Internationalization and the emergence of new business models has increased the complexity of the food and beverage supply chain. The rise in complexity has resulted in a loss of supply chain visibility and control, which in turn has led to mounting product quality and safety challenges. This article draws parallels between the food and beverage and pharmaceutical industry to illustrate that traditional efforts focusing on the internal quality of manufacturing are no longer sufficient to safeguard consumer safety.
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Explore This IssueDecember/January 2015
The food and beverage and pharmaceutical industries share many commonalities. One similarity is the importance of product safety, where an external quality failure can represent a serious threat to consumer well being. As the supply chains of both industries have become increasingly globalized, they have faced escalating incidents of external quality failure. The root causes of these failures can be classified into two broad categories: internal—relating to manufacturing, and external—relating to the distribution chain.
As markets become more competitive, corporations across the world are driven to outsource and offshore manufacturing as a means of sustaining profitability. A consequence of these practices is a corresponding decline in quality performance.
Combatting Internal Challenges to Product Quality
Both the food and beverage and pharmaceutical industries have taken similar approaches to strengthen internal quality management through the implementation of current Good Manufacturing Practices as a means of governing the manufacture, processing, and holding of product. Irrespective of whether production is domestic, offshored, or outsourced, manufacturers are still required to utilize facilities that comply with all FDA regulatory requirements.
While quality standards have been set, a real problem has arisen in the capacity of the FDA to monitor site compliance. The number of registered food facilities has more than doubled in the period FY 04-11 with an ever-growing proportion of these sites located abroad. In 2011, the FDA inspected 318 international food manufacturing locations, equating to a little more than 0.1 percent of the 271,272 registered sites. While legislation such as the Food Safety and Modernization Act (FSMA) has attempted to address this issue by increasing the planned number of inspections to roughly 20,000 by 2016, this would still represent just 7 percent of 2011 facility numbers.
The FDA faces a similar problem within the pharmaceutical sector and has recently gone as far as increasing the annual facility fees on foreign manufacturing sites as a means of funding the rising cost of foreign inspections.
With an estimated 15 percent of the U.S. food supply, 80 percent of active pharmaceutical ingredients, and 40 percent of finished pharmaceutical drugs now being imported from abroad, the problem of managing quality in foreign locations is one that the FDA will have continuing difficulty in governing.
Manufacturers, insurance companies, and vendors can support regulatory efforts through diligent, conscientious procurement and stringent supplier selection and management. However, even the achievement of internal quality management standards in outsourced and offshore facilities is in itself insufficient to safeguard consumers, as globalization has also produced external threats to product safety in the distribution chain.
External Threats to Product Safety
The problems in the external distribution chain are both insidious and difficult to control. Here, the increasing complexity of the supply chain has facilitated the rise in both product diversion and counterfeiting.
Diversion relates to the transfer of authentic product from its intended point of distribution with an aim to capitalize on arbitrage opportunities. While not necessarily illegal, diversion can compromise product integrity if the affected goods are not appropriately stored.
Counterfeit goods are fraudulent or adulterated imitations represented as genuine product that may pose a grave threat to consumers as they are produced with little concern for quality or safety standards.
Food and Beverage Counterfeits
Valued at a staggering $49 billion dollars a year and growing, the counterfeit food and beverage market presents a significant risk to consumer safety. The counterfeits enter the market by a number of different means. One ploy is to present cheap versions of products as higher quality brands. A second is to introduce cheaper ingredients into authentic products in order to increase profit margins. In both cases the risk to consumer safety is significant.
The U.S. Pharmacopeia Convention, or USP, is the global watchdog group whose food and pharmaceutical standards are enforceable by the FDA. It has logged more than 2,000 incidents of food fraud, impacting a wide variety of food and beverages. Notable cases include the following:
- More than 1,200 tons of fake/substandard food and nearly 430,000 liters of counterfeit drinks were seized as part of Interpol/Europol operation in 2014;
- In 2013, multiple instances occurred in the European meat supply chain where horse meat was presented as beef;
- In 2012, 20 people died in Czech Republic and many others hospitalized and blinded after consuming fake liquor that contained methanol; and
- A two-year study of U.S. fish supplies concluded in 2012 that approximately 33 percent of the 1,215 samples analyzed nationwide were mislabeled.
Counterfeits in Other Industries
The incidence of counterfeiting of pharmaceuticals has also grown dramatically in recent years. While the counterfeit products may look the part, the reality is far from that. They are regularly manufactured in squalid conditions with the incorrect formulation, dosage, or no active pharmaceutical ingredient at all. Some counterfeit pharmaceuticals have been even found to contain household cleaners, heavy metals, and poisons.
The World Health Organization estimates that in the developing world counterfeit drugs can account for between 10 and 30 percent of the market. In developed economies, approximately 1 percent of drugs are counterfeit.
Combatting External Threats
One technique utilized to counteract the problem of counterfeiting and diversion involves the serialization and tracking and tracing of products (STT).
The STT model is predicated on using a product’s origin as a means of preventing counterfeits from entering supply chain. By assigning unique numbers to each product and introducing authentication at various points, the potential for counterfeit products to get through the supply chain undetected is substantially reduced. STT systems also provide improved supply chain visibility so that instances of diversion can be identified and corrected.
The STT architecture is typically comprised of three elements: a method of marking products with a unique number either through direct part marking or on packaging—typically achieved through barcoding or RFID technology; scanning infrastructure to capture specific events related to product movement within the supply chain; and a means of analyzing and reporting on these captured events.
The STT system is considered one of the most effective in combatting counterfeiting and diversion. So much so that pharmaceutical regulators across the world are in various stages of completion in terms of rolling the systems out.
STT in the U.S.
To ensure authenticity as products change custody within the supply chain, the FDA requires all pharmaceutical products sold in U.S. to be serialized and scanned at a unit or aggregate level through the Drug Supply Chain Security Act by 2023.
However, there is no such unifying framework in place for the food and beverage industry. In fact, a recent comparison of global food traceability regulations and requirements focusing on 21 industrialized countries found that the U.S. trails behind most other nations analyzed in terms of basic food traceability.
While no comprehensive traceability standards have been proposed to date, some market segments such as infant formula have begun to lay the foundation. In June 2014, the FDA revised the Infant Formula Act of 1980 to tighten the controls related to internal quality assurance. One provision was the requirement to serialize production to enable traceability.
On a macro scale, FSMA references the requirement for enhanced product tracing abilities going forward. The Institute of Food Technologists (IFT) has also completed pilots that demonstrate the value and achievability of such systems.
The ever-increasing threat to consumers posed by counterfeiting, coupled with the work of advocacy groups like IFT, is likely to drive more action from the FDA.
In the near future, consumers can expect to self-verify that the food in their hands is safe for consumption. To achieve this goal, manufacturers will be required to make investments beyond traditional internal quality assurance and protect against the external threats outlined in this article. The technology to do this already exists and is being utilized in other industries.
As manufacturers make investments in STT systems, they will find that the ROI goes far beyond defensive positioning and the technology can be used to solve real business problems and even offer a means of competitive differentiation.
McDonogh is vice president, business development for Systech. Reach him at email@example.com.
References Furnished Upon Request