Friday 18th Oct 2019 - Logistics Manager Magazine

The Hodgson diet

Our food supply chain is becoming increasingly complex. Addressing growing consumer concerns is a real challenge – in today’s information age, errors that occur in the food supply chain anywhere in the developed world quickly become public knowledge globally. Food safety is a major issue for consumers, retailers, manufacturers and agri-business more broadly, and it promises to become an even bigger issue. According to the CIES (the independent global food business network. Membership in CIES is on a company basis and includes more than two thirds of the world’s largest food retailers and their suppliers) top of mind surveys in 2002 and 2003, global retailers and manufacturers currently rank food safety as one of their most important issues. In contrast, food safety did not even feature in the equivalent 1999 survey. The latest research of executives in the food industry from Deloitte and CMi Consulting corroborates this, showing that product traceability is a key concern for all respondents (100 per cent). Worryingly, 57 per cent believe that food safety will only increase in importance if there are more international food scares. Related concerns about ethical employment in the supply chain and environmental impact simply add to the growing challenges faced by the industry.

Increased legislation
Governments are responding with increased legislation and EU Directive 178 that comes into effect in 2005, which requires food and beverage companies to provide ‘one back, one forward’ traceability and to make the information available to authorities on demand. Article 18 of this Directive addresses traceability specifically. However companies who want to realise commercial benefits in the short term can’t afford to wait and need to act now. Almost half (48 per cent), of respondents to the survey feel that poor collaboration in the supply chain is a real barrier to food safety. The perception is that the greatest risks are back up the supply chain. Ninety per cent of respondents view farmers as high risk, while 86 per cent rank manufacturers as high or the highest risk.

Clearly each link of the chain is as important as the next. Traceability is lost if one of the supply chain links is weak and there are many areas of risk which may be outside of an organisation’s control.

The first step towards a comprehensive food safety programme involves establishing whether current handling practices, business processes and information systems meet food safety, traceability and supply chain integrity needs. Are appropriate corporate governance arrangements in place that ensure food safety standards are not compromised by other commercial priorities? Is there an imbedded quality culture that focuses on establishing the right attitudes and practices, rather than relying on compliance checks to intercept problems? Some straightforward areas to address in operations include ensuring production processes guarantee rigorous quality assurance, that appropriate levels of batch segregation are in place, and that end-to-end traceability is possible. As the chart on page 25 illustrates, there are many aspects that are important to consider. Therefore undertaking some initial benchmarking to highlight important opportunities and priorities should be the first step. Once this is established it is important to keep identifying and managing the new risks presented by an increasingly complex global supply chain. And of course having effective crisis and incident management procedures in place to respond appropriately in the event of a problem occurring.

Affordable solutions
The good news is that the nature of the end-to-end solutions that will provide the assurance the consumer seeks are now becoming clear and the required technologies are becoming available and affordable. A combination of technologies are set to provide the hub of an end-toend food supply chain that meets the needs of retailers, manufacturers, distributors and consumers. A key component for effective tracking and tracing will be RFID. Putting tags on products, initially at case and pallet level, will identify the product/batch and the environment to which it has been exposed as it has travelled along the supply chain. This will help to assure the authenticity of the product and to indicate when product quality has been compromised (e.g. the temperature at which the product has been stored has moved outside the quality tolerance levels). For fresh produce, the emphasis will be on efficiently capturing information at each stage in the supply chain and making this information available for monitoring integrity. For processed food and beverage, there will be an additional emphasis on process monitoring and on traceability from the receipt of ingredients through the plant and on to the supermarket shelf. Currently, however, most food manufacturers have only limited information systems support for lot control and traceability, relying instead on production time windows to identify particular product batches.

Key considerations in each specific area of the supply chain include:

Produce supply chain – The focus will be on clear and unambiguous specification for suppliers and third party handlers, incorporating preparation, handling, storage, supplier purchasing regulations and carrier requirements. Accurate, effective capture and transfer of lot/batch information is required at each point of receipt and despatch throughout the inbound supply chain. However, today many suppliers currently only record and provide very limited information. Existing systems that record which shipments have been sent to which down stream customers do not in general hold the data required for effective lot traceability. Multi-stage in-bound supply chains introduce additional complications, with products being physically consolidated without the transfer of supporting data to allow consolidated shipments to be identified.

Manufacturing/processing supply chain – In order to maintain control and traceability throughout the production process, a clear audit trail must exist from goods receipt to despatch. Integration of ERP systems with Manufacturing Execution Systems (MES) is one of the keys to lot control during the transformation of ingredients and other raw materials into manufactured product. Many manufacturers are investing in new generation MES that link ERP systems directly to the process controllers ‘PLCs’ on the shop floor – and so removing the risks of bad data capture. Fortunately, the improved efficiency and reduced waste these systems provide can, if implemented in the right way, provide a handsome return on investment for manufacturers as well as risk mitigation. Where a product is re-worked, discrete segregated batches should be maintained, on a time or raw material lot basis, to avoid any potential cross-contamination of finished products within a batch or small number of batches. The batch size is defined so as to balance the cost of recall, in the event of a problem, with the impact on production costs.

The last step
Retailer supply chain
– We can see therefore how traceability can be achieved from farm to finished consumer food product. The last step is ensuring that the right storage, batch control, stock rotation and traceability disciplines are in place through the retail distribution network to the shelf and consumer. Recording and transfer of lot/batch information for processed goods is today rarely supported between the manufacturer’s system, through the supply chain to the retailer’s system. Visibility in the system is often lost at the point of dispatch and only a fraction of the data available from the internal supply chain iscaptured at the customer’s point of receipt. Where third party logistics providers are used, they often have limited systems capability for recording and transferring the data required for complete traceability. Given the many people and organisations involved, achieving safer, more ethically sensitive and cost-efficient supply chains for consumable products will be a major challenge, but one that must be addressed by the industry. In order to achieve this we are going to see accelerating change, driven at least in part by retailers, in developing new approaches supported by effective track and trace technology designed to promote real consumer assurance. RFID and the related coding standards will be a key component to provide the end-to-end traceability required.

But, RFID looks expensive – where is the business case? In addition to the enhanced safety, security and quality control that deploying RFID in the supply chain offers, there are three other significant drivers of economic value for the food industry:

Increased revenue through improved on-shelf availability – Recent surveys (CIES, ECR Europe, IGD) all suggest that across Europe as a whole, availability on-shelf for grocery runs at not much better than 90 per cent on average, with lost sales to the retailer and its suppliers of up to 6 per cent. At peak shopping times and during promotions the numbers are even worse. An IGD survey shows that an improvement of just four per cent would lead to an addition of one per cent to bottom line profit. More accurate ‘up-to-the-minute’ inventory and demand information, reliable automatic replenishment, reduced order cycle times, reduced clerical errors and more responsive production all contribute to a more joined up supply chain. This in turn provides better customer service, fresher and better quality product and avoids sales lost through stockouts. Also, the ability to track promotions in near to real-time and avoid stock-outs improves promotion effectiveness.

Business information
Reduced operating costs
– Faster, more accurate picking in the warehouse, increased shipping and receiving efficiency and the elimination of manual physical inventory counts can substantially reduce costs. Moreover, better information leads to a reduction in the number of un-saleable and wasted products through poor rotation and resulting spoilage. With wastage of fresh produce estimated to run at between 10 and 20 per cent in Europe, the opportunities for cost saving are huge.

Improved return on assets employed – More accurate and timely information leads to improved visibility of inventory, improved forecast accuracy and consequently reduced inventory levels. This in turn cuts back on warehousing requirements. Further benefits accrue from better control over reusable transit packaging (dollies, totes, kegs etc.) and therefore less capital tied up in such assets.

To conclude, food safety is an issue that must and will be addressed for the safety of the consumer and the protection of the food retail and processing industry that provides our food supply. It is also becoming an increasingly important issue politically. Full traceability is key to the integrity of the food supply chain. It is clear that operating an effective supply chain is no longer just a competitive advantage, it is a business must. Treating new technology such as RFID as an alternative to the barcode, and approaching its implementation from a technology perspective will not drive real operational benefit for your business.

Likewise, implementation is unlikely to be successful unless the right skills are brought together, combining in-depth technical knowledge with integration and deployment experience. The real benefits come from re-engineering supply chain and physical handling processes using new technology as a catalyst and an enabler. While the full potential benefits will only be achieved when the appropriate technology is in place in the end-to-end supply chain, most businesses can achieve early benefits from immediate, localised application. It need not be an add on cost, since enhancing productivity and reducing risks go hand in hand if approached in the right way.

Tony Hodgson is Supply Chain Partner at management consultants, Deloitte

 

Risks in the chain

  • The farming stage – in which product or ingredient mixing is beyond the supplier’s control
  • The agricultural co-operative stage – where farm produce may be mixed and, for example, washed in water that is contaminated
  • The use of third party carriers – the logistics providers carry handling and contaminations risks, therefore international operations increase the difficulty in managing safety issues
  • Manufacturing the finished product – poor segregation of ingredient batches and recipes that allow or even require the re-use of waste/trim undermine traceability with batch identification limited to production line and time window
  • The retailer supply chain – where traceability is often lost at break-bulk stage when pallets from various sources are broken down into cases and mixed
  • The consumer interface – where hygiene rules are not always maintained in less organised retail segments. Vending machines and soft drink fountains pose specific issues in terms of how well they are maintained and refreshed.