Regulatory compliance in the food industry is becoming a significant challenge as many companies are now diversifying their supply chain. With the food supply chain management evolving so rapidly, end to end supply chain can encompass every participant, from farm to fork. Food manufacturers and processors are now focusing on diversifying their entire food supply chain in order to mitigate risks, which poses challenges like contract and inventory management and spend aggregation. Nowadays it is quite a common practice for a company to have a single participant fulfilling multiple roles in the same supply chain. For the food supply chain to thrive and be effective, it is critical to have visibility at all stages, right from sourcing to food production to storage and inventory management and retail. Therefore, it is essential for companies to understand their supply chain, meet federal regulations and eliminate risks to guarantee customer satisfaction and fulfill retail-demand.
According to the Risk and Financial Advisory partner at a consultancy company, lack of a holistic view and incomplete understanding of potential risks can lead to food safety and quality failures, resulting in tarnished brand reputation. Companies need to understand that new technology and disruptive solutions, such as Internet of Things and Blockchain, can help identify and manage food safety supply chain risk.
Challenges
The two types of challenges that companies mostly encounter while managing regulatory compliance risks are explained as follows:
Internal Challenges
Managing food safety should be an enterprise level effort making sure that it aligns with the business objectives.
Most companies are still keeping food safety a functional level objective. This means that many other business functions may not take responsibility for adhering to food safety and quality measures or may not understand the impact of their daily decisions on food safety. Companies should also take into account the potential impact of cost reduction initiatives on food safety and then balance reward/risk. Many companies have dealt with food recall incidents even after maintaining strict quality standards and regular checks. Food manufacturers, processors and distributors routinely maintain a thorough documentation of food safety and quality checks, as well as supplier and logistics information. This can have a major impact on how quickly a recall can be defined, traced and executed.
According to the Senior Vice President of Supply Chain of a snack food company, they have detailed contracts which define and highlight rules, regulations and policies intended for the suppliers. The ability and capability to produce the desired quality is also checked and confirmed for the new supplier and an appropriate decision regarding working with the new supplier is then made.
Most industry professionals recognize that identifying the root cause and extent of damage in the food supply chain is a complex process and can take upto several months. However, strategic use of new technological solutions can decrease recall time.
External Challenges
Many companies are now opting for global sourcing to reduce costs and risks, while maintaining food safety and quality standards beyond tier 1 of the company’s supply. While doing this they face the following challenges:
- Manufacturers find it difficult to track raw material input by lot and supplier beyond tier 1.
- Tier 1 suppliers do not usually provide complete transparency regarding their own suppliers due to competitive reasons.
- Limited resources at times, make it difficult for smaller companies to manage and investigate suppliers.
Consumers are redefining expectations for transparency and traceability in supply chains in addition to choosing options like local and sustainable sourcing, antibiotic- free, non-GMO, cage-free, etc.
A dairy producer shared an incident where the company was questioned on their sustainable sourcing initiative. A few years ago, one of their dairy farmers faced an animal abuse complaint. The dairy producer and the farmer, both were able to provide complete documentation to the prosecutor explaining the manner in which the cows were milked, the exact time the collected milk was picked, and details of the plant/facility used for processing. With the proof of complete and thorough documentation, they were able to clear their name. After this incident, the company had to work with their marketing team to ensure that the company’s public image and reputation was restored.
How to Evaluate Current Suppliers
The new and changing FDA expectations and customer demands have forced companies to include continuous improvement as a business unit. This enables leadership to have visibility with their suppliers. Companies can use a supplier risk management framework for their new as well as existing suppliers. This framework includes the following factors:
- Develop a risk-ranking methodology, which may include previous audit scores, government warnings (e.g., FDA 483 citations), supplier notifications or recent recalls.
- Apply risk-ranking methodology to current suppliers and identify those that pose the greatest risk to the food safety program and brand reputation.
- Conduct due diligence assessments on the top 10% to 20% high-risk supplier arrangements and incorporate them into the ongoing monitoring stage.
- Create a roadmap to incorporate remaining current suppliers, targeting an annual objective of 25% to 50% of existing suppliers.
- Leverage advanced risk analytics technology and human intelligence to deliver existing and emerging risk insights tailored to priority areas. Analytics can allow companies to identify existing and emerging food safety and supply chain risks through reliable public data sources.
According to the program manager of a meat and poultry producer, ERP supply chain software plays a major role in supplier management. Whenever they meet with a supplier, they share their requirements with the suppliers based on the demand. They use software designed to evaluate their suppliers based on most effective practices and their own needs during the procurement process.
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