11 minute read 20 Jul 2020
EY - Little girl choosing an apple

How to transform your supply chain in the era of smarter food safety

By EY Americas

Multidisciplinary professional services organization

11 minute read 20 Jul 2020

The disruptions of the pandemic will forever alter supply chain dynamics and best practices.

Stable, safe and trusted supply is essential for food and beverage businesses to prosper. Supplier resiliency is a simple and attractive concept on paper, but for many companies it has been an aspiration repeatedly given a back seat to other initiatives.

Suddenly, a worldwide pandemic has changed the risk profile. Supply chain resiliency is now a recognized prerequisite to achieve business resiliency. Food safety and quality plays a major role in driving safe supplier onboarding and management. This means the classic focus and investment to improve financial, cyber and business continuity risk management should be expanded to include food safety and quality.

Disruption exists up and down the supply chain, and the effects of the pandemic will endure. These problems need to be viewed and addressed as new features of doing business — not temporary shocks. Having a quick-thinking and quick-acting food safety and quality function is critical for smart decision-making and risk management.

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Chapter 1

Five disruptions to the food supply chain

A chaotic supply chain is the new reality.

With 94% of the Fortune 1000 experiencing pandemic-related disruptions, an upended supply chain is the new reality. The disruptions fall into five categories:

1. Reduced consumer confidence and spending

Prior to the pandemic, food consumed away from home comprised half of US consumption. Where, what and how consumers purchase food has been profoundly changed. And even as food service tentatively reopens, people will not frequent public spaces they perceive to be a health risk.

As noted in the EY Future Consumer Index, about one-third of consumers are saving and stockpiling, while approximately one-quarter are deeply cutting spending due to the pandemic. Thus, the gains seen in grocery spending are being outpaced by reductions in out-of-home eating.

2. Channel inflexibility and lack of adaptivity

Most food and beverage manufacturers produce food for a particular channel — food service, retail and e-commerce — and the pandemic has exposed their lack of flexibility to pivot across production channels. The reasons are numerous, from the complexity and cost of safely installing new equipment to managing supply chain issues including ingredients, packaging and label changes. Cross-functional and effective management of change requires structure, time and effort.

Some manufacturers and restaurants have taken up the challenge by focusing on critical items, rather than providing a range of consumer options

3. Transportation strains

The shift in consumer purchasing as well as increased border controls (and closures) have impacted transportation channels by air, sea, rail and road. Delays, combined loads and alternative routes have a particularly strong impact on the shelf life of perishable items such as bananas and time/temperature control items such as fish. Increased rates add to the financial challenges.

These acute issues are compounding existing ones, such as the shortage of long-haul semitruck drivers. The health risks of COVID-19 to older populations will likely exacerbate the shortage by pushing even more drivers to retirement or other careers.

4. Social distancing and workplace design changes

For social distancing, manufacturing lines must be retrofitted to protect the worker and continue to manufacture the product. Automation addresses some of these issues but retooling a manual plant to a robotic line is costly, complex and effectively irrevocable. Once committed to automation, a complete process design is necessary to enable and optimize that automation and examine opportunities to utilize those investments across the business from production to packing, delivery and sales. The volume and complexity of required design changes vary by food form, number of employees, level of automation, types of products manufactured and by-product streams.

The challenge is thinking through practical options for use in the short term to enable social distancing. Additionally, there is an opportunity to invest in short-term solutions that can be parlayed into long-term improvements within the constraints that each product and plant design present.

5. Labor-related agricultural challenges

The pandemic has brought about worker sickness and a reduction in the migrant workforce. Migrant workers are a key enabler of American agriculture because certain crops are very difficult to harvest by machine, and the harvest window can be incredibly short.  

Corn glut

97 million

acres of corn were planted this year, 15 million more than a typical season.

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Chapter 2

The role of the food safety and quality function

Food safety and quality teams control hazards arising from process, supply and sales channels.

The food safety and quality function must be involved in any change that has a potential impact on food safety. Research and development teams must consider the food safety and quality impacts of their project work. All new employees must have appropriate training to enable adherence to robust food safety and quality expectations.

Food safety and quality plays a critical role in supplier vetting and supplier management which is required by regulations including the FDA’s Food Safety Modernization Act. Supplier food safety and quality issues can and do result in recalls. Recall costs vary widely given the specific nature of the recall and company controls to limit impact. A Grocery Manufacturing Association report, prepared in collaboration with EY research, shows that 23% of respondents estimate a recall’s full economic impact is above $30 million, with 5% estimating $100 million or more.¹

Changes to equipment, people and suppliers must consider food safety and quality risks and use that to establish controls. Government regulators and external certification bodies audit food safety supply chain controls for compliance, including food safety plans, hazard analysis, supplier preventive controls and management control records. These programs seek to mitigate food safety and quality risk from suppliers of materials (e.g., ingredients, packaging, chemicals) and services (e.g., external manufacturing, maintenance, sanitation, pest control, logistics).

Food safety and quality supply chain programs require a firm understanding of risks and associated controls. Businesses must contemplate control costs alongside the impacts of a potential recall. Frequent testing can reduce the magnitude of recalls by narrowing the issue window resulting in smaller recalls. Business risk escalates, for instance, for bulk ingredients or when multiple plants use the same ingredient from the same supplier facility. In such cases, a recall is far-reaching and expensive.

Food businesses should enable their food safety and quality functions to move rapidly and support business-critical activities, such as the need to onboard new suppliers for supply chain resiliency.

Supplier risk assessments cover three criteria: inherent product risk, individual supplier risk (for each farm/location) and the intended use of the product. The aggregated risk directs verification activities, such as a certificate of analysis for each shipment, conformance with the Global Food Safety Initiative, annual audits, sampling and laboratory testing.

Food businesses should enable their food safety and quality functions to move rapidly and support business-critical activities, such as the need to onboard new suppliers for supply chain resiliency. Common food safety and quality program issues which render businesses vulnerable are:

  • Lack of/limited up-front investments
  • Lack of/limited knowledgeable resources
  • Inefficient, ineffective and manual risk management processes that burden experienced food safety and quality resources
  • Unscalable resource models that cannot support future management
  • Increasing expectations from regulators to manage third-party risks
  • Lack of visibility and compatibility with supplier systems
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Chapter 3

Five ways to improve supply chain transformation

Better leveraging data, building trust with suppliers and rethinking processes are crucial.

Supply chains are not equipped to cope with disruptions at the magnitude recently experienced. Some “leading-class” supply chain practices, such as carrying less product on hand and utilizing the cheapest sources, no longer work. “Leading-class” must now embrace building strategic reserves and enabling diversity in food-safe sourcing.

Many food safety and quality groups do not have the available staffing and technology to be a proactive partner. Companies should engage in a concerted effort to explore, identify and implement the right balance of bold strategic choices to sustain business today and transform for relevance tomorrow.

Here are five key investment areas:

1. Begin with the end

Consumer expectations that drive purchases should be the first priority. Trends that have met the test of time include organic, gluten-free, peanut-free, fair trade and non-GMO products. These trends require compliant suppliers. Supplier vetting must also fundamentally validate food safety and quality expectations. Inputs from different suppliers are not interchangeable.

Conduct scenario planning to holistically assess supplier vulnerabilities. Expand scenarios beyond tier 1 suppliers. Leverage existing relationships within the supply chain, such as procurement, to identify external factors that increase supplier vulnerabilities such as COVID-19-related shutdowns or bankruptcy. Recognize the value of redundancy and geographic diversity over time to match risk tolerance. Invest in food safety and quality resources to meet the increased demands of supplier vetting, monitoring and assessment on a redundant and diversified supply chain.

2. Know the data

Although companies have a wealth of data, it is spread across divergent systems, spreadsheets, databases and even paper. Comprehending and managing the universe of data is the price of admission to both smart food safety and a smart supply chain.

Key data sources include recall history, inherent product risk, external supplier audits, company audits, quality checks, quality complaints, corrective action response times, certificate of analysis results and raw product microbial test results. Analysis of these sources provides insights into what is going on with suppliers.

By leveraging this operational data, the food safety and quality function can prevent incidents and anticipate undesirable states. Additionally, the food safety function can provide data-backed recommendations on supplier diversity, supplier requirements and supply-related investments.

3. Realize the potential of data

Businesses must be nimble to overcome contemporary hurdles. Decision-making and risk management are needed at lightning speed. Food businesses must enable their food safety and quality teams with integrated data to facilitate business fluidity.

While it may be common to work with disaggregated and antiquated systems, the implicit inefficiency slows procurement, supplier audits, product specification, nutrition and sustainability work streams relative to competitors with integrated solutions.

Integrated systems can embed various data sources and supplier management modules into a parent/child relationship where data sources automatically trigger notifications to key stakeholders and feed corrective and preventative action (CAPA) management. For example, digital temperature readings can be used to monitor and alert management to temperature abuse. The key is to recognize what is possible and choose efficient investments that provide the greatest long-term value to the business.

4. Challenge current processes and structures

Empower resources to use their advanced skill sets and eliminate wasted or misdirected efforts. Challenge current process design and execution. Encourage uniform data collection, scalable solutions and continual improvement on safety as well as efficiency. Differentiate activities that could be completed by machines or less-experienced personnel.

Consider the potential value of third-party outsourcing for activities such as aggregating and managing supplier information, conducting initial supplier evaluations, planning audits and training auditors to drive consistency and conducting audits on behalf of the company.

Logical and technology-enabled processes foster trust in the supplier relationship. An adversarial relationship with suppliers is often counterproductive. Better processes drive meaningful communication and collaboration toward resolving issues.

Challenge processes that hinder trusted relationships with your employees, suppliers and customers.

5. Innovative audit verification

Collaboration does not mean blind trust — verification is critical. Auditing will remain an essential tool in driving improvement and gaining assurance. In a socially distant and increasingly digital world, companies have begun to incorporate remote audits into their audit plans. Supplier assessment questionnaires and checklists can be digitized to be executed remotely with the auditee. Virtual tours provide a certain degree of process and control evaluation.

Although many audit activities such as interviews and paperwork assessments may be easier to accomplish in person, they are increasingly possible to conduct remotely. Given the advantages and disadvantages of the remote audit, consider risk-based pilots to explore what is possible without compromising audit quality.

Summary

Building a stable, safe and trusted supply chain requires rethinking supply chain management and supplier relationships.

About this article

By EY Americas

Multidisciplinary professional services organization