Data Science Solutions for Retail Strategy to Reduce Waste Keeping High Profit

Abstract

Waste reduction in retail is a fundamental problem for sustainability. Among waste reduction approaches such as recycling and donation, stock management based on demand estimation which leads to mitigate waste generation and maintain a high profit is expected to play an important role. However, demand estimation is generally difficult because fluctuations in sales are quite volatile, and stock-out leads to incomplete demand observation. Here, we propose data science solutions to estimate non-stationary demand with censored sales data including stock-outs and realize scientific stock management. Concretely, we extend a non-stationary time series analysis method based on Particle Filter to handle censored data, and combine it with the newsvendor problem formula to determine the optimal stock. Moreover, we provide a way of pricing waste reduction costs. A method to verify consistency between the statistical model and sales data is also proposed. Numerical analysis using actual Point-Of-Sales data in convenience stores shows food waste could be reduced several tenths percent keeping high profits in most cases. Specifically, in cases of foods disposed of frequently about 75% of working days, food waste decreases to about a quarter with the profit increases by about 140%. The way of pricing waste reduction costs tells new insights such as 27% waste reduction is achieved by 1% profit loss. Our method provides a practical solution for food waste reduction in the retail sector.

Reducing Food Waste in the Retail Supply Chains by Improving Efficiency of Logistics Operations

“…It is estimated that 25% to 50% of food in the supply chain becomes waste [32]. If the part of the food supply chain from the food production company to the consumption is examined, the largest quantities of food waste are generated in households (53-71%), then in food production and processing companies (17-30%), food service providers (9-12%), and retail (2-9%) [33]. Although the amounts and types of food waste generated in retail have been studied in detail, the food waste quantities are not always well documented [34].…”

“…Food waste causes the waste of valuable natural resources (land, water, and energy), increases the cost of food production [22], and has negative effects on the environment by increasing the total amount of waste (from food and non-food products). Companies that adopt some of the food waste reduction strategies can achieve financial savings and reputational gains [33].…”

Sustainability-Oriented Innovations in Food Waste Management Technology

“…Therefore, it is crucial to shift the mindset of each individual and ensure that everyone in the company feels included in the project [16,60]. This can be greatly facilitated by top management with an open communication and shared goal setting with involved parties [61][62][63][64][65].…”

Exploring success factors in food waste prevention initiatives of retailers: the critical role of digital technologies

“…By identifying significant predictors such as price and discount percentage, a regression analysis enables quantifying the impact of these factors on the probability of a sale (Končar et al ., 2019). Moreover, regression analysis has been used in previous studies to help businesses to develop targeted pricing and inventory management strategies that minimize food waste and promote sustainability (Riesenegger and Hübner, 2022; Sakoda et al ., 2019).…”