I was once in the mood to eat breakfast before rushing to work. I chose to prepare my meal rather than go to the usual nearest fast food drive-thru.
To my dismay, I found that my half-consumed loaf of bread had expired so I had to throw it away, but the thought of hungry children pained me. How could I let this happen? I could have given the food to people who needed it the most.
According to the Fourth Quarter 2016 Social Weather Survey by the Social Weather Station, 13.9 percent or about 3.1 million families in the Philippines experienced involuntary hunger at least once in the past three months. The measure of hunger refers to involuntary suffering due to lack of food.
And it’s not getting better. That Fourth Quarter result is 3.3 points above the 10.6-percent (an estimated 2.4 million families) quarterly hunger rate in September 2016 and just 0.1 point below the 2015 annual hunger rate of 13.4 percent (the lowest annual hunger rate since 11.8 percent in 2004).
What a waste
Despite the number of people suffering from hunger, roughly one-third of the food produced worldwide for human consumption every year, or approximately 1.3 billion tons, get lost or wasted, according to the US Food and Agriculture Organization.
As an accountant, I often come across the terms “waste” when dealing with inventories. Generally, when an inventory item becomes slow-moving, damaged and obsolete, an allowance for inventory write-down is recognized. While an area of focus in accounting for inventory is coming up with a reliable estimate to provide for inventory write-downs, it is also incumbent upon companies to look at their operations to minimize wastage.
In the Philippine food industry, for example, companies are losing money because around 33 percent of food production goes to waste, according to reports made during the Asia-Pacific Economic Cooperation (APEC) food security meeting in 2015. Considering that more and more people around the globe are going hungry, reduction of losses in food production is, therefore, of utmost importance from both a humanitarian and business standpoint.
From a business perspective, it is beneficial for a company producing food products to realize profit from sale rather than lose the cost of producing the goods through wastage. Most companies arrange product discounts and promotions (e.g., buy one, take one; community sale; or 50 percent off) to sell goods before they expire.
Despite different options, weaknesses in the supply chain cause the product to expire before consumption.
In the food industry, majority of manufacturers do not distribute their products directly to consumers. Between the manufacturers and consumers are intermediaries such as shopping malls, distributors, wholesalers and sari-sari stores. Except for sari-sari stores, these intermediaries will demand the right to return expired goods. This arrangement is normally allowed to protect the intermediaries from losses due to unsold goods.
Use technology to better monitor expiry of goods
For most large food manufacturers, gone are the days when they have to manually monitor each and every item in inventory.
Today, there are available scanners that record inventory information and computer programs that assist companies in monitoring their goods’ expiry dates. Information is received real-time.
Analyzing sales to pinpoint the level of demand for each location could also be made through new data analytical tools so that only the right amount of goods are produced and delivered, thereby avoiding excess stocks that will eventually expire. The concept of supply and demand has existed for generations but with today’s technology, it can be done faster and cheaper.
Collaborate to reduce wastage
There are a number of parties involved in bringing goods from the manufacturers to the ultimate consumers.
It is imperative that manufacturers, wholesalers, shopping mall owners, fast-food outlets and others in the distribution channel collaborate. While they are separate entities with different objectives, not one of them would benefit when goods are wasted.
Manufacturers and sellers should openly share information to allow the timely monitoring of goods’ expiry dates and greater consumer buying insights. This will result in better production and distribution patterns based on market demands.
Engaging third party advisors with excellent industry knowledge and being accountable to all parties will ensure a win-win solution for everyone.
Creating better value for all
Aside from improving profit, there are good reasons for manufacturers and sellers to collaborate with the aid of technology. Consumers are becoming more conscious of the brands they patronize based on sustainability, ethical sourcing or production, and social responsibility, among others.
To quote Richard Pennycook, “What we’re going to be developing is another leg to our financial reporting, which talks specifically about the value that we’ve created through supply chain and through our businesses that consumers have helped us to create…the work that we do on food waste and making sure that it’s absolutely minimized, there’s a financial metric there, which says that our food waste is x percent lower that it would have been…rather than letting food go to landfill, we’ve provided million free meals to good causes in the last year, that makes it much more meaningful.”
Paul Chester U. See is a partner from the Assurance and the Business Services Leader of Isla Lipana & Co./PwC Philippines. Email your comments and questions to email@example.com. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
PAUL CHESTER U. SEE