Proper Demand Planning and Safety Stock Levels Improve an Organization’s Sustainability Efforts
Lowering an organization's operating expenses is a core business practice to increase overall profitability. However, very few organizations examine the efficiency of their manufacturing forecasts and subsequent warehouse operations. These areas can be a gold mine of opportunities to eliminate waste, reduce cost, and be mission-critical for organizations that desire to be more circular in their operations and processes.
When your organization’s demand planning has a high amount of inefficiency in the forecasts, more raw materials are purchased and manufactured into finished products, consuming finite resources such as water and energy. However, what happens if the same hit-or-miss forecast created safety stock of materials that remain in the warehouse unused? This makes expensive waste for the organization, which now needs to find a buyer for the goods or recycle them back into other products, thus requiring more energy burned for transportation, recycling, or remanufacturing. If there is no buyer or the excess safety stock is outdated enough, then disposal of the products may be the cheapest option. As inferior of an option, the latter might seem to be the worst option from a life cycle perspective, but all possibilities create a "pick your poison" scenario where sustainability is secondary to profit—excess waste and consumption of resources conflict with the circularity principles.
So what is the solution? Creating accurate forecasts and warehousing practices saves your organization money; when you save money, you are practicing sustainability through the efficiency of resources. Sustainability is at the top of all organization's objectives by saving money, purchasing less, using fewer finite resources, and creating less waste which is the opposite of sustainability by consuming resources for no functional reason. Don't think of sustainability as something you would like your organization to do at some point in the future. Start by auditing your current forecasting practices- is there room for improvement? Can training improve this process? Next, examine your warehousing processes- where is the waste created? How can it be eliminated? By simply focusing on these two areas, not only will you add more profit to your organization's bottom line, but you will be doing good for the environment by saving resources.
Just saving resources is not a complete sustainability strategy, but it is a start or can improve your organization's current efforts. Efficiency-based targets are easy to track, loved by management because they contribute to the bottom line and permeate the organization. If you are looking for more resources on how to find waste in your organization's processes, you can download a white paper on circularity: How To Get Started in Supply Chain at Any Tier
Denice Viktoria Staaf
Supply Chain Diva | Sustainability and Circularity Expert | EPD and HPD Approved Preparer | Mentor and Coach | Supporter Women's Empowerment | Green Building Advocate
Member, Education and Research Executive Board (EREB)
VCARE Academy Inc.
Labeling Sustainability Inc.
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