Executive Briefings

Preventing Brand Damage: A New Bar Is Set for Food Safety Practices

To minimize potential liability and financial damage, organizations need to be proactive and have demonstrable systems in place to manage food safety risks across their supply chains.

Recent media coverage of deaths and illness due to the consumption of tainted food highlights a global problem-despite modern technology, food-borne illness is on the increase. Food safety incidents have serious consequences for growers, food processors, distributors, retailers and food service entities. These incidents can result in significant financial damage, including: cost of product recalls, decontamination and other recovery costs, lost sales, litigation costs, damage to brand and reputation, trade restrictions, and reduced company valuation or stock price.

Governments, consumers and stakeholders expect unblemished safety processes from farm to fork, and they increasingly do not care where in the supply chain the failure occurs. If your company is part of the chain of custody, your reputation and financial performance are at risk. Even retailers, once mostly shielded by the branded vendors from reputational harm, now face significant exposure through their own private label brands.

Complicating matters for both food safety and supply continuity is the increasingly global nature of growing locations, processing, packaging and markets. Food supply chains are now exposed to more points of hazards, contaminants, spoilage, delays, disruptions, hygiene issues and third-party participants. The global product recalls spurred by melamine in the Chinese food supply are but one recent example of the domino affect that can occur.

Growing External Responsibility

Although retailers and food service operators often associate food contamination with production and distribution processes, an effective food supply chain risk management program needs to stretch further. Contaminated ground water, soil, crops, animal feed and animals can have detrimental impacts on both supply and demand. A focus on upstream sourcing and operational integrity at the farm and processing level-as well as tight control over logistics process and partners-is crucial for food safety from production to consumption.

In 2008, a number of industry leaders beefed up their internal and external food safety procedures to go beyond the legally required minimum. The U.S. Food and Drug Administration, as well as regulators in a number of other nations, have also made moves to improve food safety testing and auditing.

Five Steps for Food Safety

Five key actions for food industry participants to take include:

1. Undertake a supply chain vulnerability assessment. The assessment should cover the food safety exposures within your internal supply chain and also that of your key suppliers, logistics partners, and other constituents.

2. Update the policies and procedures of your internal operations and external supply chain, enhancing routine and spot monitoring processes and audits.

3. Strengthen supporting technology by taking advantage of the falling costs of technology to enhance and monitor processes in place, in particular in the areas of traceability and process control.

4. Reexamine your product recall processes from the initial identification of the issue to disposal of recalled product along with brand protection actions in the event of a contamination incident.

5. Consider financial protection, such as a contaminated products insurance program that will cover both the direct recall costs (e.g., the cost of retrieving a contaminated product and replacing that product, as well as public messaging and communications initiatives alerting consumers to the recall) and the indirect recall costs (e.g., brand rehabilitation) if a recall is initiated due to a consumer safety issue.

The Outlook

We expect to see an increased trend in 2009 of companies appointing a chief food officer or a food safety team responsible for centrally assessing and managing overall supply chain risks related to food safety.

Recent media coverage of deaths and illness due to the consumption of tainted food highlights a global problem-despite modern technology, food-borne illness is on the increase. Food safety incidents have serious consequences for growers, food processors, distributors, retailers and food service entities. These incidents can result in significant financial damage, including: cost of product recalls, decontamination and other recovery costs, lost sales, litigation costs, damage to brand and reputation, trade restrictions, and reduced company valuation or stock price.

Governments, consumers and stakeholders expect unblemished safety processes from farm to fork, and they increasingly do not care where in the supply chain the failure occurs. If your company is part of the chain of custody, your reputation and financial performance are at risk. Even retailers, once mostly shielded by the branded vendors from reputational harm, now face significant exposure through their own private label brands.

Complicating matters for both food safety and supply continuity is the increasingly global nature of growing locations, processing, packaging and markets. Food supply chains are now exposed to more points of hazards, contaminants, spoilage, delays, disruptions, hygiene issues and third-party participants. The global product recalls spurred by melamine in the Chinese food supply are but one recent example of the domino affect that can occur.

Growing External Responsibility

Although retailers and food service operators often associate food contamination with production and distribution processes, an effective food supply chain risk management program needs to stretch further. Contaminated ground water, soil, crops, animal feed and animals can have detrimental impacts on both supply and demand. A focus on upstream sourcing and operational integrity at the farm and processing level-as well as tight control over logistics process and partners-is crucial for food safety from production to consumption.

In 2008, a number of industry leaders beefed up their internal and external food safety procedures to go beyond the legally required minimum. The U.S. Food and Drug Administration, as well as regulators in a number of other nations, have also made moves to improve food safety testing and auditing.

Five Steps for Food Safety

Five key actions for food industry participants to take include:

1. Undertake a supply chain vulnerability assessment. The assessment should cover the food safety exposures within your internal supply chain and also that of your key suppliers, logistics partners, and other constituents.

2. Update the policies and procedures of your internal operations and external supply chain, enhancing routine and spot monitoring processes and audits.

3. Strengthen supporting technology by taking advantage of the falling costs of technology to enhance and monitor processes in place, in particular in the areas of traceability and process control.

4. Reexamine your product recall processes from the initial identification of the issue to disposal of recalled product along with brand protection actions in the event of a contamination incident.

5. Consider financial protection, such as a contaminated products insurance program that will cover both the direct recall costs (e.g., the cost of retrieving a contaminated product and replacing that product, as well as public messaging and communications initiatives alerting consumers to the recall) and the indirect recall costs (e.g., brand rehabilitation) if a recall is initiated due to a consumer safety issue.

The Outlook

We expect to see an increased trend in 2009 of companies appointing a chief food officer or a food safety team responsible for centrally assessing and managing overall supply chain risks related to food safety.