"The ratios and true cost of waste figures that DIRECT reports seem to be logical and complimentary to production reporting."
"Another helpful ratio is that of finished product waste (i.e. product that has gone through production but is then wasted)/ total solid waste."
"The development of DIRECT could provide us with the opportunity to involve production managers in using the tool for benchmarking and education, while empowering them to reduce hot spots of waste to potentially incentivise changes."
Silly Yaks Managing Director, 2014
Silly Yaks is situated 12 km north of Melbourne CBD, and supplies the food retail, food service and catering supply chain across Australia. Input ingredients include flour, eggs, salt, sugar, meat, herbs and prepared ingredients such as tomatoes and yoghurt. These ingredients are generally packaged in cardboard boxes, paper sacks, metal tins/ drums, polymer films and tubs. Converted product is packaged in polymer trays, films, labels and cardboard boxes for distribution to customers. With a large range of products and varying product shelf life, converted product is either stored in refrigerated cool rooms (shipping containers) or frozen prior to shipping to customers. The production process is described in the diagram below:
Silly Yaks is a small operation, and as such is designed on lean manufacturing and engineering principles to maximise efficiency. General waste, consisting mainly of food soiled packaging and food waste, is picked up every three days and is sent to landfill; cardboard cartons and metal tins/ drums for recycling are picked up weekly; while polymer films are recycled into a laminate and are usually collected on a fortnightly basis.
Organic waste, currently classified in the general waste category, can occur at multiple stages of the production process (e.g., food preparation, batch start-up/shut down and human error). The unavoidable organic waste includes egg shells, meat offcuts, start-up waste to vegetable offcuts. The avoidable organic waste can include anything from pastry scrap, cheese, flour spills, cracked product to vegetable offcuts.
Opportunities identified from audit visits and using DIRECT
It is estimated that 5% of all input ingredients are wasted for costing purposes, although this is not quantified via measurement. If this is the case, using DIRECT, the cost of input material waste is around $ 11,500 per annum, and the true cost of waste (taking a proportion of all business costs relative to this input material waste) is around $48,300 per annum. This presents a real opportunity not only to reduce the material and waste collection, but free up business resources to focus on other revenue making activities.
A large opportunity exists for this food manufacturer to divert organic waste from landfill that could save the organisation a proportion of the $3,700 in collection and disposal fees per annum. Segregation of the different organic fractions would need to occur instead of waste fractions going into the general waste stream. Identifying diversion routes for the segregated fractions (e.g., animal feed, composting) would be required.
Energy (electricity) efficiency was also identified as an opportunity for this organisation to reduce costs, as it has been estimated that the cool rooms account for a large proportion of energy consumption. The opportunity to purchase more efficient capital equipment (e.g., in the cool rooms) and other energy efficiency measures could be realised with the installment of a better insulated permanent cool room to replace the shipping container varieties.
Business value of DIRECT – Positives and opportunities for improvement
Like anything in business, time is critical. Business systems and tools need to be efficient, user friendly, integrate with existing programs and be focused to ensure the correct information is collected and reported. Silly Yaks sees the potential that the DIRECT tool could provide another helpful lens to view the business from a waste/ cost/ efficiency perspective. They have also identified the opportunity to use DIRECT in a time of capital deepening, assisting in decoupling labour increases with revenue increases (i.e. make revenue rate rise higher).
According to the Managing Director, the ratios and true cost of waste figures that DIRECT reports seem to be logical and complimentary to production reporting. Another ratio they identified that would be helpful is that of finished product waste (i.e. product that has gone through production but is then wasted)/total solid waste. An example of this expressed by the Managing Director was of a batch of cracked pizza bases that went all the way through baking, topping and finishing and were only picked up before packaging, so that much labour, resource and expense could have been saved if the product fault was picked up earlier. The true cost of waste figure is viewed by the group as an ‘opportunity’ cost figure i.e. how much opportunity to save money is there through reducing the direct and indirect cost of dealing with waste.
While the Managing Director keeps the accounts in this organisation, their involvement in the development of DIRECT could provide them with the opportunity to involve production managers in using the tool for benchmarking and education, while empowering them to reduce hot spots of waste to potentially incentivise changes. This provides an ideal environment to achieve resource efficiency by including those who are cognisant of the waste to be involved in the operation of the tool and the dissemination of the results. DIRECT will in the first instance provide a ‘scoreboard’ or a base line for Silly Yaks. This will be complemented by subsequent analyses to determine 1) where the group is, 2) where they are going, and 3) how they are going to get there. This will be achieved by using the tool as a ‘what if’ scenario builder, and combined with other concepts such as cash flow, cost benefit analyses, and resource management to build the case to modify processes.