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.
The facility risk-level can be determined via an onsite audit and review of its standard operating procedures and quality processes. If any issues are identified during this initial visit, it is important for the company’s auditor to share this feedback with the supplier sooner rather than later to ensure corrective actions or preventative actions (CAPAs) are implemented before the first order is produced and shipped out. This guarantees that both parties are working together to provide the best product possible for consumers while ensuring brand protection and profitability for each party.
Service performance will also need to be part of the scorecard because it provides clearer visibility into a supplier’s ability to provide the right quantity of product, at the right time, within the set specifications. Delays in production can severely impact a company’s ability to meet retailers’ orders and ultimately may prevent consumers from switching brands.
Finally, cost should be the last part of the equation. What good is the cheapest priced ingredient if it results in a multi-million dollar recall or the demise of your brand?
Proactive Risk Management
Managing documentation requirements, audits, complaints, incidents, corrective actions, and change management internally can be challenging enough. When you increase the quality management footprint to hundreds or even thousands of suppliers and partners, it can be even more overwhelming for a small internal team handling the process.
It’s crucial that companies upgrade their current paper-based records or spreadsheets documents to some sort of automated system so they have the ability to actively, and more quickly, connect with suppliers to verify product testing and standards are in compliance with the established partner agreement, and that CAPAs are being addressed in a timely manner. The ability to track and identify trends earlier in the process—whether through complaints, audits, or incidents—supports proactive risk management through the use of analytics tools.
This can explain why many food and beverage manufacturers are beginning to update their manual quality processes with an enterprise quality management system, such as TrackWise from Sparta Systems. Such solutions not only provide manufacturers with a central repository of all quality processes taking place and data that meets compliance requirements, but it also integrates with existing enterprise IT systems, such as ERP and CRM systems, to share master data or capture complaints in real-time to provide greater transparency to issues earlier on in the process.
Such automated solutions can also provide the transparency and visibility into supplier quality management so companies can ensure that products meet required specifications, and that incidents can be assigned to the responsible parties to expedite resolution and corrective actions. In the event of a regulatory audit, you have a central repository to provide proof of compliance for both the company and your vast supplier network.
Food fraud is a global problem affecting millions of consumers worldwide—whether they are aware of it or not. We’ve examined what manufacturers can do to prevent this fraudulent crime, but consumers can take matters into their own hands as well by being smarter about their food purchases. If it seems too good to be true, it probably is.
Kuchinski is VP of product marketing for Sparta Systems. Reach her at email@example.com.