Some waste is inevitable in manufacturing, whether it’s in working with metals, paper, chemicals, textiles or plastics. Still, companies strive to limit how much waste is involved in the production, packaging, transportation and other processes in their manufacturing and supply chain operations. The stakes are high, not just in terms of environmental sustainability but also for business profitability. Progress has been mixed, but leading practices and new technologies have made inroads. This article addresses manufacturing companies’ challenges in reducing waste and how to surmount them.

What Is Manufacturing Waste?

Manufacturing waste is a broad term covering any use of resources that doesn’t add value to a product. Waste comes in two principal types: material waste and operational inefficiency.

Material waste consists of excess physical inputs and leftovers, as well as excessive energy use and inordinate pollution. The question is, how much is too much? For example, cutting a pattern for a dress shirt typically leaves some fabric trimmings. Dying the fabric produces wastewater. Packaging creates another piece of trash that could end up in a landfill. Any one of these and other processes could be ripe for reevaluation to eliminate “pure waste” — the result of unnecessary, worthless or even detrimental usage in areas such as raw materials (when discarded as off-specification), production (scraps on the factory floor), inventory (expired and spoiled), packaging (too much or nonrecyclable) and contamination (spills, dust, smoke and carbon emissions).

Operational inefficiency is the second type of waste, as set forth by the lean model of manufacturing that was popularized in the 1990s. The lean model aims to mitigate the waste of costly time and effort in eight areas:

  • Motion: Workflows that create unnecessary activity.
  • Overprocessing: Designs requiring more processing complexity than needed.
  • Downtime: Bottlenecks that slow or idle machines and team members.
  • Overproduction: Where output outpaces customer demand.
  • Transport: Unnecessary time and effort spent moving parts and products.
  • Excess inventory: Overstocks of raw materials, components and finished products.
  • Defects: Quality-control failures that produce waste and add costs to correct.
  • Untapped talent: Failure to adequately train and use team members to their full potential.

Clearly, a link exists between these two types of manufacturing waste, since material waste is often a byproduct of operational inefficiency. “Lean methods focus on continually improving resource productivity and production efficiency, which frequently translates into less material, less capital, less energy and less waste per unit of production,” according to the Environmental Protection Agency (EPA). Yet, the EPA cautions, “lean methods do not explicitly incorporate environmental performance considerations, leaving environmental improvement opportunities on the table.”

Key Takeaways

  • Manufacturing waste is bad for the planet and bad for business.
  • Manufacturers are targeting both material waste and operational inefficiencies to improve environmental sustainability and business performance.
  • Evolving digital and operational techniques are accelerating waste reduction.

Importance of Reducing Manufacturing Waste

Manufacturing waste is detrimental to the planet. For instance, a quarter of the global carbon footprint is embodied in traded goods, according to the U.S. Department of Energy (DOE).

Waste is not good for businesses, either. According to a 2022 report titled “The Missing Billions: The Real Cost of Supply Chain Waste,” an average 8% of inventory, totaling about $163 billion, perishes or is discarded annually worldwide. In an industry-specific example, about a third of consumers surveyed recently demanded that food and beverage brands do more to protect nature, use sustainable packaging and improve waste management.

That said, reducing waste has been shown to improve a company’s profitability. Benefits include lower costs for materials, energy and labor; a boost to productivity; fewer delivery delays; better brand reputation and sales; and less time and resources spent on waste disposal. In reviewing 142 small and medium-size businesses (SMBs) in 2022, the DOE’s Industrial Assessment Centers identified a total of nearly $26 million in potential annual savings in energy, waste, water, productivity and more.

Regulators are also driving companies to reduce manufacturing waste. For example, under a new rule from the U.S. Securities and Exchange Commission, by the end of 2025, publicly traded companies will have to provide climate-related disclosures in their annual reports and other statements. Meanwhile, a 2022 packaging law in California requires 100% of single-use packaging to be recyclable or compostable by 2032. The European Union has a deforestation regulation coming into effect on Dec. 31, 2024, when companies will need to demonstrate that various commodities and related products sold in Europe are not linked to deforestation. Noncompliance could result in penalties of up to 4% of annual revenue.

How to Reduce Manufacturing Waste

Below are 24 key ways to reduce manufacturing waste, ranging from decreasing lead times to adopting closed-loop systems to performing waste reduction audits. In each case, the digitization and integration of companies’ business units, production facilities and supply chains play leading roles in waste reduction.

In fact, more than a third of respondents to a 2023 survey by the Manufacturing Leadership Council said that waste reduction was one of their top three objectives for embarking on new manufacturing data projects. These projects often rely on enterprise resource planning (ERP) systems that incorporate specialized software for inventory management and other critical functions. Internet of Things (IoT) devices, such as radio frequency ID (RFID) tags and sensors, collect data via cloud networks, to be accessed, analyzed, integrated with other departmental data and used in automating operations from ordering to waste disposal.

Inventory and Material Management

The supply chain functions of both inventory management and materials management play essential roles in reducing manufacturing waste. In these interrelated and sometimes overlapping functions, an inventory manager’s overarching goals include guaranteeing availability while minimizing the costs associated with carrying and storing stock in the forms of raw materials, components and finished products. The broader role of a materials manager also includes planning material requirements, ensuring quality control and coordinating purchasing and inventory levels to see that production runs smoothly. Here’s how the two functions work to reduce manufacturing waste.

  1. Efficient inventory management: Managing inventory efficiently means timing and balancing customer demand, production schedules and stock, even amid seasonal fluctuations, changing consumer trends and other types of volatility. Otherwise, companies expose themselves to the ravages of waste in various forms, from financial implications, such as stranded capital and increased storage costs, to material waste, including product obsolescence, spoilage and expiration.
  2. Minimized overstocking and overproduction: Inventory managers work to reduce waste using real-time data on stock levels of raw materials, components and finished products. Using RFID and other sensors in the field, along with inventory management software in the cloud, a manager can spot dwindling stock levels to prompt reordering on a timely basis; the software could even automate restocking exactly where and when it’s needed. Experts advise tracking a metric known as days sales in inventory (DSI), which calculates the time it takes to convert inventory to sales, with the aim of an average 30 to 60 days. This range helps avoid stockouts, as well as overstocking.
  3. Material optimization: Optimizing materials means analyzing and enhancing the flow of materials through manufacturing and supply chain processes to eliminate wasted time, effort and resources. In a simple example, for production efficiency, managers should minimize the distance between storage and the point of use for the raw materials or components that are most frequently needed on the factory floor. Zoom out, and material optimization becomes a complex matter of breaking down data silos created by incompatible systems and poorly integrated departments to establish continuous, automated monitoring and rule-based notifications of issues that could create bottlenecks, overstocks, recalls and shortages.
  4. Returnable packaging systems: Single-use packaging has gained a bad reputation — for good reason, with the equivalent of 2,000 garbage truckloads of plastic dumped every day into the world’s oceans, rivers and lakes. Returnable packaging systems represent part of the solution, whether in terms of refillable water bottles or reusable plastic shipping crates. Yet system design needs to strike a balance, according to PwC. The emissions reductions gained from reusing packaging and reducing its end-of-life impact need to outweigh the increases in emissions and wastewater generated in reuse steps, such as reverse logistics, sorting and washing. Returnable packaging systems are not only focused on consumers; manufacturers increasingly track and reuse crates, pallets, bins and other transport containers tagged with RFID devices.
  5. Reduced packaging: Consumers have seen a notable reduction in excessive packaging — from plastic shrink-wrap to foam dividers and boxes within boxes — though work in this area continues. What shoppers don’t see is the excess supply chain packaging used in shipping parts and components from suppliers to manufacturers. Big manufacturers have been implementing guidelines for their vendors to use less material in shipping components and raw materials and to replace packaging that’s not reusable.
  6. Create inventory control: Inventory control lets companies derive maximum profit from minimal investment in stock. The caveat is that inventory levels must still be sufficient to avoid stockouts and any resulting customer dissatisfaction. Cloud-based inventory software can integrate data from point-of-sales software and IoT devices in production facilities and the supply chain, delivering real-time updates and even automating replenishment. In addition to improving the top and bottom lines, controlling against excess inventory can help mitigate environmental waste by minimizing the disposal of spoiled and expired goods — and the amount of raw materials that went into them. Related benefits include less waste in packaging and energy use.

Process and Production Efficiency

Production efficiency measures the ability to create and transport a product using the least time, fewest materials and least labor, without breakdowns or defects. Under this umbrella, process efficiency parses each individual step to examine related key performance indicators (KPIs) for speed, uptime and quality.

Both types of efficiency should reduce waste. For instance, streamlined processes lead to fewer errors, optimized machine settings help minimize material waste and process efficiency often lowers energy use. Then, looking at production more holistically can streamline the entire system — even eliminating individual processes that don’t add value.

In this context, “you will never improve without accurate manufacturing efficiency data,” according to Milliken & Co., an industrial manufacturer. Centralized dashboards help drive results, accountability and sustainability, while focusing managers on the biggest issues and how to resolve them.

Importantly, production efficiency should not be confused with productivity, which measures how much is produced instead of how it’s done. That said, production efficiency is a key driver of productivity. Here are five ways that improving process and production efficiency can help reduce manufacturing waste.

  1. Implement preventive maintenance: Unplanned downtime cost Global Fortune 500 companies 11% of their yearly revenue, according to a 2023 report, and SMBs could be even more vulnerable. Poor preventive maintenance carries other costs, too. Worn-out, misaligned or improperly lubricated parts contribute to waste. For instance, malfunctioning equipment, such as dull cutting tools, can produce uneven cuts of material that need to be thrown out. Premature wear and tear could also speed factory equipment to the trash heap. A preventive maintenance strategy should include monitoring, employee training and carefully planned downtime for adjustments. Companies can also benefit from new predictive maintenance capabilities using digital technologies, such as artificial intelligence (AI).
  2. Invest in automation: Advanced industrial operations and enterprise technology, such as robotics, ERPs and smart IoT devices, all contribute to the current trend to implement “smart manufacturing,” which orchestrates, automates and optimizes manufacturing. Companies are turning to smart manufacturing to reduce energy usage, maximize resources and repurpose or recycle materials, according to Rockwell Automation’s 2024 “State of Smart Manufacturing Report.” In this survey, more than four in 10 manufacturers said they plan to increase automation over the next five years to drive business outcomes, including a core priority of adopting technology for tracking and quantifying sustainable practices.
  3. Adopt a closed-loop manufacturing system: Secondary materials — i.e., those that are cycled back into the economy when their useful life has ended — account for a little over 7.2% of all inputs into the global economy, according to the Circle Economy Foundation. More closed-loop, or circular, systems could help make greater inroads, replacing the “take-make-dispose” model of producing goods with the three “R’s” of sustainability: reduce, reuse and recycle. Closed-loop manufacturing systems have proved challenging to implement: A recent Harvard Business Review article suggests that companies carefully identify strategies that don’t overshoot their resources and capabilities. Approaches could include leasing/renting products to customers, rather than selling them (examples include copy machines and high-end fashion); designing products to last longer (creating a market opportunity for used products); and redesigning products and processes to maximize material recovery (such as recycling plastic waste into textile thread).
  4. Reduce lead times: Shorter lead times can reduce both material waste and process inefficiencies in manufacturing, resulting in lower inventory, smoother flow and accurate forecasting. The Corporate Finance Institute advises mapping the end-to-end process to identify unnecessary activities across steps, including preprocessing, processing, storage, transportation and inspection. The institute’s tips on shortening lead times range from changing shipping methods and sourcing locally to automating.
  5. Implement lean manufacturing principles: To address the eight forms of manufacturing waste mentioned earlier in this article, companies that employ the lean manufacturing model follow five principles: define value, map the value stream, create flow, establish “pull” and pursue perfection. Translating this into more common business parlance: Determine what the customer is willing to pay for, focus only on activities that contribute to fulfilling this customer demand, reconfigure these essential activities to run smoothly, align production volume with demand and establish mechanisms for continuous improvement. In addition to reducing manufacturing waste, this lean model can help companies cut unnecessary manufacturing costs. One proviso is to take care with lean, “just-in-time” approaches to production and distribution, which can cause supply chain disruptions if taken too far.

Waste Management and Reduction Strategies

Academic research recently published in the Economic Modelling Journal confirmed that waste reduction and recycling not only reduce environmental harm, but they help companies achieve competitive advantage and long-term business sustainability. Below are six common activities companies include in their waste management and reduction strategies.

  1. Perform waste reduction audits: To borrow a phrase from management consultant Peter Drucker: If you don’t measure waste, you can’t manage it. A waste audit studies the volume and type of waste a manufacturer is producing, while also identifying how much is being recycled, composted or sent to the landfill — and how much more could have been saved from the trash heap. One pro tip is to conduct this audit just after the year-end inventory count, when stock is most organized.
  2. Identify major waste sources: Different industries produce different wastes at different levels, with each industry proposing a specific waste reduction strategy. The EPA lists major hazardous waste sources for manufacturers along with mitigation strategies. For instance, a leather manufacturer generates high volumes of polluting wastewater. Potential recycling and prevention methods include filtering the water used in one leatherworking process to employ in another. More generally, a small number of waste streams is likely to create most of any manufacturer’s waste. Using this rule of thumb, the waste reduction audit described above should identify which streams call for priority remediation.
  3. Reduce physical waste volume: It pays to prevent waste before it even happens. Take “lightweighting,” for example. This process redesigns goods to weigh less without compromising product integrity. The benefits can include reduced production and transportation costs, as well as cutting back on natural resource consumption and the amount of waste sent to landfills. Production processes and packaging usage should also be revamped to reduce scraps, paper and other physical waste. At the end of the cycle, material recovery and reuse should move the needle away from disposal and toward recycling and repurposing.
  4. Consider a waste exchange: Waste exchanges, whether via online marketplaces or physical warehouses with catalogs, act as business-to-business hubs for selling reusable or recyclable waste and other byproducts. These platforms, run by governments, nonprofits or private companies, may be specific to a region or type of material. For instance, plasticsmarkets.org connects suppliers and buyers of plastic waste in North America, ranging from large bales of plastic scraps to processed and cleaned post-consumer resin that can be recycled into new products.
  5. Outsource waste management: Outsourcing can make sure that a manufacturer’s waste is disposed of properly and recycled where possible. By doing so, manufacturers eliminate the need for in-house experts, while benefiting from the waste management company’s negotiated pricing with landfills and recyclers. A waste management company can also conduct a waste reduction audit, as previously described.
  6. Reuse materials: In closed-loop manufacturing systems, companies arrange to reuse their own or others’ goods that have reached the end of their product life. One example might be a smartphone company that encourages consumers to return old phones and then disassembles them to reuse the rare earth materials inside. Another is a clothing retailer that encourages shoppers to return outfits they no longer wear, to then be donated to people in need or recycled into new materials for everything from clothing to car seats.

Employee Engagement and Training

A recent survey by McKinsey & Co. revealed the type of disconnects in employee engagement that can stymie a company’s efforts to reduce manufacturing waste. The survey found that awareness of commitments to sustainable packaging varied greatly among functions, ranging from 92% in product development to 75% in manufacturing to 67% in marketing and sales. Experts advise establishing a companywide culture of sustainability by getting everyone on the same page, setting goals, defining what sustainability means to the business and continually communicating sustainability messages. Within this culture, important steps include:

  1. Engage employees: A company’s board, C-suite and employees should speak openly about existing strengths and challenges in waste reduction. Staff should be encouraged to identify problems and suggest sustainable innovations.
  2. Introduce waste reduction training: Educating the entire company on waste reduction and sustainability goals is a good start, but it’s only a start. Less than 20% of companies surveyed by McKinsey said they have upskilled employees to incorporate sustainability themes or implemented meaningful incentives to achieve sustainability goals.
  3. Measure your waste: Measuring waste sets the baseline for employees to make progress toward defined goals — and gain recognition when that progress is made. Centralized dashboards can provide staff across departments with a unified view of manufacturing KPIs, including waste, and their status. Beyond motivational benefits, these measurements should enhance transparency and accountability within the overall culture of sustainability.

Supplier and External Resource Management

Much, if not most, of a company’s carbon footprint and other environmental impacts are produced in its supply chain, making traceability and supplier relationship management pivotal to reducing manufacturing waste. Where is the waste being generated? Which supply chain partner is causing it? And how can a collaboration between buyer and vendor tackle the problem?

  1. Audit your suppliers: A supply chain audit periodically analyzes each product’s entire journey from source to customer, and even back again, searching for weaknesses, including waste. In today’s complex supply chains, companies should not only examine the performance of tier 1 vendors with which they have direct relationships, but also the performance of those suppliers’ supply chain partners in tier 2 and beyond. To be effective, audits need a clear plan and focused execution. Otherwise, a superficial review may expose only symptoms, leading to temporary fixes instead of the ability to tackle the root causes of waste. Companies can choose to rely on internal experts, hire external auditors or use a combination of both to conduct these assessments.
  2. Improve supplier relationships: Relationships with suppliers are digital as well as personal. A company’s vendor management software can provide its suppliers with an online portal to upload progress reports on waste reduction KPIs included in their contracts. The same application can also include vendor scorecards that measure suppliers’ performance in waste management and other areas. Data becomes the basis for closer collaboration, as this visibility into the supply chain reveals opportunities to work together to minimize material waste and process inefficiencies.

Specialized Focus Areas

Material waste and its environmental impacts continue to capture the local, national and global attention of consumers, regulators and politicians. At the same time, production inefficiencies have drawn greater scrutiny in boardrooms and on Wall Street in the wake of pandemic-related manufacturing and supply chain disruptions. Here are two examples.

  1. Water conservation: At a political level, the very definition of “waters of the United States” (WOTUS) is currently in flux, as government officials, judges and industry associations debate Clean Water Act provisions to further protect the nation’s waters from pollution and degradation. Manufacturers have expressed concerns over WOTUS-related complications in permitting, compliance costs, project delays and litigation. At an operational level, meanwhile, conserving water requires tracking its use and routinely inspecting water fixtures. Beyond such day-to-day measures, companies are implementing novel ways of reusing water in processes such as cleaning and cooling, while also reducing water use from the outset with techniques that cut back on coolants and lubricants in metal cutting, such as “dry machining.”
  2. Production optimization: Industry leaders have long discussed the promise of “smart manufacturing” and “Industry 4.0,” both of which aim to integrate advanced technologies like AI, robotics and big data into manufacturing processes to streamline, automate and customize manufacturing operations. The current surge of AI development is said to be speeding these concepts into reality. At the same time, companies have been building the foundations of Industry 4.0 and making incremental progress toward smart manufacturing with better orchestration of business units, production and supply chain operations using ERP systems, specialized software suites, integrated applications and deliberate production planning. Their lean manufacturing improvements have also been optimizing production, which, in turn, reduces manufacturing waste.

Reduce Your Manufacturing Waste With NetSuite Advanced Manufacturing

NetSuite’s manufacturing cloud ERP helps manufacturers plan and manage across the many functions that must work together to drive efficiency, reduce material waste and maintain quality in the products they deliver to customers. The software suite covers a range of functions, including order management, planning and scheduling, supply chain, procurement, shop floor control, quality management, supplier relationship management and customer relationship management. With these and other capabilities, NetSuite delivers the visibility and control needed to prevent and reduce companies’ manufacturing waste.

While some manufacturing waste is unavoidable, companies constantly seek methods to minimize it across production, packaging and logistics. Environmental and economic pressures are driving these efforts, and advancements in technology and best practices offer promising solutions for a more sustainable and profitable future.

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Reducing Manufacturing Waste FAQs

How can companies prevent manufacturing waste?

In the digital realm, enterprise resource planning systems, integrated with specialized software, enable greater visibility into manufacturers’ production and supply chain processes to pinpoint problems. Companies are also using predictive maintenance, based on artificial intelligence, to elevate waste reduction efforts and operational innovations to prevent water and energy waste, like wastewater reuse from one process to another and waste heat recovery systems.

What is manufacturing waste?

In manufacturing, waste refers to any resource usage that doesn’t contribute to a product’s value. Manufacturing waste not only harms the planet, but it also saps business profitability. It comes in two forms: material waste and operational inefficiency. Material waste encompasses physical excesses in creating leftover materials, using too much energy and polluting the environment — including everything from fabric scraps and packaging trash to wastewater.

How can companies minimize the production of manufacturing waste?

One trending approach to minimizing the production of manufacturing waste involves transitioning from a linear “take-make-dispose” system to closed-loop, or circular, manufacturing. This might involve leasing products instead of selling them, designing for longevity to create a used-product market, or rethinking designs and processes to maximize material recovery, such as turning plastic waste into new materials.

How do you eliminate waste in lean manufacturing?

The lean model of manufacturing, popularized in the 1990s, tackles waste in the form of operational inefficiency by focusing on eight areas where time and effort are misspent. These areas are unnecessary movements, overly complex designs, production bottlenecks, exceeding customer demand, inefficient transportation, excessive inventory, quality-control issues and underutilized employee skills.