 4. Stock keeping

unit rationalisation

Issue Impact Example solution

Sale or return strategies

Although this strategy can result in higher sells and marginal benefits, it can impact on yield rates.

Regular monitoring needed.

No contingency for rework

Rejected product classified as waste. Product could be reworked and sold.

Production line breakdowns (power cuts, mechanical failure etc.)

Many production processes in the food and drink industry are continuous processes, especially where a baking or cooking process forms part of the line. A breakdown means delays which can result in high levels of waste.

The use of accumulation tables can provide the necessary buffer. This is particularly useful for the high frequency, short-to-medium-term stoppages. Although in some cases where space and capital permits, they can be built with the capacity to address long-term stoppages. Vertical accumulation buffers have been developed to be retrofitted on existing production lines where the footprint of the production line is a constraining factor.

Variety or multi packs

Variety or multi packs can represent an issue since production lines are not geared to produce the full pack variety at the same time. In many cases the systems used to overcome this can be regarded as short-term fixes; they can be extremely labour intensive, including the need to rip open and repack, and can result in high volumes of wasted packaging.

Due to the increased popularity of variety or multi packs, it is recommended that a detailed value stream mapping exercise be undertaken to identify the areas of opportunity in terms of a longer term solution.

Table 1. Key causes and potential solutions for product yield loss (continued)

Six step approach to reduce raw material yield losses Step 1: Establish the baseline The first step in the improvement process is to establish the baseline. This will enable the impact of any interventions made within the project to be quantified. Figure 2 shows an example of a baseline graph. The graph shows the total raw material yield loss by period, where the yield loss is calculated on the basis of actual usage minus nominal usage by value (£). The example baseline graph would indicate that the most efficient performance recorded in the last year was in period 10 at 3%, the worst being period 4 at 10%.

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The key questions are: what went well in period 10? and what went badly in period 4? The objective would be to investigate how the good performance in period 10 can be repeated and the poor performance in period 4 can be prevented. The initial target would be to bring the mean yield loss down from 6.75% to 3%, i.e., bringing the mean yield loss down in line with current best practice. Given the cost of raw materials, this would represent a significant cost saving. Step 2: Identify the ‘significant few’ Once the average yield loss has been identified, the goal is to understand which individual SKUs are significant in terms of their contribution to overall yield loss. Pareto analysis can be used to rank the SKUs in order of significance with the SKU with the highest contribution to yield loss shown first. A cumulative contribution to total yield loss curve is plotted to

Good Practice Guidance for Reducing Waste

show the overall yield loss profile. Figure 3 shows an example of the Pareto Analysis with the three most significant SKUs (A, B and C) accounting for circa 50% or £381,000 of total yield loss. Focus would therefore be placed on driving down the yield losses on these three SKUs. Step 3: Establish a baseline for each of the significant SKUs In a very similar way to the graph produced in Step 1, graphs showing yield loss by period will be produced, this time, for each of the three significant SKUs. Figure 4 shows the example chart for SKU A. This shows that the mean yield loss over the year was 8% and the best performing period was period 10 with a yield loss of 4%. Using the data shown in Figure 3, e.g. that the overall annual yield loss for SKU A is £160,000, then the value of moving the mean yield loss from 8% to the current best practice value of 4% is estimated at £80,000.

Guidance

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Introduction 1. Production of ready packaging

2. Secondary and tertiary packaging

3. Raw material yield loss prevention 4. Stock keeping

unit rationalisation

Figure 3. Pareto Analysis example

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Good Practice Guidance for Reducing Waste

Quantifying the level of opportunity enables the scope of the solution to be drawn, e.g. an £80,000 solution that delivers the 4% reduction in yield loss would have a payback of 1 year. Step 4: Root cause analysis Identifying and measuring individual causes of yield losses is the first step in developing solutions since it enables the opportunities to be clearly defined. A brainstorming session can be undertaken to identify the root causes of yield loss for each of the significant SKUs. The root causes should be ranked in priority of impact to yield loss. Step 5: Developing and implementing solutions Based on the ranked root causes, potential solutions should then be determined for each root cause. Potential solutions can be tested on a trial or full scale basis. This is dependent on the confidence in the solution, i.e. the impact to yield loss, the likelihood of delivering the projected savings, the cost of the solution and the ease of full scale implementation. It is important to ensure changes are maintained and embedded through training of all applicable staff, and by updating the standard operating procedures. Step 6: Roll out solutions To ensure that the benefits are fully maximised, it is recommended that a review be undertaken to determine where else in the company the solutions can be applied since in many cases the significant SKUs are not unique. Start improving raw material yield loss today by following the six steps explained above (see Figure 5).

Guidance

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Introduction 1. Production of ready packaging

2. Secondary and tertiary packaging

3. Raw material yield loss prevention 4. Stock keeping

unit rationalisation

6. Roll out solutions

5. Develop and implement solutions

4. Root cause analysis

3. Establish baseline for significant SKUs

2. Identify the ‘significant few’

1. Establish the baseline

Figure 5. Six-step process to improve raw material yield loss

back : forward

following: reduction in inventory losses up to 35%, reduction in set up losses of up to 20% and matching right product to right production line to

Good Practice Guidance for Reducing Waste

Make savings by implementing stock keeping

unit rationalisation The UK food and drink industry has the highest level of new product launches outside the US. Mintel’s NPD database shows that 49,995 new products were launched in the UK between January 2005 and October 2011. From a retailer/consumer perspective this can be seen as extremely positive, highlighting the dynamic and innovative nature of the UK sector. Conversely, this provides manufacturers with a major challenge on how to deliver new products without: increasing stock holding, SKU and product range, reducing the size of production runs / batch sizes and increasing levels of obsolete stock.

In an industry handling short shelf life, perishable ingredients and products, this can result in significant increases in waste arisings. The product range in many food and drink companies can number in the thousands of SKUs and many companies have to accommodate the full product range on no more than 10 production lines. The cycle therefore becomes more complex as the SKUs increase (as depicted in Figure 6). The delisting of underperforming products (low sales volume products) is quite often overlooked by many companies either because it is: i) regarded as a taboo subject since they do not want to ‘rock the boat’ in terms of client relations; or ii) dictated and managed fully by their clients, such as the retailer. This can be considered a lost opportunity since delisting can result in reduced complexity of inventory and production runs, leading to fewer changeovers and set ups: two significant causes of waste.

WRAP WPRs observed typical advantages of SKU rationalisation to be the

Guidance

page 10

Introduction 1. Production of ready packaging

2. Secondary and tertiary packaging

3. Raw material yield loss prevention

4. Stock keeping unit rationalisation

Desire for growth

Increase in new products

Mean volume of products decreases

Manufacturing complexity increases;

volume of waste increases

Costs increase, responsiveness

decreases

SKU rationalisation needed to balance

product offering with customer demand

Figure 6. Potential manufacturing complexities of increasing SKUs (adapted from S Vineet, SKU Rationalisation, Bercoe Inc, 2011)

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improve throughput. Other advantages were: freeing up bottleneck processes for more profitable products and simplification of order and administration processes. Best practice – balancing production and customer demands Ideally an older / underperforming product should be delisted when a new product is introduced, i.e. a ‘one in - one out’ policy, leading to a stable product range. However, as customers increasingly demand a wide choice at the retailer’s shelves, it can be difficult to maintain a balance between customer demands, and the operation of a lean, efficient production facility. The decision to discontinue a product may be taken at retailer level, within the category management department, or by the manufacturers

themselves. If a manufacturer identifies an underperforming product line, it is useful to highlight this to the retailer. The retailer and manufacturer must then decide if delisting a low volume product is feasible from a production and commercial perspective. Pareto analysis – identifying the poor performing products Pareto analysis is a tool that can be used to identify the poor performing products, and hence, those products with the potential to be delisted. This involves the plotting of Pareto curves, with each SKU shown on the x-axis and its respective sales revenue on the y-axis (see Figure 7). The SKUs are listed in order of significance with the SKU generating the highest sales revenue shown first. A cumulative contribution to total sales

Good Practice Guidance for Reducing Waste

Guidance

page 11

Introduction 1. Production of ready packaging

2. Secondary and tertiary packaging

3. Raw material yield loss prevention

4. Stock keeping unit rationalisation

Figure 7. Pareto analysis with each SKU on x-axis, and sales revenue on the y-axis (blue represents product sales, and orange shows contribution to total revenue)

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revenue curve is plotted to show the overall sales profile. From a Pareto perspective, it would be anticipated that approximately 80% of sales would be generated from just 20% of SKUs. These can be regarded as the ‘high performers’. The remaining 20% of sales would be generated from 80% of SKUs and it is these that can be regarded as the ‘poor performers’. The WRAP WPRs have broken the analysis down further showing, in some instances, that at the very tail of the curve approximately 20% of SKUs account for less than 1% of sales and it is these that should be challenged from a delisting perspective. The resources required to sustain production of the SKUs should be fully appreciated from a financial and environmental perspective.

Case Study

A large European food manufacturer was experiencing high levels of

costly waste due to a complex product mix. It reviewed its portfolio of

products to find out which were generating the most amount of waste

and least amount of profit. Data analysis of revenue and profit of each

SKU was studied alongside market intelligence on customer buying

behaviour. As a result, similar product categories were combined into one

to reduce the total number of SKUs and the amount of waste produced.

SKU portfolio was reduced by 15%, and waste came down by 20%.

Profitability increased as the stock levels and manufacturing complexity

decreased.

Adapted from S Vineet, SKU Rationalisation, Bercoe Inc, 2011

Good Practice Guidance for Reducing Waste

Guidance

page 12

Introduction 1. Production of ready packaging

2. Secondary and tertiary packaging

3. Raw material yield loss prevention

4. Stock keeping unit rationalisation

Identifying solutions The Pareto analysis can be used in a number of ways, for example: it can be used to ensure that the right products are run on the right

lines, i.e. the high performing products are run on the high throughput production lines. This can appear rudimentary but can be overlooked for new products with a high volume growth;

it can encourage a different pricing strategy to be used for the poor performing products to reflect the added costs associated with manufacturing these products; and

it can be used to formally challenge the product range from a delisting perspective.

The critical success factor in this review process is the need for a good client relationship. In some instances there will be a strong justification for continuing to stock the ‘poor performing’ products. For example, niche products such as special dietary or ethnic products. However, the product range should still be regularly challenged to ensure that it is optimised to supplier base and customer need. Follow the tips highlighted above on improving SKU rationalisation to achieve waste reductions and cost savings.

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Waste & Resources Action Programme

The Old Academy 21 Horse Fair Banbury, Oxon OX16 OAH

Tel: 01295 819 900 Fax: 01295 819 911 E-mail info@wrap.org.uk

Helpline free phone 0808 100 2040 www.wrap.org.uk

While steps have been taken to ensure its accuracy, WRAP cannot accept responsibility or be held liable to any person for any loss or damage arising out of or in connection with this information being inaccurate, incomplete or misleading. This material is copyrighted. It may be reproduced free of charge subject to the material being accurate and not used in a misleading context. The source of the material must be identified and the copyright status acknowledged. This material must not be used to endorse or used to suggest WRAP’s endorsement of a commercial product or service. For more detail, please refer to our Terms & Conditions on our website - www.wrap.org.uk

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These case studies are part of a series of WRAP resources on waste

prevention.

For more information, visit www.wrap.org.uk/waste-prevention

You can access:

waste prevention background data;

W.A.S.T.E. problem-solving discipline;

case studies; and

tip sheets.