Executive Briefings

How One 'Small' Food Recall Can Impact an Entire Supply Chain

It's called the multiplier effect, and it describes how the recall of a single ingredient in the food supply chain can have a huge impact on manufacturers, retailers and brands - not to mention the health and safety of consumers.

How One 'Small' Food Recall Can Impact an Entire Supply Chain

The May 2016 recall of tainted sunflower seeds, triggered by the discovery of the bacteria listeria, affected dozens of retailers and more than 100 brands and manufacturers. It was a prime example of the way in which one bad ingredient can have consequences for an entire supply chain. Such incidents are occurring with alarming frequency, against a backdrop of enhanced public awareness, tighter regulations and more complex supply chains. In this conversation, excerpted from an episode of The SupplyChainBrain Podcast, Kevin Pollack, vice president of recall with Stericycle ExpertSolutions, discusses the impact of tainted products on public health and supply chains. He addresses the dreaded “multiplier effect” of supposedly isolated incidents. And he offers advice on how companies can reduce the risk of a recall, as well as which steps to take when one occurs.

Q: What happened with the latest sunflower seed recall?

Kevin Pollack: It’s a prime example of what we call the multiplier effect. You have one manufacturer whose product gets used across the supply chain in multiple retailers and other manufacturers’ products. When they had an issue in their factory in northwest Minnesota over the course of several months in February, March and April, it had a cascading effect throughout the supply chain.

Q: This was a domestic situation exclusively?

Pollack: As of now, it’s domestic with one plant in Minnesota. We have not seen the product in an international situation yet, but we have seen listeria across the U.S. There have been no reported cases of sickness, but it has tested positive. So the manufacturer has issued the recall in order to ensure that they’re taking safety seriously.

Q: What is listeria?

Pollack: Listeria is an infection that can affect the gastrointestinal tract, and can cause short-term problems such as high fever, abdominal pain or diarrhea. It also causes headaches, stiffness and nausea. It can be particularly dangerous for pregnant women, the elderly or children, or anybody who has a weak immune system. Some infections from listeria can cause death. The Centers for Disease Control and Prevention estimates that there are 1,600 illnesses and 260 deaths per year due to listeria.

Q: How does it get into food materials such as sunflower seeds?

Pollack: It typically can get into a food-based product via the manufacturing process. In many cases, the production machinery can be contaminated or infected with listeria. The other interesting thing we see is that it’s an infection that can also resist the cold. We’ve seen listeria in frozen or ice cream-type products. We’ve also seen it in fresh products or in packaged products such as sunflower seeds.

Q: So the producer of the sunflower seeds put out a recall. How large a universe of manufacturers did that impact? How many other companies had to recall products as a result?

Pollack: We’ve seen now nationwide recalls by dozens of retailers. More than 100 different brands and manufacturers have been affected. That’s why we call it the multiplier effect: one manufacturer whose product is being used across other products can affect a very large sphere within the supply chain. It does expand quite quickly.

Q: Is this type of situation a fairly common event?

Pollack: We do see bacterial contamination, either via listeria, salmonella or e. coli, as one of the leading reasons for food-based recalls over time. As far as recalls are concerned, it is a fairly common reason.

Q: Have we seen more food recall stories in the headlines recently?

Pollack: We have. That is due to FDA (the U.S Food and Drug Administration) stepping up [efforts] to trace these problems. We’ve seen testing continuing to improve. We’re finding more issues, where before they may have gone unnoticed. And, as the supply chain becomes more interconnected, both domestically and globally, you see such events spread much more widely than they would have previously. Because one single ingredient manufacturer has its product across multiple retailers or manufacturers. We’ve it happen with cumin spice, peanuts and frozen foods – a number of different areas where the multiplier effect has come into play with food.

Q: So at least some of this is a function of the growing complexity of food supply chains?

Pollack: Yes. It’s a fact of the greater interconnectedness of supply chains. In many cases you’ve got larger growers or ingredient manufacturers, and those products are being used across a much wider swath of food products that would have previously been used 10 or 15 years ago. We see the consolidation of supply chains, not just in food but across multiple sectors globally.

Q: At the same time, are we also seeing a greater sensitivity to food allergies among the public?

Pollack: Undeclared allergens are another key reason for recalls. In many cases, because of sensitivities to allergies being more widely known these days, you’ll see recalls declared even though it’s not an actual bacterial infection. Peanuts are an area that we see quite a bit. The manufacturing equipment may not have been cleaned, and there may be trace amounts of peanuts in a particular product for which they’re not a declared ingredient. That obviously can cause problems with allergies. Contamination and undeclared allergens are typically the two largest reasons why we see food recalls. People are paying a lot more attention to what they eat.

Q: Meanwhile, what’s going on in the regulatory environment?

Pollack: We saw new regulations with [enactment of] the Food Safety Modernization Act (FSMA) back in January of 2011. That gave the FDA the ability to mandate a food recall. There was also a big focus on trying to track problems and prevent them in the supply chain, versus containing them after they happen. The law has come more and more into effect, and regulatory agencies are getting more adept at understanding how they should apply the standard.

We are seeing greater vigilance from the FDA as it relates to application of good safety, and that goes along with FSMA.

Q: What is the price of a mistake these days? Have you come up with a figure that would help to quantify the impact of food safety recalls?

Pollack: We don’t have a specific figure that says it costs “X.” What we say is that there are four or five factors that drive significant costs for manufacturers when they face a recall. The one that folks are usually aware of is the cost of managing the recall, which can be significant. Typically, though, we find that to be the least costly of the various impacts. The next one that can come up is the cost of litigation or legal exposure, if there are any sicknesses or other issues that need to be dealt with. And we find the biggest costs for most companies are [related to] damage to the brand. When you have a brand that is now seen in a lesser light, if the recall is not handled well, it can lead to lower sales and ongoing challenges that are going to affect that company and its ability to sell the product.

Lastly, there’s the cost to remedy the situation, in many cases within the manufacturing plant – to figure out what’s happened, and how to address the problem. Also in managing the logistics of the supply chain – how to pull back anything that was affected by the recall, and how quickly can you get new product that doesn’t have the issue back into the supply chain. There are a number of different dynamics that can be very, very costly if they’re not handled well. We’ve seen some manufacturers driven out of business, and others that have been able to rebound quite quickly. There’s a wide range of what can happen, but there are definitely costs, and they go up if you’re not prepared to handle the recall effectively.

Q: Even if the problem is fixed right away, can’t the brand name carry negative connotations in people’s minds for years?

Pollack: It can be a big concern, but a lot of times we see the opposite. The public can be very forgiving if it’s handled well. There are a number of very large brands that have had recalls, and brand loyalty increased because of the way they handled it. It’s typically achieved by being very forthright and transparent – admitting that there was an issue, and making sure that you holistically get it covered, so that you don’t have to come back two or three times and announce additional recalls. Then by quickly removing the product from sale, demonstrating what’s been done to fix it, and bringing new and good product back onto the market. By doing this quickly, you’ll be seen as a company that takes safety seriously, and can manage through these situations effectively. The public generally is willing to forgive if there’s one mistake and it’s handled well. But it there’s a perception that there are multiple mistakes, or that the company isn’t taking that mistake seriously, you’ll see significant and ongoing brand damage happen.

Q: Let’s talk about some best practices. What’s the first thing that a company should do when the necessity of a recall presents itself?

Pollack: Before the recall even presents itself, companies should be asking, “Do I have a recall plan in place? Do I know what I will do if I have a recall?” It’s not a question of if the recall will happen, it’s when. You hope it won’t happen for 10 years, but at some point the company is likely to be facing this challenge.

The first key is preparation. Make sure there is a documented plan, that you’ve tested that plan, and that everybody knows what to do when the recall starts. From there, if the recall is actually coming, there’s going to be a discussion of how you notify the public. That’s multi-faceted – it involves working with the agency, which in the case of food is going to be FDA or USDA [U.S. Department of Agriculture], to let them know that there’s an issue, what class the event will be (I, II or III, based on the seriousness of the issue), when you’re going to notify and how. Is it through a press release? Is it a notice on your website? Is it social media? Can you directly touch any of your customers? You also need to notify your supply chain, your wholesaler or distributors. Then they in turn need to notify their customers. So you start first with notification.

Q: How do you go about testing a plan for responding to a recall?

Pollack: We do a number of what we call mock recalls with clients. It’s a simulated exercise. We take companies step by step as new information comes out, and they try to understand the problem they’re facing. We gather the various team members who may be involved in a room and make sure they know the steps, what they would need to do and what actions they would take. It’s just like you would game-plan any type of strategy or event. We’ll also tweak or adjust the plan if we find parts that are out of date, to ensure that we’ve got all the right team members, departments and steps happening in the right order. That way, in the midst of the crisis, each team member within the company, and the company itself, doesn’t have to figure things out as they go. They’ve already got a documented procedure that they’ve tested, and they know works.

Q: Who do you recommend within a company be responsible for overseeing this whole procedure, from developing the plan to executing it in the event of an actual recall?

Pollack: It depends largely on the size of the company. If you’re dealing with a mid-sized or larger company, it’s likely going to be the director or vice president of quality or compliance. It may also involve consumer affairs and their legal counsel. In smaller companies, it may be the chief of operations, or even the owner. Typically, regulatory or quality compliance is going to be involved in owning the plan. Then they’re going to involve other aspects of the organization, because it’s going to touch finance, sales, supply chain. It is truly a cross-functional issue that has to be dealt with, but that one group is typically the one that owns it.

Q: So you have individuals within each discipline who have been tasked to respond according to the recall plan?

Pollack: You do. That’s part of doing the mock recall – you’ve identified who those individuals are. They’ve sat in on the simulation and understood what steps they need to take. A head of sales will know how to notify the sales team, and how they’ll notify customers. The supply-chain team is thinking about their distribution channels – what they need to do to bring product back from the distribution centers, and how to quarantine the product. These multi-functional groups have been previously tapped and identified, and have gone through the exercise and been part of doing the plan in advance.

Q: Within the supply-chain discipline, what are the biggest challenges in terms of planning for and managing a recall?

Pollack: There are a couple that are really important. First is being able to track what’s in the supply chain and knowing where it is. What is the potential lot scope? Which plants might be at risk? Is it a single plant or multiple plants? One line or multiple ones? Then it’s understanding how that translates into what product was distributed and where. When you’re doing that, you want to err on the side of caution. If you can’t be absolutely sure, it’s better to take a broader approach, so you don’t have to go come back to the public and say, “We’ve actually found more of an issue and it’s gotten bigger,” because that erodes confidence.

Then, once that’s determined, supply chain is going to be tasked with where the product went. Is it still in D.C.s? Has it gotten out to the end customer? Is it on retail shelves? That will determine who and how you notify about affected product. The other key that supply chain needs to be very concerned about – and this starts to get into sales as well – is getting the recalled product cleared from the retailer as quickly as possible. Many times we’ll send folks in to help clear those shelves. That does two things: It ensures that the product doesn’t get sold, and it increases safety for the consumer base. It also allows the retailer, as soon as the manufacturer can certify that all of the affected recalled product has been quarantined and is no longer in their system, to turn the sale of that SKU back on. Which obviously will at least start to mitigate the damage from lost sales, and allow the customer to continue buying the product and know that it’s safe.

Q: How would you rate the level of awareness of companies today, with regard to the importance of maintaining a strong recall plan, and being aware of the risks if they fail to do so?

Pollack: It’s very much hit or miss. Some of the larger companies, or those that have gone through a recall, have become aware and developed the processes. But for the vast majority out there, it’s something that they don’t often think about. It’s not core to their day-today business of manufacturing and selling products. We do see with a lot of companies that it’s out of sight, out of mind. It’s not intentional; it’s just not something they think about day in and day out.

Q: Looking ahead, what are the biggest challenges facing food manufacturers, in terms of maintaining the integrity of their food supply chains and dealing with recalls?

Pollack: It’s around two major factors. It’s traceability – being able to trace the product, the ingredient manufacturer and the grower. Then what products it was put in, and where it went. That’s a very complex task, to be able to trace all the way through.

The other challenge is that there’s a greater risk of the multiplier effect, as supply chains become more interconnected. Previously a company may have used five growers, but in today’s world they may be down to two. They’re trying to find larger, more strategic partners to work with because that makes it easier to manage. It’s a good thing in general, but when there’s an issue it increases the risk, because you’ve now got that product across multiple brands, product lines and retailers. That’s where we see the significance of the sunflower seed recall happening. It’s likely to continue happening on a more frequent basis – not because of a lack of quality, but because of the nature of interconnected supply chains and supplier relationships becoming larger and more strategic.

Resource Link:
Stericycle ExpertSolutions

The May 2016 recall of tainted sunflower seeds, triggered by the discovery of the bacteria listeria, affected dozens of retailers and more than 100 brands and manufacturers. It was a prime example of the way in which one bad ingredient can have consequences for an entire supply chain. Such incidents are occurring with alarming frequency, against a backdrop of enhanced public awareness, tighter regulations and more complex supply chains. In this conversation, excerpted from an episode of The SupplyChainBrain Podcast, Kevin Pollack, vice president of recall with Stericycle ExpertSolutions, discusses the impact of tainted products on public health and supply chains. He addresses the dreaded “multiplier effect” of supposedly isolated incidents. And he offers advice on how companies can reduce the risk of a recall, as well as which steps to take when one occurs.

Q: What happened with the latest sunflower seed recall?

Kevin Pollack: It’s a prime example of what we call the multiplier effect. You have one manufacturer whose product gets used across the supply chain in multiple retailers and other manufacturers’ products. When they had an issue in their factory in northwest Minnesota over the course of several months in February, March and April, it had a cascading effect throughout the supply chain.

Q: This was a domestic situation exclusively?

Pollack: As of now, it’s domestic with one plant in Minnesota. We have not seen the product in an international situation yet, but we have seen listeria across the U.S. There have been no reported cases of sickness, but it has tested positive. So the manufacturer has issued the recall in order to ensure that they’re taking safety seriously.

Q: What is listeria?

Pollack: Listeria is an infection that can affect the gastrointestinal tract, and can cause short-term problems such as high fever, abdominal pain or diarrhea. It also causes headaches, stiffness and nausea. It can be particularly dangerous for pregnant women, the elderly or children, or anybody who has a weak immune system. Some infections from listeria can cause death. The Centers for Disease Control and Prevention estimates that there are 1,600 illnesses and 260 deaths per year due to listeria.

Q: How does it get into food materials such as sunflower seeds?

Pollack: It typically can get into a food-based product via the manufacturing process. In many cases, the production machinery can be contaminated or infected with listeria. The other interesting thing we see is that it’s an infection that can also resist the cold. We’ve seen listeria in frozen or ice cream-type products. We’ve also seen it in fresh products or in packaged products such as sunflower seeds.

Q: So the producer of the sunflower seeds put out a recall. How large a universe of manufacturers did that impact? How many other companies had to recall products as a result?

Pollack: We’ve seen now nationwide recalls by dozens of retailers. More than 100 different brands and manufacturers have been affected. That’s why we call it the multiplier effect: one manufacturer whose product is being used across other products can affect a very large sphere within the supply chain. It does expand quite quickly.

Q: Is this type of situation a fairly common event?

Pollack: We do see bacterial contamination, either via listeria, salmonella or e. coli, as one of the leading reasons for food-based recalls over time. As far as recalls are concerned, it is a fairly common reason.

Q: Have we seen more food recall stories in the headlines recently?

Pollack: We have. That is due to FDA (the U.S Food and Drug Administration) stepping up [efforts] to trace these problems. We’ve seen testing continuing to improve. We’re finding more issues, where before they may have gone unnoticed. And, as the supply chain becomes more interconnected, both domestically and globally, you see such events spread much more widely than they would have previously. Because one single ingredient manufacturer has its product across multiple retailers or manufacturers. We’ve it happen with cumin spice, peanuts and frozen foods – a number of different areas where the multiplier effect has come into play with food.

Q: So at least some of this is a function of the growing complexity of food supply chains?

Pollack: Yes. It’s a fact of the greater interconnectedness of supply chains. In many cases you’ve got larger growers or ingredient manufacturers, and those products are being used across a much wider swath of food products that would have previously been used 10 or 15 years ago. We see the consolidation of supply chains, not just in food but across multiple sectors globally.

Q: At the same time, are we also seeing a greater sensitivity to food allergies among the public?

Pollack: Undeclared allergens are another key reason for recalls. In many cases, because of sensitivities to allergies being more widely known these days, you’ll see recalls declared even though it’s not an actual bacterial infection. Peanuts are an area that we see quite a bit. The manufacturing equipment may not have been cleaned, and there may be trace amounts of peanuts in a particular product for which they’re not a declared ingredient. That obviously can cause problems with allergies. Contamination and undeclared allergens are typically the two largest reasons why we see food recalls. People are paying a lot more attention to what they eat.

Q: Meanwhile, what’s going on in the regulatory environment?

Pollack: We saw new regulations with [enactment of] the Food Safety Modernization Act (FSMA) back in January of 2011. That gave the FDA the ability to mandate a food recall. There was also a big focus on trying to track problems and prevent them in the supply chain, versus containing them after they happen. The law has come more and more into effect, and regulatory agencies are getting more adept at understanding how they should apply the standard.

We are seeing greater vigilance from the FDA as it relates to application of good safety, and that goes along with FSMA.

Q: What is the price of a mistake these days? Have you come up with a figure that would help to quantify the impact of food safety recalls?

Pollack: We don’t have a specific figure that says it costs “X.” What we say is that there are four or five factors that drive significant costs for manufacturers when they face a recall. The one that folks are usually aware of is the cost of managing the recall, which can be significant. Typically, though, we find that to be the least costly of the various impacts. The next one that can come up is the cost of litigation or legal exposure, if there are any sicknesses or other issues that need to be dealt with. And we find the biggest costs for most companies are [related to] damage to the brand. When you have a brand that is now seen in a lesser light, if the recall is not handled well, it can lead to lower sales and ongoing challenges that are going to affect that company and its ability to sell the product.

Lastly, there’s the cost to remedy the situation, in many cases within the manufacturing plant – to figure out what’s happened, and how to address the problem. Also in managing the logistics of the supply chain – how to pull back anything that was affected by the recall, and how quickly can you get new product that doesn’t have the issue back into the supply chain. There are a number of different dynamics that can be very, very costly if they’re not handled well. We’ve seen some manufacturers driven out of business, and others that have been able to rebound quite quickly. There’s a wide range of what can happen, but there are definitely costs, and they go up if you’re not prepared to handle the recall effectively.

Q: Even if the problem is fixed right away, can’t the brand name carry negative connotations in people’s minds for years?

Pollack: It can be a big concern, but a lot of times we see the opposite. The public can be very forgiving if it’s handled well. There are a number of very large brands that have had recalls, and brand loyalty increased because of the way they handled it. It’s typically achieved by being very forthright and transparent – admitting that there was an issue, and making sure that you holistically get it covered, so that you don’t have to come back two or three times and announce additional recalls. Then by quickly removing the product from sale, demonstrating what’s been done to fix it, and bringing new and good product back onto the market. By doing this quickly, you’ll be seen as a company that takes safety seriously, and can manage through these situations effectively. The public generally is willing to forgive if there’s one mistake and it’s handled well. But it there’s a perception that there are multiple mistakes, or that the company isn’t taking that mistake seriously, you’ll see significant and ongoing brand damage happen.

Q: Let’s talk about some best practices. What’s the first thing that a company should do when the necessity of a recall presents itself?

Pollack: Before the recall even presents itself, companies should be asking, “Do I have a recall plan in place? Do I know what I will do if I have a recall?” It’s not a question of if the recall will happen, it’s when. You hope it won’t happen for 10 years, but at some point the company is likely to be facing this challenge.

The first key is preparation. Make sure there is a documented plan, that you’ve tested that plan, and that everybody knows what to do when the recall starts. From there, if the recall is actually coming, there’s going to be a discussion of how you notify the public. That’s multi-faceted – it involves working with the agency, which in the case of food is going to be FDA or USDA [U.S. Department of Agriculture], to let them know that there’s an issue, what class the event will be (I, II or III, based on the seriousness of the issue), when you’re going to notify and how. Is it through a press release? Is it a notice on your website? Is it social media? Can you directly touch any of your customers? You also need to notify your supply chain, your wholesaler or distributors. Then they in turn need to notify their customers. So you start first with notification.

Q: How do you go about testing a plan for responding to a recall?

Pollack: We do a number of what we call mock recalls with clients. It’s a simulated exercise. We take companies step by step as new information comes out, and they try to understand the problem they’re facing. We gather the various team members who may be involved in a room and make sure they know the steps, what they would need to do and what actions they would take. It’s just like you would game-plan any type of strategy or event. We’ll also tweak or adjust the plan if we find parts that are out of date, to ensure that we’ve got all the right team members, departments and steps happening in the right order. That way, in the midst of the crisis, each team member within the company, and the company itself, doesn’t have to figure things out as they go. They’ve already got a documented procedure that they’ve tested, and they know works.

Q: Who do you recommend within a company be responsible for overseeing this whole procedure, from developing the plan to executing it in the event of an actual recall?

Pollack: It depends largely on the size of the company. If you’re dealing with a mid-sized or larger company, it’s likely going to be the director or vice president of quality or compliance. It may also involve consumer affairs and their legal counsel. In smaller companies, it may be the chief of operations, or even the owner. Typically, regulatory or quality compliance is going to be involved in owning the plan. Then they’re going to involve other aspects of the organization, because it’s going to touch finance, sales, supply chain. It is truly a cross-functional issue that has to be dealt with, but that one group is typically the one that owns it.

Q: So you have individuals within each discipline who have been tasked to respond according to the recall plan?

Pollack: You do. That’s part of doing the mock recall – you’ve identified who those individuals are. They’ve sat in on the simulation and understood what steps they need to take. A head of sales will know how to notify the sales team, and how they’ll notify customers. The supply-chain team is thinking about their distribution channels – what they need to do to bring product back from the distribution centers, and how to quarantine the product. These multi-functional groups have been previously tapped and identified, and have gone through the exercise and been part of doing the plan in advance.

Q: Within the supply-chain discipline, what are the biggest challenges in terms of planning for and managing a recall?

Pollack: There are a couple that are really important. First is being able to track what’s in the supply chain and knowing where it is. What is the potential lot scope? Which plants might be at risk? Is it a single plant or multiple plants? One line or multiple ones? Then it’s understanding how that translates into what product was distributed and where. When you’re doing that, you want to err on the side of caution. If you can’t be absolutely sure, it’s better to take a broader approach, so you don’t have to go come back to the public and say, “We’ve actually found more of an issue and it’s gotten bigger,” because that erodes confidence.

Then, once that’s determined, supply chain is going to be tasked with where the product went. Is it still in D.C.s? Has it gotten out to the end customer? Is it on retail shelves? That will determine who and how you notify about affected product. The other key that supply chain needs to be very concerned about – and this starts to get into sales as well – is getting the recalled product cleared from the retailer as quickly as possible. Many times we’ll send folks in to help clear those shelves. That does two things: It ensures that the product doesn’t get sold, and it increases safety for the consumer base. It also allows the retailer, as soon as the manufacturer can certify that all of the affected recalled product has been quarantined and is no longer in their system, to turn the sale of that SKU back on. Which obviously will at least start to mitigate the damage from lost sales, and allow the customer to continue buying the product and know that it’s safe.

Q: How would you rate the level of awareness of companies today, with regard to the importance of maintaining a strong recall plan, and being aware of the risks if they fail to do so?

Pollack: It’s very much hit or miss. Some of the larger companies, or those that have gone through a recall, have become aware and developed the processes. But for the vast majority out there, it’s something that they don’t often think about. It’s not core to their day-today business of manufacturing and selling products. We do see with a lot of companies that it’s out of sight, out of mind. It’s not intentional; it’s just not something they think about day in and day out.

Q: Looking ahead, what are the biggest challenges facing food manufacturers, in terms of maintaining the integrity of their food supply chains and dealing with recalls?

Pollack: It’s around two major factors. It’s traceability – being able to trace the product, the ingredient manufacturer and the grower. Then what products it was put in, and where it went. That’s a very complex task, to be able to trace all the way through.

The other challenge is that there’s a greater risk of the multiplier effect, as supply chains become more interconnected. Previously a company may have used five growers, but in today’s world they may be down to two. They’re trying to find larger, more strategic partners to work with because that makes it easier to manage. It’s a good thing in general, but when there’s an issue it increases the risk, because you’ve now got that product across multiple brands, product lines and retailers. That’s where we see the significance of the sunflower seed recall happening. It’s likely to continue happening on a more frequent basis – not because of a lack of quality, but because of the nature of interconnected supply chains and supplier relationships becoming larger and more strategic.

Resource Link:
Stericycle ExpertSolutions

How One 'Small' Food Recall Can Impact an Entire Supply Chain