ERP: A vital ingredient for a circular economy model in the food industry

A traditional linear economy is where you produce, consume and throw away. Moving to a circular economy is all about creating a ‘circle’ where you design out waste and pollution by keeping products and materials in use for as long as possible and finding ways to create new resources from what we discard.

The traditional linear economy creates waste through a model that flows as:

  • ‘Take, make, dispose of’.
    • The current food production model is wasteful and polluting – and harms natural systems.
  • ‘Make, use, recycle’.
    • A circular economy for food mimics natural systems of regeneration so that waste does not exist but is instead used in a new cycle.

The 7 key elements of the circular economy

A circular economy aims to reclaim and reuse products and materials as much as possible to minimise the destruction of value. Recycling, sustainable farming and green manufacturing are all components of this model, but none of these practices entirely captures the idea—the larger concept is based on creating a loop through which resources pass continually, thus the name, “circular economy.”

The term ‘circular economy’ is used in many different ways, however, Circle Economy has defined seven key elements that apply to every industry. These elements provide a good basis for understanding how the circular economy can work in the food industry:

  • Prioritise regenerative resources.

    • Ensure renewable, reusable, non-toxic resources are utilised.
  • Extend the lifetime.

    • Improve treatment and handling procedures, as well as packaging improvements and use secondary markets for waste and left-over products.
  • Use waste as a resource.

    • Utilise waste streams as a source of secondary resources and recover waste for reuse and recycling.
  • Rethink the business model.

    • Consider opportunities to create greater value and align incentives through business models that build on the interaction between products and waste materials.
  • Design for the future.

    • Create sustainable supply and value chains.
  • Incorporate digital technology.

    • Implement an ERP system that allows you to track and optimise, whilst integrating with other business-critical platforms.
  • Collaborate to create joint value.

    • Work together throughout the supply chain, internally within organisations, with the public sector and the secondary market to increase transparency and create joint value.

Using ERP as a vital ingredient in the food industry circular economy

Each of the above elements of the circular economy adds a level of complexity to a business operating in the food industry. An Enterprise Resource Planning (ERP) system, such as Sage X3, has inbuilt industry-specific functionality, as well as several tools within the manufacturing and distribution areas of the software that supports circularity and can help food manufacturers improve their circularity implementation.

Below are some examples of the capabilities of an ERP that support a circular system in the food industry:

1. Reduce waste with a Bill of Materials (BOM) and recipe management

By ensuring the accuracy of the BOM, waste is reduced, and replenishment is aimed at Just-In-Time (JIT), which reduces unnecessary loads on the system.

Recipe management ensures you have full control of the quantity, quality and cost of the raw materials, and real-time control of your recipes.

If an ingredient is found to be substandard, a capability like a ‘where-used’ search can be used to identify all the products that might be affected and quickly mitigate any risk or further waste.

2. Visibility of stock levels with Material Requirements Planning (MRP)

No food manufacturers want to hold stock that is not going to be used soon and that can be avoided by using MRP. MRP provides visibility into production activities through collaborative planning. You can create, release, update and monitor work orders throughout production or outsourcing processes including the ability to control and manage batches where required.

Knowing what’s needed, how much is needed, and when it’s needed helps companies to reduce waste.

3. Guarantee food safety and minimise waste through automated inventory management

Food items are perishable, making it essential to monitor expiration dates, batch numbers, and product volumes to guarantee food safety and minimise waste. A food inventory tracking system that logs and tracks these criteria, through accurate stock control, provides the assurance that items are stored in the required conditions and consumed before expiring.

4. Reuse materials with co-products and by-products capabilities

Managing co-products and by-products results in less waste, better machine utilisation and allows greater opportunity to reuse materials. Businesses can also generate extra revenue by creating demand for by-products that are not used, into products that can be sold to other organisations that can use them, i.e. biofuel or packaging industry.

5. Enable full lot traceability with Supply Chain Management (SCM) functionality

By being able to tightly manage a wide range of product variations, including weight, breed, cut, age, variety, region of origin and packaging, you can minimise waste. An ERP system allows you to control, manage and gain visibility of your supply chain, procurement and materials processes with full lot traceability, allowing you to use sustainable resources.

If you have a web platform that enables online transactions with suppliers, you can improve your collaboration with them in many different areas. For example, if production teams change a recipe, the change of requirements is easily passed on to suppliers, and the new orders are delivered to the updated requirements.

6. Respond quickly to defects and hazards with traceability capabilities

Traceability is essential for a circular economy. Traceability is now more than general food safety or listing ingredients, as environmental legislation and rising consumer demand for sustainable products are having a big impact on the food industry.

ERP systems provide lot traceability at all stages of the production process, allowing manufacturers to respond at lightning speed to any defect or hazard, down to the level of each individual ingredient, therefore reducing waste levels at each stage of the manufacturing process.

7. Support changing food regulations and quality assurance

Changing laws on food waste, sustainable growing practices, plastics and recyclable packaging are creating new challenges for food and beverage manufacturers who are struggling to be compliant while remaining profitable.

Forward and backward traceability, supplier lot tracking, quality assurance, recipe changes, contract management, product data management, risk management, change management and other necessary information are all part of an ERP system helping to deliver compliance across the whole manufacturing process and supply chain.


For food manufacturers, a move to the circular economy should include revisiting your ERP system and checking out whether the time is ripe to replace it with a system that will support your transition to the circular economy.

The need for investment in a circular economy requires prioritising long-term goals. Overcoming knowledge and process barriers can open the doors for manufacturing, to achieve a more innovative and sustainable future.

Check our guide ‘How the circular economy can transform manufacturing to discover how manufacturers in the food industry can unlock the opportunities available from the circular economy.

2024-01-31T14:24:48+00:00May 22, 2023|Blog|
Go to Top