Burgess COMMENTARY

Peter Burgess

It’s nice to speak with you today, Steve. Today I’m looking forward to sharing with our audience your topic of global risk management in the food supply chain. Before we start, can you provide a brief background of yourself?

I’d be more than happy to. I appreciate the opportunity talk with you today and share a passion I have around risk management and the things I’ve learned over 35 years’ experience in the consumer-products industry. I started out of school with my degree and graduate studies in chemistry. I went to work for Quaker Oats, where I held many different positions; the final position, was manager of quality assurance for their largest manufacturing facility in Cedar Rapids, Iowa. I learned a lot of basic stuff; it was a great company to work with and for.

From there, I went to Clorox, where I attained the position of global head of quality. It was the global experiences that lead me to the eye-opener that in spite of the worlds best systems, tools and techniques the industry was still experiencing devastating issues. So what wasnot working? This is when Irealized our industries current and common approach was grounded in an inspect and reject philosophy. It became obvious to me that this current approach was not effectively mitigatingthe ever increasing levels of risk we are experiencing. It was also at this point where I developed the belief that we (our industry) needed to transition to a concept, of using proactive tools and techniques to predict and prevent issues from occurring. Clorox afforded methe opportunity to test and successfully confirm this hypothesis and approach.

I then went on to Gerber Products Company as the head of global quality. I was able to apply these same concepts and philosophies with them. I left in 2007, and started Global Quality Consulting (GQC). We (GQC) have workedwith approximately 250 to 300 different organizations, companies, manufacturers, and restaurants, from the small mom-and-pops, farming organizations to the world’s largest fast-food chains.

We’ve acquired a wide breadth of experience and results working with these outstanding companies. GQC is lead by myself with help from two other core guys. Bothof them having 35 to 40-plus years’ experience crisis management, risk mitigation, food safety and quality assurance globally. We haveextensiveexperience from the shop floor to the boardroom. We help companies identify, manage, and mitigate risk to their brand.

Can you go into a little bit of detail about what’s involved with global risk management in the food supply chain?

Global supply chain risks are growing rapidly by the minute while our ability to effective identify devastating risk is diminishing. Just the expansion of risk categories should be concerning to all. Most haven’t calculatedthe risk for such areas as, the comprehensive global supply chain, cultural risks, increased consumer demands, impact of social media, or our ability to acquire and make critical business decisions with enterprise wide intelligence.

Fundamentally, our food safety/ qualityfrom the farm to fork, is primarily based on what I call inspect-to-reject systems. Whether it is the private or public sectors inspection based approach has been widely accepted for many years. Allimported food products are subject to FDA inspection when offered for import at U.S. ports of entry. A vast majority of companies use industry-wide accepted practices of receiving ingredients based on a certificate of analysis and annual third party audits. I believe we as an industry have become complacent and comfortable using these approaches, which result in key risk decisions being made unknowingly with limited and incomplete data. This leads me to the most dangerous risk category. That being: We don’t know what we don’t know

We don’t have to look very hard to see headlines of top tier companies involved in devastating recalls and unrecoverable brand damage. Likewise by looking at government data, we see foodborne illnesses sicken one person in six — 48 million — in the U.S. each year. Of those, 128,000 require hospitalization and 3,000 die.Continuing with government data we can assess the effectiveness of an inspection based approach. For example, the U.S. Food and Drug Administration anticipated that 24 million agency-regulated products would enter the U.S. in 2011, but it expects to inspect only 1.59 percent of them.It is obvious a inspection-based approach is lacking? As an industry we know an inspect and reject approach isnot effective yet we seem reluctant to explore or develop a proactive, predictive and preventive approach.

As mentioned, many manufacturesus this same approach of inspection and rejections. Whether it is internal testing or limited data provided by suppliers, 3rd party inspections, certificates of analysis, companies managerisk with this data to ensure food safety and consistent quality. This approach is widely accepted and has been utilized globally for many years. Unfortunately, key decisions are based on very limited and at best non-representative data.

We have also witnessed a significant shift from internal failures as the source of issues to today issues driven by external failures. This transitionto external failures is partly due to the implementation of international standards, such as the Global Food Safety Initiative. These global improvements have helped eliminate and reduce the food-safety issues due to internal failures.

Today’s external risks haveincreased significantly. This expansion of risk is attributed to increased volumes, financial pressures, complexity of processes, and overwhelming demands by consumers, social media, and regulatory agencies. The explosion of the global supply chain alone has significantly amplified brand risk.

I mentioned Social media. My goodness, everywhere you turn, somebody’s getting beat up on social media. As an industry, we’re a bit naïve; we don’t quite understand social media, how to utilize it, how to make it work for our individual brands, and how to use it as a great communication tool, which it is. It should be the primary communication tool for any company that gets into a crisis, a brand crisis, or a recall; that’s where they have to communicate to the public. It’s a marvelous tool to get your clear, concise, and consistent message. Quite frankly, those who are skilled at it and astute about it can get out in front of the issue and define and lead the messaging rather than following the message. A qualified social media communications team must be integrated into a company’s crisis management plan.

I firmly believe themost threatening risk is the expanding global supply chain. I think this is the greatest area or risk that we face as an industry. I would be willing to bet that 80-plus percent of companies are not equipped with comprehensive intelligence of their supply chain and unable to dive back though the supply chain to the source of their base ingredients. Many put significant trust in their suppliers. Many are not capable to determine how far the chain goes back. What’s chain look like? What do their suppliers’ suppliers look like? What’s their culture? What are their principles and ethics? What are their skill sets and what specific risks are they delivering to our brand? Is it coming from an area in the world where the food safety culture is different than what one sees and expects from a U.S. or European company?

Just look at some recent headlines from Asia.

• • China FDA Officials Arrested On Bribery Charge

• • This is the second major bribery scandal concerning the SFDA in recent years

• • Melamine in Infant Formula.

• • 2,000 people have been prosecuted for food safety-related crimes in the past three years

In Chinamelaminewas added to infant formula to increase protein-testingresults, which translates toa higher price. It is very difficult for us to imagine how someone takes such steps.

If I put all that together, to me, I see companies are struggling to effectively manage their businesses with either a lack of intelligence from the surrounding supply chain and risk environments. Our current inspection based approach facilitates a compliance environment and inhibits companiesfrom looking at their products from a true risk standpoint; in other words, classifying them in risk categories, applying enterprise wide intelligence and performancemetrics where they can manage on a continuing basis, in order to predict and prevent issues from happening.

To me, I think these are the critical risk challenges that the food industry is facing. I’m concerned on the lack of recognition of these severe risks within our industry.Leaning on my years of experience working for the major companies makes it understandable. It’s difficult for some companiestake an outside inlook at their product and brand risk profile. Most businesses have a solid track record, do not have unlimited resourcesand typically are not skilled in holistic or comprehensive risk evaluation and risk-mitigation planning. They do have experience for other areas, such as health and safety, fire, tornadoes, things of that nature; they’re pretty good at that. I’m a firm believer that the sooner the industry recognizes the need for comprehensive brand risks planning and starts applying some practical business tools to look around the corner, see what might be coming their way, the better off they’re going to be. Do you have a quick summary or recommendations regarding how to address these challenges, the complexity, supply chain, and tracking the global supply chain?

Simon, I do. I think there are three challenges we need to address.

1. Is the recognition by our industry for the need to transition our systems, tools and techniques to a predict and prevent philosophy.

2. Evaluation, expansion / development and implementation of pragmatic comprehensive risk based tools and techniques.

3. Industry leadership, acceptance, and implementation of the aforementioned transformation.

In fact I am currently reaching out to industry leaders to form a groupto address these challenges. I would welcome talking with anyone that concurs and would like to support our initiative.

With a bit more specifics on a good first step, companies will benefit by focusing on the global supply chain.One shouldwork tocollect more in-depth intelligence for each individual supplier.Define them by categories of risk, a classic risk diagram, where you’ve got high, medium, and low risks based on comprehensive data. You need to look at their culture, understand their skillsets, what their strengths and weaknesses are, the systems they have in place.

They need to confirm a supplier has the right tools and techniques and metrics that can day in and day out(not one shipment or the next shipment) that their processes and systems are capable of delivering to the level of food safety and quality the company requires for their product.This data should become a KPI, included and, managed via enterprise wide intelligence. Companies shouldadjust their almost overly reliance on certifications, individual food-safety audits and certificate analyses. Thesetend to give companies a false sense of security. I can name a dozen companies that have been fundamentally destroyed that had these world-class systems in place. They’re good systems; I’m not criticizing them at all. We need them, they play a very key role, but they’re only a part of a holisticsystem.

In closing I have seen first hand, this proactive approach transform two well-recognized organizations. I have seen thisapproach deliver outstanding business, financial, and significant risk mitigation results, I know it works.

Thanks, Steve, for sharing today.

About Steve Gruler Steve Gruler.jpg Steve Gruler International Speaker, Brand Risk Mitigation, Food Safety, Crisis Prevention and Management Consultant. LinkedIn Profile