The food industry has been coping with a poor global economy, and as a result, there is a strong need to both reduce costs and increase operational efficiencies across the board. One route companies are taking to reduce costs is through competitive bids for ingredients and raw materials sourced from global suppliers. Often times, a decision will be made to purchase materials from the supplier with the lowest costs with the expectation that future ingredients will match sample material reviewed and accepted.
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Unfortunately, this is not always the case. Many times during the initial review period the supplier will send the perfect samples to the company for evaluation to determine if the consistency and quality of the materials meet the company’s standards. Once a material is accepted and a supplier is added to the preferred vendor list, materials can be included in the buying process and filtered into the bill of materials within an enterprise resource planning (ERP) system.
What is missing from this process is the automation of quality processes and safety checks on a consistent basis. As a result, over time, products that are below standards, out of specification, or blatantly fraudulent can find their way into the manufacturing process and supply chain. For example, some suppliers will (illegally) substitute or cut a key ingredient with a cheaper alternative or simply label a product incorrectly or ambiguously.
You might remember the case of Kobe beef a few years back, in which American consumers were more or less tricked into believing the luxurious Japanese Kobe beef was actually true to its label. Turns out, Japanese Kobe beef was not allowed for sale in the U.S. in any way, shape, or form.
Food fraud may seem like a victimless crime, but it can have serious repercussions if it’s not identified before entering the supply chain. Since many products can be adulterated with cheaper ingredients that are not necessarily identified in the product’s certificate of analysis (COA) or labeling, there is now a significant risk to consumers with food allergies. In the event of any illnesses or deaths attributed to a product that contains these undisclosed allergens, the impact to a company and its brands can be devastating.
The Grocery Manufacturers Association estimates that the cost of one adulteration incident can total between two and 15 percent of a company’s yearly revenues. This could translate to a $400 million impact for a large $10 billion company, or a $60 million impact to a company making $500 million.
So what exactly can manufacturers do to protect their brands, products, and consumers? Developing better supplier visibility and collaboration can ensure superior product safety and quality, easier said than done. But with the latest technologies available to manufacturers today, visibility and collaboration are much easier to tackle than in the past.
What is missing from this process is the automation of quality processes and safety checks on a consistent basis.
The first step is to develop and maintain supplier scorecards, which basically act as a manufacturer’s real-time view into the entire supply chain and all its processes. Whether your supplier is in non-compliance or there was simply a mix-up, supplier scorecards will help to ensure that the issue is identified and settled in a timely and efficient manner. When developing a supplier’s scorecard, it is typically best to segment suppliers into risk levels based on the ingredients they supply, their facility risk levels, service performance, and finally cost.
The ingredient risk level should be recorded on the specification requirements agreed to, and samples of each lot should be tested to ensure compliance with standard sample specifications as well as the COA document. Any ingredient that could be classified as high-risk for contamination or fraud should be tested regularly to verify safety and quality standards. Contact suppliers immediately if any ingredient fails testing or deviates from specification. An issue identified before production could save the company 10 times the cost of goods sold due to rework or disposal costs.