The finalization of FSMA rules puts pressure on many standard food industry operations. Because your supply chain is not one operation, but many, it may feel that pressure more keenly than other areas of business.
On the one hand, emerging technology makes it easier than ever to monitor, collect, and communicate data. On the other, tightening global standards, dispersed markets, and increased consumer visibility also make tracking and reporting more difficult and delicate.
To explore the importance and benefits of supply chain transparency, we interviewed Geraint John, a supply chain researcher at SCM World.
Why is food industry supply chain transparency important (now, more than ever)?
The first and perhaps most important reason is that consumers want to know a lot more about the food they buy today than they did in the past. They want to know where the ingredients come from and who grows them; they want to know how their food is produced and the conditions of the animals, farmers, and other workers involved; and they want to know about the environmental policies and track records of the companies whose products they buy. That requires food manufacturers to have transparent and responsible supply chains – ones that enable them to safeguard their brands and public reputations.
Social media and digital news magnify the importance of this as a top-priority corporate initiative. As Alastair Hirst, Senior Vice President of Global Supply Chain at Kellogg’s, noted at the Sedex conference in London last month: “Our reputation is a very fragile thing… [it] can be trashed very quickly.”
Food safety and quality is another reason why supply chain transparency is so important today. When health-related issues, such as those that have bedeviled Chipotle Mexican Grill in recent months come to light, food producers need to be able to trace the causes back to their roots and fix problems fast. In many cases, this means delving into their extended supply chains.
Companies also need to comply with a growing number of regulations from bodies like the FDA, as well as with laws like the new Trade Facilitation and Trade Enforcement Act, which gives US customs officials the power to seize products or ingredients they believe may have used slave or child labor. Cocoa, coffee, palm oil and vanilla from developing countries are just some of the high-risk categories that food producers need to understand and actively manage.
How can food processors increase their transparency at each stage?
It starts with mapping their supply chains. This means knowing not only who all of their direct or tier-1 suppliers are, but also where in the world their production and distribution facilities are located. This is information that companies in other industry sectors such as hi-tech and automotive have been busy collecting for the past five years or more.
Once you know what your immediate supply chain looks like, you can begin to deepen your knowledge of the various risks that these firms may pose. A standard approach is to ask direct suppliers to abide by codes of responsible practice covering health and safety, working hours, labor rights, environmental policies, and so on. Audits are then carried out on a periodic basis to check compliance against these standards.
Stage three is to seek greater transparency of direct suppliers’ own supply chains – those at tier-2 and beyond. Big food producers have multiple sub-tiers in their supply chains, stretching as many as six or seven levels back upstream to the farm. Understanding who these different players are and finding ways to get them to participate in supply chain transparency and responsible sourcing initiatives is a vital part of the overall program.
What challenges stand in the way of transparency?
An obvious one is the sheer complexity of modern supply chains. Multiple sub-tiers consisting of dozens, if not hundreds, of suppliers present a huge challenge, but this complexity also manifests itself in the number of countries that food companies source ingredients from and manufacture in, and the number of different products they make. Kellogg’s, for example, produces 1,600 SKUs in 20 countries.
The horsemeat scandal in Europe in 2013 exposed just how little food manufacturers really knew about their upstream supply chains. SCM World research shows that while 78% believe they have good visibility at the tier-1 supplier level, this figure drops to 29% for tier-2 suppliers and just 13% at tier-3 and beyond.
Most companies rely heavily on their direct suppliers for this sub-tier information. But persuading them to share what is often sensitive data requires high levels of trust, particularly when those direct suppliers are distributors or agents who worry about being bypassed once the make-up of an extended supply chain is laid bare. And even if the information is shared, it can be difficult to get suppliers with whom you don’t trade directly to take responsible supply chain and risk management practices seriously. So a coordinated effort is essential.
What are some overlooked side benefits of increased transparency?
Arguably the biggest is the opportunity to collaborate with suppliers at different levels of your supply chain to increase efficiency, remove unnecessary costs and improve yields – for example, by sharing scientific expertise or providing access to training. As well as helping to raise incomes for farmers in poorer countries, productivity-boosting initiatives such as Nestlé’s Creating Shared Value program provide greater security of supply for food producers.
Any pitfalls to avoid as transparency increases?
Relying too heavily on supplier audits is a mistake some companies make. These are often restricted to the tier-1 level, and so fail to provide transparency further upstream to the original source of many reputational and operational risks. And if they are regarded as simply check-box exercises, rather than a starting point for supplier development and continuous improvement work, they will fail to make the supply chain more sustainable and responsible.
Another pitfall is trying to tackle too much at once. The complex nature of modern supply chains and limited resources means that food companies need to target their investments carefully to where they can make a real difference. Nestlé has focused its traceability and responsible sourcing efforts to 2020 on 12 priority materials, including sugar, soya, cocoa, hazelnuts and seafood, and is working with suppliers and NGOs to improve social and environmental practices in countries from Madagascar and Ivory Coast, to Turkey and Thailand.
What new tools are available to help?
Supply chain mapping tools from technology providers such as Sourcemap, whose customers include Mars and Stonyfield Farm, can be used to build a detailed picture of a company’s supply base and the connections between the many different players in the chain. Being able to plot all of this information visually on a map of the world can be an immensely powerful way of communicating supply chain transparency and traceability work to executives, as well as giving managers at-a-click access to data on individual suppliers, transportation status, and product shipments.
Such tools are increasingly combined with automated risk alerts that flag incidents such as severe weather, natural disasters, and port delays so that supply chain and operations staff can take swift action to minimize any negative impact. The best of these alerting systems draw on a wide variety of “big data” sources, including news reports, third-party databases and social media platforms, highlighting only those events that pose a genuine threat based on a company’s supply chain footprint.
Geraint John is Senior Vice President, Research, at SCM World, the cross-industry learning community for supply chain practitioners, where he specializes in sourcing, supplier management, and supply chain risk.
