How to Reduce Manufacturing Waste for Efficiency and Profit?

mark599704
Jan 20
15 min read

Updated: Jan 20

Some waste is unavoidable in manufacturing. It occurs when working with materials such as metal, paper, chemicals, textiles, and plastics. Even so, companies aim to reduce waste at every stage of their operations, including production, packaging, transportation, and the overall supply chain. The goal is to use resources more efficiently and avoid unnecessary loss.

The stakes are high for manufacturers. Excess waste harms the environment and increases operating costs, which directly affects profitability. While progress has been uneven, many companies are seeing better results by adopting best practices and using new technologies. This article explains the key challenges manufacturers face in reducing waste and outlines practical ways to overcome them.

What Is Manufacturing Waste?

Manufacturing waste is the use of resources that do not add value to a product. It includes anything that does not improve the final result. Waste in manufacturing generally falls into two main categories: material waste and operational inefficiency.

Material Waste

Material waste includes excess materials, leftovers, wasted energy, and unnecessary pollution. For example, cutting fabric for a dress shirt produces fabric scraps, dyeing fabric generates wastewater, and packaging can create additional waste that may end up in landfills. Many of these steps can be reviewed and improved to eliminate “pure waste,” unnecessary or harmful usage. Material waste can occur in raw materials, production scraps, expired inventory, excessive packaging, and contamination such as spills, dust, smoke, or carbon emissions.

Operational Inefficiency

The second type of waste, operational inefficiency, comes from wasted time, effort, or poor workflow design. This concept is central to the lean manufacturing model, which became popular in the 1990s. Lean manufacturing identifies eight major areas of inefficiency:

Excess Inventory: Holding too many raw materials or finished goods.
Overproduction: Producing more products than customers demand.
Untapped Talent: Employees whose skills or time are underutilized.
Overprocessing: Processes that are more complex than needed.
Defects: Quality issues that require rework or discarding products.
Transport: Moving materials or products unnecessarily far.
Downtime: Machines or workers sitting idle due to delays.
Motion: Unnecessary movement in workflows.

These two types of waste are closely connected. Material waste often results from inefficient processes. According to the Environmental Protection Agency (EPA), lean manufacturing methods can improve efficiency and reduce material, energy, and waste per unit of production. However, the EPA also notes that lean methods do not always explicitly focus on environmental impact, meaning some opportunities for environmental improvement may be missed.

Key Takeaways

New digital tools and improved processes are helping manufacturers cut waste faster.
Companies are working to reduce material waste and improve operational efficiency.
Manufacturing waste harms both the environment and business profitability.

Importance of Reducing Manufacturing Waste

Manufacturing waste harms the planet. For example, the U.S. Department of Energy (DOE) reports that a quarter of the global carbon footprint comes from traded goods.

Waste also hurts businesses. A 2024 report, The Missing Billions: The Real Cost of Supply Chain Waste, found that about 8% of inventory worth roughly $163 billion is lost or discarded worldwide each year. In the food and beverage industry, about a third of consumers expect brands to protect the environment, use sustainable packaging, and manage waste better.

Reducing waste can increase profits. It lowers costs for materials, energy, and labour. It improves productivity, reduces delivery delays, strengthens brand reputation, boosts sales, and saves time and resources on disposal. In 2024, the DOE’s Industrial Assessment Centres reviewed 142 small and medium-sized businesses and identified nearly $26 million in potential annual savings across energy, waste, water, and productivity.

Regulations are also pushing companies to cut waste. The U.S. Securities and Exchange Commission now requires publicly traded companies to report climate-related information by 2027. California’s 2024 packaging law mandates that all single-use packaging be recyclable or compostable by 2034. The European Union will enforce a deforestation regulation on Dec. 31, 2026, requiring companies to show that products sold in Europe are not linked to deforestation. Violations could lead to fines of up to 4% of annual revenue.

How to Reduce Manufacturing Waste

There are 23 key ways to reduce manufacturing waste. These include actions like shortening lead times, adopting closed-loop systems, and performing waste reduction audits. A common theme across all methods is the use of digital tools and integration across business units, production facilities, and supply chains.

Digitalisation plays a major role in waste reduction. In a 2025 survey by the Manufacturing Leadership Council, over a third of respondents said waste reduction was one of their top three goals when starting new manufacturing data projects.

Many of these projects use enterprise resource planning (ERP) systems with specialized for inventory management and other essential tasks. Internet of Things (IoT) devices, such as RFID tags and sensors, gather data through cloud networks. This data can be analysed, shared across departments, and used to automate operations from ordering materials to managing waste disposal, helping companies reduce waste more efficiently.

Inventory and Material Management

Inventory and materials management are key to reducing manufacturing waste. These two functions are closely related and sometimes overlap. Inventory managers focus on making sure materials are available when needed while keeping storage and carrying costs low. This includes managing raw materials, components, and finished products efficiently. Materials managers have a broader role. They plan material needs, maintain quality control, and coordinate purchasing and inventory levels. Their goal is to ensure production runs smoothly without excess waste. Together, these functions help minimize waste by using materials wisely, reducing overstock, and preventing losses from spoilage or inefficiency.

Related Blog:

Overstock Due to Supply Chain Delays

Returnable Packaging Systems

Single-use packaging has a major environmental impact, with around 2,000 garbage truckloads of plastic entering oceans, rivers, and lakes every day. Returnable packaging systems help reduce this waste. Examples include refillable water bottles and reusable plastic shipping crates. However, these systems must be carefully designed. According to PwC, the environmental benefits of reuse, like lower emissions and reduced waste, must outweigh the emissions and wastewater created during steps like reverse logistics, sorting, and washing.

Returnable packaging is not just for consumers. Manufacturers also track and reuse crates, pallets, bins, and other transport containers using RFID devices, reducing waste throughout the supply chain.

Material Optimization

Material optimization means improving the flow of materials through manufacturing and supply chains to reduce wasted time, effort, and resources. A simple example is keeping frequently used raw materials or components close to the production area. This reduces delays and increases efficiency on the factory floor. On a larger scale, material optimization involves breaking down data silos caused by incompatible systems or poorly connected departments. By integrating systems, companies can monitor materials continuously and use automated alerts to prevent bottlenecks, overstocking, recalls, and shortages. This ensures smoother production and less waste overall.

Create Inventory Control

Inventory control helps companies maximize profit while keeping stock investment low. At the same time, inventory must be enough to prevent stockouts and avoid upsetting customers. Cloud-based inventory can connect data from point-of-sale systems and IoT devices in production and supply chains. This provides real-time updates and can even automate restocking. Beyond financial benefits, controlling inventory reduces environmental waste. It minimizes the disposal of spoiled or expired goods and the raw materials used to make them. It also lowers waste in packaging and energy use, making operations more sustainable.

Minimized Overstocking and Overproduction

Inventory managers reduce waste by using real-time data on raw materials, components, and finished products. Tools like RFID tags, sensors, and cloud-based inventory help track stock levels accurately. When stock runs low, managers can reorder on time and can even automate restocking exactly where and when it’s needed. Experts recommend monitoring Days Sales in Inventory (DSI), the time it takes to turn inventory into sales. A DSI of 30 to 60 days helps prevent both stockouts and overstocking, reducing waste and keeping production efficient.

Efficient Inventory Management

Efficient inventory management means balancing customer demand, production schedules, and stock levels. This is important even during seasonal changes, shifting consumer trends, or other uncertainties. Without careful management, companies risk various types of waste. Financial waste can occur through tied-up capital and higher storage costs. Material waste happens when products become obsolete, spoil, or expire. Proper inventory planning helps prevent these losses and keeps production and supply chains running smoothly.

Reduced Packaging

Consumers have noticed less excessive packaging, such as plastic wrap, foam dividers, and boxes inside boxes. However, waste in supply chain packaging used to ship parts and materials from suppliers to manufacturers remains a concern. To address this, large manufacturers are setting guidelines for their suppliers. These rules encourage using less material for shipping and replacing non-reusable packaging with sustainable alternatives. This helps reduce waste across the entire supply chain.

Process and Production Efficiency

Production efficiency measures how well a product is made and delivered using the least time, materials, and labor, while avoiding breakdowns and defects. Process efficiency looks at each step individually, checking key performance indicators (KPIs) for speed, uptime, and quality. Both types of efficiency help reduce waste. Streamlined processes create fewer errors, optimized machine settings reduce material waste, and better processes often lower energy use. Looking at production as a whole can also eliminate steps that don’t add value.

According to Milliken & Co., “you will never improve without accurate manufacturing efficiency data.” Centralized dashboards provide clear data, drive accountability, and focus managers on the most important issues. It’s important to note that production efficiency is different from productivity, which measures output rather than quality or resource use. However, improving efficiency is a key way to boost productivity. Enhancing process and production efficiency can significantly reduce manufacturing waste.

Implement Preventive Maintenance

Unplanned downtime is costly. A 2025 report found that Global Fortune 500 companies lose about 11% of annual revenue due to unexpected stoppages, and small and medium businesses may be even more at risk. Poor maintenance also leads to material waste. Worn, misaligned, or poorly lubricated equipment can cause defective products. For example, dull cutting tools may produce uneven material that must be discarded. Premature wear can even shorten the life of factory machines.

A strong preventive maintenance plan includes regular monitoring, employee training, and scheduled downtime for adjustments. Companies can also use digital tools like artificial intelligence (AI) for predictive maintenance, reducing both downtime and material waste.

Adopt a Closed-Loop Manufacturing System

Secondary materials, those reused after their initial life, make up just over 7.2% of global inputs, according to the Circle Economy Foundation. Closed-loop, or circular, systems aim to increase this by replacing the traditional “take-make-dispose” model with the three “R’s”: reduce, reuse, and recycle. Implementing closed-loop systems can be challenging. Harvard Business Review advises companies to choose strategies that match their resources and capabilities.

Approaches include leasing or renting products instead of selling them (e.g., copy machines or high-end fashion), designing products to last longer to create a market for used goods, and redesigning products and processes to recover materials, like turning plastic waste into textile thread. These strategies help reduce waste and create more sustainable manufacturing systems.

Implement Lean Manufacturing Principles

Lean manufacturing helps reduce the eight types of waste discussed earlier. It is based on five key principles: define value, map the value stream, create flow, establish “pull,” and pursue perfection. In simpler terms, companies should determine what customers truly value, focus only on activities that meet that demand, streamline these activities, match production to customer needs, and continuously improve processes.

Using lean methods not only reduces waste but also lowers unnecessary manufacturing costs. However, caution is needed with “just-in-time” approaches, as overly aggressive implementation can disrupt the supply chain.

Invest in Automation

Advanced technologies like robotics, ERP systems, and smart IoT devices are key to “smart manufacturing.” This approach automates, coordinates, and optimizes production processes.

Companies use smart manufacturing to reduce energy use, make the most of resources, and recycle or repurpose materials. According to Rockwell Automation’s 2026 State of Smart Manufacturing Report, over 40% of manufacturers plan to increase automation in the next five years. Their goal is not only to improve efficiency but also to track and measure sustainable practices across operations.

Reduce Lead Times

Shorter lead times help cut both material waste and process inefficiencies. They lead to lower inventory, smoother production flow, and more accurate forecasting. The Corporate Finance Institute recommends mapping the entire process to spot unnecessary steps, including preprocessing, processing, storage, transportation, and inspection. Tips for reducing lead times include changing shipping methods, sourcing materials locally, and using automation to speed up operations. This approach helps manufacturers save time, reduce waste, and improve overall efficiency.

Waste Management and Reduction Strategies

Research in the Economic Modelling Journal shows that reducing and recycling waste not only protects the environment but also gives companies a competitive edge and supports long-term business sustainability. Here are five common activities companies use in their waste management and reduction strategies:

Identify Major Waste Sources

Different industries produce different types and amounts of waste, each requiring specific reduction strategies. The EPA highlights major hazardous waste sources for manufacturers and suggests ways to reduce them. For example, leather manufacturers generate large volumes of polluting wastewater. One solution is to filter water from one process for reuse in another.

In most cases, a small number of waste streams account for the majority of a manufacturer’s waste. A waste reduction audit can identify these key streams, helping companies focus their efforts on the areas that will have the biggest impact.

Reduce Physical Waste Volume

Preventing waste before it occurs is often the most effective strategy. One example is “lightweighting,” which redesigns products to weigh less without affecting quality. This can lower production and transportation costs, reduce natural resource use, and decrease the amount of waste sent to landfills. Production processes and packaging should also be redesigned to minimize scraps, paper, and other physical waste. At the end of the cycle, companies should focus on material recovery and reuse, shifting waste away from disposal and toward recycling or repurposing.

Perform Waste Reduction Audits

As management consultant Peter Drucker said, “If you don’t measure waste, you can’t manage it.” A waste audit examines the amount and type of waste a manufacturer produces. It also checks how much is recycled, composted, or sent to landfill, and identifies opportunities to save more from being discarded. A useful tip is to conduct the audit right after the year-end inventory count, when stock is well organized. This ensures accurate results and helps companies plan effective waste reduction strategies.

Outsource Waste Management

Outsourcing waste management ensures that a manufacturer’s waste is handled properly and recycled whenever possible. This removes the need for in-house waste experts and allows companies to benefit from the waste management provider’s negotiated rates with landfills and recyclers. In addition, waste management companies can conduct waste reduction audits, identifying opportunities to cut waste and improve sustainability, as described earlier. This approach helps manufacturers save time, reduce costs, and manage waste more effectively.

Reuse Materials

In closed-loop manufacturing, companies reuse their own or others’ products after they reach the end of their life. For example, a smartphone company may ask customers to return old phones. The company can then disassemble them and reuse rare earth materials. Similarly, a clothing retailer might take back worn outfits, donating them to people in need or recycling the materials into new products, such as clothing or car seat fabrics. Reusing materials reduces waste and extends the value of resources.

Employee Engagement and Training

A recent McKinsey & Co. survey highlighted gaps in employee engagement that can hinder waste reduction efforts. Awareness of sustainable packaging commitments varied by department 92% in product development, 75% in manufacturing, and 67% in marketing and sales. Experts recommend building a companywide culture of sustainability. This involves aligning all employees, setting clear goals, defining what sustainability means for the business, and consistently communicating sustainability messages. Within this culture, key steps include:

Introduce Waste Reduction Training

Teaching employees about waste reduction and sustainability goals is essential, but it’s just the beginning. A McKinsey survey found that fewer than 20% of companies have trained employees to apply sustainability in their work or offered meaningful incentives to achieve these goals. Proper training helps staff understand their role in reducing waste and drives more effective, lasting improvements.

Measure Your Waste

Measuring waste provides a baseline for employees to track progress toward goals and earn recognition for improvements. Centralized dashboards give all departments a clear view of manufacturing KPIs, including waste levels and status. Beyond motivation, these measurements increase transparency and accountability, reinforcing a strong culture of sustainability throughout the company.

Engage Employees

Company leaders and employees should openly discuss current strengths and challenges in waste reduction. Staff should be encouraged to spot problems and propose sustainable ideas. This engagement helps create ownership, drive innovation, and ensure everyone contributes to reducing manufacturing waste.

Supplier and External Resource Management

A large part of a company’s carbon footprint and environmental impact comes from its supply chain. This makes traceability and strong supplier management essential for reducing manufacturing waste.

Key questions include: Where is the waste occurring? Which supplier is responsible? How can buyers and vendors work together to solve the problem? Effective collaboration with suppliers helps identify waste sources, implement sustainable practices, and improve efficiency across the entire supply chain.

Audit Your Suppliers

A supply chain audit reviews a product’s full journey from source to customer and back, looking for weaknesses, including waste. Companies should examine not only their direct (tier 1) suppliers but also the suppliers’ partners in tier 2 and beyond.

Effective audits require a clear plan and focused execution. A superficial review may only reveal symptoms, leading to temporary fixes instead of addressing root causes. Companies can use internal experts, external auditors, or a mix of both to conduct thorough assessments and identify opportunities to reduce waste throughout the supply chain.

Improve Supplier Relationships

Supplier relationships involve both personal and digital collaboration. Vendor management software can give suppliers an online portal to report progress on waste reduction KPIs in their contracts. This can also include vendor scorecards to track performance in waste management and other areas. This shared data creates transparency and enables closer collaboration, helping companies and suppliers work together to reduce material waste and improve process efficiency across the supply chain.

Specialized Focus Areas

Material waste and its environmental impact remain a major concern for consumers, regulators, and policymakers at local, national, and global levels. At the same time, production inefficiencies are under increasing scrutiny from company boards and investors, especially after pandemic-related manufacturing and supply chain disruptions.

Here are two examples of specialized focus areas where companies are addressing waste and inefficiency.

Water Conservation

Water conservation is a critical focus for both policymakers and manufacturers. Politically, the definition of “waters of the United States” (WOTUS) is under debate as government officials, judges, and industry groups discuss Clean Water Act protections. Manufacturers are concerned about potential complications with permits, compliance costs, project delays, and litigation.

Operationally, companies conserve water by tracking usage and regularly inspecting fixtures. Beyond these daily measures, businesses are adopting innovative methods to reuse water in processes like cleaning and cooling. Techniques such as dry machining, which reduces the need for coolants and lubricants in metal cutting, also help minimize water use from the start.

Production Optimization

Industry leaders have long highlighted the potential of “smart manufacturing” and Industry 4.0, which use technologies like AI, robotics, and big data to streamline, automate, and customize production. The recent surge in AI development is accelerating the adoption of these concepts.

Many companies are laying the groundwork for Industry 4.0 by better integrating business units, production, and supply chain operations. Tools like ERP systems, specialized inventory, integrated applications, and careful production planning help orchestrate processes efficiently. Combined with lean manufacturing improvements, these strategies optimize production and reduce manufacturing waste.

Benefits of Waste Reduction

Minimizing waste offers many important advantages for a business, some obvious and some less so. Key benefits of reducing manufacturing waste include:

Increases Operational Efficiency

Reducing waste isn’t just about cutting obsolete inventory; it also means eliminating processes and time that don’t add value. Once you identify where waste occurs, you can make changes that improve efficiency. This might include:

Redesigning your warehouse for better workflow
Reducing unnecessary labor at certain times
Cutting repetitive quality assurance steps

Eliminating inefficiencies helps you produce faster, spend less, and grow more effectively.

Reduces Time and Costs

Spending on materials or labor you don’t need is wasteful. By analyzing manufacturing processes to identify where waste occurs, you can cut costs significantly. Creating processes that prevent waste also saves time. With inventory and production running more efficiently, you can focus on higher-priority tasks, like growing your business.

Creates a Positive Environmental Impact

Overproduction and overprocessing harm the environment and should be minimized. Reducing packaging waste and using recycled materials benefits both your production and sustainability goals. This strengthens your brand reputation and demonstrates commitment to the environment.

Gives You a Competitive Advantage

Few companies focus fully on reducing manufacturing waste. By prioritizing inventory control, conducting waste audits, improving efficiency, and streamlining processes, your business can stand out in the market and gain an edge over competitors.

Conclusion

Reducing manufacturing waste is essential for both business success and environmental sustainability. By addressing material waste and operational inefficiencies, companies can lower costs, improve productivity, and enhance their brand reputation. Implementing strategies like lean manufacturing, closed-loop systems, automation, and employee engagement ensures resources are used efficiently while minimizing environmental impact. Collaboration with suppliers and careful inventory and materials management further strengthen these efforts. Ultimately, a proactive approach to waste reduction benefits the planet, your bottom line, and long-term business growth.

Reducing Manufacturing Waste FAQs

How can companies prevent manufacturing waste?

Companies use digital tools like enterprise resource planning (ERP) systems integrated with specialized inventory software to track production and supply chain processes. This visibility helps identify waste sources. Predictive maintenance powered by artificial intelligence (AI) can prevent equipment-related waste, while operational innovations like wastewater reuse and waste heat recovery reduce water and energy waste.

How can companies minimize the production of manufacturing waste?

One effective strategy is closed-loop (circular) manufacturing, replacing the traditional “take-make-dispose” model. This can include leasing products instead of selling, designing products to last longer to create a market for used goods, or redesigning processes to maximize material recovery, such as turning plastic waste into new materials.

What is manufacturing waste?

Manufacturing waste is any use of resources that doesn’t add value to a product. It harms both the environment and business profitability. Waste occurs in two forms: material waste and operational inefficiency. Material waste includes leftover materials, excess energy use, pollution, fabric scraps, packaging trash, and wastewater.

What role do employees play in waste reduction?

Employees are crucial. Engaging staff in sustainability initiatives, providing training on waste reduction, and encouraging suggestions for process improvements ensure that waste management is part of the company culture. Empowered employees can spot inefficiencies that management may overlook.

How do you eliminate waste in lean manufacturing?

The lean model targets operational inefficiency across eight areas: unnecessary movement, overprocessing, bottlenecks, overproduction, inefficient transport, excess inventory, defects, and underutilized employee skills. Addressing these areas reduces waste, improves efficiency, and cuts costs.

Can reducing waste improve my company’s profits?

Yes. Minimizing waste lowers costs for materials, energy, and labor. It also improves productivity, reduces delivery delays, and enhances brand reputation. Fewer resources spent on disposal and scrap materials directly contribute to better financial performance.

How can suppliers help reduce manufacturing waste?

Suppliers are part of the supply chain where most waste occurs. Auditing suppliers, sharing performance data, and collaborating on packaging, material use, and transport efficiency can significantly reduce waste before it reaches your production line.