Executive Briefings

Closing the Supply Chain Door After the Horse Has Bolted

Recent issues in the European food supply have resulted in supply chains making the news for all the wrong reasons. Consumers have been shocked at revelations that products labeled as beef also contained significant quantities of horsemeat, up to 100 percent in some cases. More than a month after the Food Safety Authority in Ireland published its findings of traces of horse DNA in burgers, we are still seeing daily announcements of new product withdrawals by retailers across Europe.

Media reports  have spread from the UK and Ireland to Poland, Romania, France, Luxembourg, Netherlands and Cyprus among other countries. Stories have emerged of product being mislabeled, deliberately or otherwise, as beef and being traded through various suppliers and brokers before entering into the food chain.

While the electronics industry has long been aware of the dangers of counterfeit components, it looks from the outside that the food industry was unprepared for the possibility of counterfeit ingredients. As a result, it has become clear to consumers that the food on supermarket shelves labeled as "Beef" or "Made in "¦." may be neither.

The question now turns to how to restore confidence in a supply chain that appears to have a major quality problem in around 1 percent of the product samples that have been tested to date. I expect that investigations will ultimately arrive at root causes and there will be stricter guidelines that keep the problem from recurring. However, in the near-term, observing how other industries manage quality in a multi-enterprise supply chain can provide lessons to be learned.

Accountability: Quality may well be everybody's responsibility, but unless there is a clear understanding of expectations and accountability, there is a danger that nobody is effectively responsible. For example, the horsemeat issue was uncovered by a food standards authority while product was on sale by international retailers who had contracted the manufacturing to third parties who bought ingredients from brokers and other suppliers. The UK Environment Secretary felt the need to remind retailers that they were "ultimately responsible" for the product they sell to consumers. Regardless of how the mislabeled ingredients entered the supply chain, each party thereafter in the supply chain failed to ensure the quality of their end product met the expected standards.

Clear Expectations: A comprehensive quality plan must have a clear definition of quality expectations, standards that must be met, acceptable tolerances and the tests required for validation. This must be driven by the brand owner and cascaded through the supply chain. DNA testing was introduced by the Irish authorities, initially on fish products, to ensure that species were being correctly labeled (it was later extended to other products). The European authorities, retailers and manufacturers are now moving toward this as a standard, but it does not appear to have been part of the quality process up to now. Could it be that the requirement to have only beef in beef products was seen as too obvious to have it routinely tested as part of the quality process? There are clear lessons for us all in never assuming the obvious.

Supplier Qualification: Setting clear accountability and quality expectations builds the framework from which to qualify suppliers. You need confidence that these suppliers can consistently meet the standards and that you can validate this in a manner that ensures the quality of your product. While this can be done through testing individual products, it is generally more efficient (and an accepted practice) to examine and test prospective suppliers' own quality processes in combination with testing the results of those processes. This will vary from industry to industry but will involve an evaluation of:

"¢ Ensurance that processes, standards and controls are being carried out as documented through site visits, employee interviews, examination of test records and independent tests

"¢ Review of management supervision and attention to quality

"¢ Qualifications and reviews by other standards agencies and customers

To the extent that you can be comfortable with the supplier's quality system, you can place some reliance on this and lessen, but not eliminate, the need for testing individual batches of product.

Where components are sourced from brokers or other intermediaries, it becomes less credible that you can rely on the supplier qualification as part of your quality plan. If these are critical components or ingredients, you will need some means of independently verifying the quality of these products.

Product Testing: In the case of the horsemeat issue it is clear there is a test that can identify the presence and quantity of horse and other DNA in beef products. From the results now being published in the UK, it seems that around 1 percent of prepared meat products being tested show more than trace elements of horse DNA. The opportunity existed for this testing to be done at both the ingredient receipt and before shipment by the ingredients suppliers, the manufacturers and the retailers. Different industries have their own standards, but any worthwhile testing plan would be expected to detect failures at a fraction of this level of occurrence and prevent product from reaching the consumer.

Many industries will also maintain samples of the ingredients used to make each batch of product.   This helps to isolate the source of any later quality issue and to better identify products that may have been impacted.

Supplier Management: Proactive and ongoing supplier engagement is needed to monitor performance and should provide validation of the controls identified at the supplier qualification stage. At its most simplistic level, this engagement takes into account delivery, service and quality performance to inform decisions on the reliance that can be placed on the supplier's quality systems.

Supportive Approach to Issue Resolution: Whether insourced or outsourced, all supply chains will inevitably face disruptions and other issues. Multiple systems can make reporting more cumbersome but it is really in how departments and companies work together to resolve issues that makes the difference between long-term success or failure.

The best companies encourage an early and open dialogue around supply chain issues and promote a culture of working together as needed to fix a problem. In doing this you ensure that issues surface quickly and visibility to the smaller issues across the supply chain can inform areas of potentially greater risk. One of the most dangerous scenarios in an outsourced supply chain occurs when a supplier feels unable to communicate issues due to an expected immediate negative impact on their business. Action may still be appropriate once the customer issues are resolved and the true cause is fully understood, but jointly resolving the customer problem should be the first priority. In many cases a full investigation into root cause will find multiple contributing factors that could be missed without the full cooperation of both parties.

While there is no evidence that this type of culture played a role in the horsemeat issue, it was interesting to see the responses from the retail and other brands that were impacted. The initial response of withdrawing product and suspending production was quickly followed by a series of public announcements by retailers that they were terminating their relationship with one of the highlighted manufacturing companies. There is no doubt that trusted retail and hospitality brands that found themselves thrust into the media spotlight felt the need to take swift action. They believed they found enough evidence to satisfy themselves of the need for that course of action and they were within their rights to do so to protect their customers and their reputation.   However, given what we now know about how widespread and complex the issues were, one wonders whether another supplier that suspected they could also be impacted would feel comfortable in proactively raising that with those same retail and hospitality customers.

Earned trust: Trust is a fundamental building block of any outsourced relationship. Confidence can be built through the partner selection phase, but trust is earned through the consistent delivery against commitments. Without an ability to trust the information, the commitments and the integrity of a supply chain partner there is no value in the relationship. Trust can take years to build, but with a material breach, that trust can evaporate in an instant.

Too good to be true?: Many of these issues appear to be concentrated in the value end of the meat products category. It is acknowledged that there has been significant pressure on producers to enable discounted value meals and the question is being asked whether retailers should have known that the price levels achieved were too good to be true.

In their defense, the retailers were buying product from a mature and competitive industry and from companies with significant scale and industry experience. If these companies felt that these prices could be achieved, then it is hard to lay that responsibility back on the retail industry.

Conclusion: The purpose of this discussion is not to attribute blame to one party or another or to try to diagnose the causes of a complex issue based on media reports and incomplete information. It is easy to be wise with hindsight and I am confident that the investigations that are under way will get to the root causes and that industry will close the gaps that are uncovered.

What I hope that this does bring to mind are some insights on how high levels of quality can be assured in a multi-enterprise supply chain. Although my observations come primarily from a high-technology rather than a food industry background, many organizations collaborate effectively in this manner every day. For a supply chain to be effective, there must be a clear definition of quality expectations, clear accountability on responsibilities to deliver on those expectations and a system that is developed and maintained to provide measures as evidence that those expectations are being met.

Whatever the final results from the investigations into this crisis, it is almost certain that industry will strengthen its quality governance structure. Evidence points to issues with ingredients suppliers, but the quality processes of both the manufacturers and retailers failed to catch these issues. Consumers expect and deserve to have these questions addressed as the industry tries to rebuild confidence in these products. Anyone with supply chain responsibilities can learn from this story as it unfolds.

Source: ModusLink Global Solutions


Keywords: supply chain management, value chain, supply chain risk management, sourcing solutions, horsemeat scandal, horsemeat in beef products, European horsemeat, quality assurance in food and beverage

Media reports  have spread from the UK and Ireland to Poland, Romania, France, Luxembourg, Netherlands and Cyprus among other countries. Stories have emerged of product being mislabeled, deliberately or otherwise, as beef and being traded through various suppliers and brokers before entering into the food chain.

While the electronics industry has long been aware of the dangers of counterfeit components, it looks from the outside that the food industry was unprepared for the possibility of counterfeit ingredients. As a result, it has become clear to consumers that the food on supermarket shelves labeled as "Beef" or "Made in "¦." may be neither.

The question now turns to how to restore confidence in a supply chain that appears to have a major quality problem in around 1 percent of the product samples that have been tested to date. I expect that investigations will ultimately arrive at root causes and there will be stricter guidelines that keep the problem from recurring. However, in the near-term, observing how other industries manage quality in a multi-enterprise supply chain can provide lessons to be learned.

Accountability: Quality may well be everybody's responsibility, but unless there is a clear understanding of expectations and accountability, there is a danger that nobody is effectively responsible. For example, the horsemeat issue was uncovered by a food standards authority while product was on sale by international retailers who had contracted the manufacturing to third parties who bought ingredients from brokers and other suppliers. The UK Environment Secretary felt the need to remind retailers that they were "ultimately responsible" for the product they sell to consumers. Regardless of how the mislabeled ingredients entered the supply chain, each party thereafter in the supply chain failed to ensure the quality of their end product met the expected standards.

Clear Expectations: A comprehensive quality plan must have a clear definition of quality expectations, standards that must be met, acceptable tolerances and the tests required for validation. This must be driven by the brand owner and cascaded through the supply chain. DNA testing was introduced by the Irish authorities, initially on fish products, to ensure that species were being correctly labeled (it was later extended to other products). The European authorities, retailers and manufacturers are now moving toward this as a standard, but it does not appear to have been part of the quality process up to now. Could it be that the requirement to have only beef in beef products was seen as too obvious to have it routinely tested as part of the quality process? There are clear lessons for us all in never assuming the obvious.

Supplier Qualification: Setting clear accountability and quality expectations builds the framework from which to qualify suppliers. You need confidence that these suppliers can consistently meet the standards and that you can validate this in a manner that ensures the quality of your product. While this can be done through testing individual products, it is generally more efficient (and an accepted practice) to examine and test prospective suppliers' own quality processes in combination with testing the results of those processes. This will vary from industry to industry but will involve an evaluation of:

"¢ Ensurance that processes, standards and controls are being carried out as documented through site visits, employee interviews, examination of test records and independent tests

"¢ Review of management supervision and attention to quality

"¢ Qualifications and reviews by other standards agencies and customers

To the extent that you can be comfortable with the supplier's quality system, you can place some reliance on this and lessen, but not eliminate, the need for testing individual batches of product.

Where components are sourced from brokers or other intermediaries, it becomes less credible that you can rely on the supplier qualification as part of your quality plan. If these are critical components or ingredients, you will need some means of independently verifying the quality of these products.

Product Testing: In the case of the horsemeat issue it is clear there is a test that can identify the presence and quantity of horse and other DNA in beef products. From the results now being published in the UK, it seems that around 1 percent of prepared meat products being tested show more than trace elements of horse DNA. The opportunity existed for this testing to be done at both the ingredient receipt and before shipment by the ingredients suppliers, the manufacturers and the retailers. Different industries have their own standards, but any worthwhile testing plan would be expected to detect failures at a fraction of this level of occurrence and prevent product from reaching the consumer.

Many industries will also maintain samples of the ingredients used to make each batch of product.   This helps to isolate the source of any later quality issue and to better identify products that may have been impacted.

Supplier Management: Proactive and ongoing supplier engagement is needed to monitor performance and should provide validation of the controls identified at the supplier qualification stage. At its most simplistic level, this engagement takes into account delivery, service and quality performance to inform decisions on the reliance that can be placed on the supplier's quality systems.

Supportive Approach to Issue Resolution: Whether insourced or outsourced, all supply chains will inevitably face disruptions and other issues. Multiple systems can make reporting more cumbersome but it is really in how departments and companies work together to resolve issues that makes the difference between long-term success or failure.

The best companies encourage an early and open dialogue around supply chain issues and promote a culture of working together as needed to fix a problem. In doing this you ensure that issues surface quickly and visibility to the smaller issues across the supply chain can inform areas of potentially greater risk. One of the most dangerous scenarios in an outsourced supply chain occurs when a supplier feels unable to communicate issues due to an expected immediate negative impact on their business. Action may still be appropriate once the customer issues are resolved and the true cause is fully understood, but jointly resolving the customer problem should be the first priority. In many cases a full investigation into root cause will find multiple contributing factors that could be missed without the full cooperation of both parties.

While there is no evidence that this type of culture played a role in the horsemeat issue, it was interesting to see the responses from the retail and other brands that were impacted. The initial response of withdrawing product and suspending production was quickly followed by a series of public announcements by retailers that they were terminating their relationship with one of the highlighted manufacturing companies. There is no doubt that trusted retail and hospitality brands that found themselves thrust into the media spotlight felt the need to take swift action. They believed they found enough evidence to satisfy themselves of the need for that course of action and they were within their rights to do so to protect their customers and their reputation.   However, given what we now know about how widespread and complex the issues were, one wonders whether another supplier that suspected they could also be impacted would feel comfortable in proactively raising that with those same retail and hospitality customers.

Earned trust: Trust is a fundamental building block of any outsourced relationship. Confidence can be built through the partner selection phase, but trust is earned through the consistent delivery against commitments. Without an ability to trust the information, the commitments and the integrity of a supply chain partner there is no value in the relationship. Trust can take years to build, but with a material breach, that trust can evaporate in an instant.

Too good to be true?: Many of these issues appear to be concentrated in the value end of the meat products category. It is acknowledged that there has been significant pressure on producers to enable discounted value meals and the question is being asked whether retailers should have known that the price levels achieved were too good to be true.

In their defense, the retailers were buying product from a mature and competitive industry and from companies with significant scale and industry experience. If these companies felt that these prices could be achieved, then it is hard to lay that responsibility back on the retail industry.

Conclusion: The purpose of this discussion is not to attribute blame to one party or another or to try to diagnose the causes of a complex issue based on media reports and incomplete information. It is easy to be wise with hindsight and I am confident that the investigations that are under way will get to the root causes and that industry will close the gaps that are uncovered.

What I hope that this does bring to mind are some insights on how high levels of quality can be assured in a multi-enterprise supply chain. Although my observations come primarily from a high-technology rather than a food industry background, many organizations collaborate effectively in this manner every day. For a supply chain to be effective, there must be a clear definition of quality expectations, clear accountability on responsibilities to deliver on those expectations and a system that is developed and maintained to provide measures as evidence that those expectations are being met.

Whatever the final results from the investigations into this crisis, it is almost certain that industry will strengthen its quality governance structure. Evidence points to issues with ingredients suppliers, but the quality processes of both the manufacturers and retailers failed to catch these issues. Consumers expect and deserve to have these questions addressed as the industry tries to rebuild confidence in these products. Anyone with supply chain responsibilities can learn from this story as it unfolds.

Source: ModusLink Global Solutions


Keywords: supply chain management, value chain, supply chain risk management, sourcing solutions, horsemeat scandal, horsemeat in beef products, European horsemeat, quality assurance in food and beverage