Material losses happen in every industry. From the time a raw material is mined, extracted, or harvested, to the point where it finally is transformed and delivered as a finished product, there will be some loss along the way. Not all merchandise that comes into an operation comes out 100% intact in the finished product.
There are two (2) ways of looking at losses:
- Loss in Quantity: materials or items are destroyed, discarded or removed. Examples include:
- machine scraps from milling, drilling, & cutting;
- discarded material left from painting & coatings;
- evaporation;
- spills;
- gas leaks;
- items that are thrown away such as soiled paper;
- over-usage of materials;
- pilferages.
- Loss in Value: otherwise known as degraded, these are materials that have deteriorated or have lost their primary utility. Examples include:
- residues from chemical reactions such as refining;
- expired product;
- under-cooked or over-cooked ingredients;
- contaminated material;
- damaged goods during transport or from handling.
Enterprise managers use measures such as variances and yields to monitor losses.
Variance is the difference between what is actually used versus what is supposed to be used. It’s what some managers would call actual usage versus standard usage.
Yield is the percentage ratio of output versus input in an operation or process. Output is the quantity of quality-accepted product. Input is amount of all of the material put into the process. Operations managers always strive for the ideal of 100% but in most cases, they’d settle for 95% or greater.
Variance and yield provide managers the yardsticks to how well their operations utilise the materials and product that pass through them. The lower the variance or the higher the yield, the more efficient the operation is said to be.
Manufacturing managers apply variance and yield in their operations but both can be useful to measure losses throughout the supply chain, at least from when an enterprise receives its materials to when the final finished product arrives at the customer’s doorstep.
Manufacturing managers work to reduce variances and increase yields through improvements in production operating parameters. Purchasing managers help improve yield and reduce variant losses via collaborations with vendors to improve materials’ conformities to desired specifications.
Logistics managers work with their quality control counterparts together with vendors, logistics providers, and freight contractors in setting standards and methods that would improve merchandise shelf lives and at the same time mitigate risks in materials handling & transport.
From another viewpoint, losses are either anticipated or un-anticipated.
In manufacturing, losses are generally anticipated, that is, they are expected to occur given the nature of an operation. Losses usually happen during the transformation of materials into finished product.
Unanticipated losses are those that occur infrequently, unpredictably, and at scales much wider than that of anticipated losses. Unanticipated losses tend to happen more often in logistics operations, as in materials handling and transportation, where there is an absence of direct monitoring.
Amid the coronavirus pandemic of 2020, Philippine farmers threw away vegetables because they suddenly couldn’t find buyers for their produce. Buyers didn’t show up at the trading post where they typically transact with farmers as people could not leave their homes due to mandated quarantine lockdowns. Meanwhile, locked down Filipino households were complaining that they couldn’t buy food.
Unanticipated losses can be catastrophic especially when it comes to the global supply chain trade.
In early September 2020, a ship carrying 6,000 cattle and 43 crew sank amid bad weather as it approached the coast of Japan. Only two crew members of the ship, the Gulf Livestock, were rescued.
An investigative article by the Guardian published on January 2020 speculated significant losses of live animal livestock on sea transport. The article’s writers observed that a number of ships have less than adequate facilities in transporting live animals but there was little in the way of data on the scale and frequency of losses. Unanticipated losses can not only be disastrous but also could be happening more often than one thinks.
Whereas managers might find variance and yield applicable in reducing anticipated losses, they are quite less effective when it comes to unanticipated losses. Enterprises fall back on insurance to offset unanticipated losses but they don’t solve the problem. Losses would still hurt especially if lives are lost other than the loss in resources.
This is where supply chain engineering can be helpful.
Supply chain engineers can assess the storage facilities, material handling equipment, and transportation assets and seek improvements in how merchandise are worked through them.
Supply chain engineers can be instrumental when enterprises accredit the 3rd party providers who take custody of products for deliveries to customers, especially those that require meticulous handling and long-distance travel. Supply chain engineers can devise operating standards for the proper storage, handling, and transport of products. SCE’s can reconcile manufacturing, procurement, and logistics protocols in the management of merchandise that would minimise variance, increase yields, and mitigate the risk of catastrophic losses.
Losses happen throughout the supply chain. Some get lost in quantity and some lose in value during a process. Managers use variance and yield measurements to mitigate anticipated losses but unanticipated losses represent a blind spot especially as they occur more often in the logistics realm where there is less visibility.
Supply chain engineers have the skills and knowledge to combat unanticipated losses by auditing the assets and systems that store and deliver the goods of enterprises. SCE’s can propose standards that would encompass the entire supply chain and put more productivity in the transformation and handling of merchandise.
Losses can be heart-breaking especially when they are catastrophic such as when a vessel sinks in the high seas. Executives might try to cover their losses via insurance or by simply taking a blind eye but it would still be worth the effort to ensure not only most of what is procured, produced, and shipped reach their final destinations in one piece but also that human lives are not wasted for nothing.
Ellery's Essays 