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Tune Up Traceability with Enterprise Resource Planning
by Jack Payne
The enactment of the Food Safety Modernization Act has generated a lot of concern among midsize and regional food processors. The federal government is clearly placing much greater emphasis on prevention, accountability, and responsibility at each step of the food supply chain.
Furthermore, the FDA’s expanded powers will bring more frequent inspections and require companies to develop, adhere to, and monitor processes for preventing food contamination.
This is good for consumers and the industry. Yet the FSMA also creates a significant set of new challenges for small and midsize processors. Many local and regional players may not be able to muster the controls, procedures, monitoring systems, and paperwork necessary to create a chain of control for every product and ingredient.
As the different components of the FSMA are implemented over the next few months and years, what will the new law mean for smaller processors? Will it lead to a consolidation of producers and even greater market dominance by the biggest players? Or is this an opportunity for forward-looking small and midsize processors to develop sustainable competitive advantage?
The answer is both. The FSMA is changing the dynamics of the food and beverage industry—and creating challenges and opportunities for forward-looking processors.
Industry in the Spotlight
Globalization and industry consolidation have added complexity to the food safety problem. Each link in the supply chain contributes to the delivery and consumption of food products around the world.
The unprecedented growth of food imports has exacerbated the problem. Some of the fastest-growing imports are coming from middle-income and developing countries such as Mexico, Chile, China, and India. For example, in 2008, the value of food imports from China reached $5.2 billion, making China the third largest source of food imports. While this number continues to grow, China and the other countries listed don’t have the extensive food safety standards and practices of more-developed nations.
A growing number of consumers are questioning the safety of the foods they consume. From “farm to fork,” consumers want to know more about their food—where it came from, what it contains, and whether it is safe.
For the most part, it was this mounting consumer awareness and pressure that forced Congress and the president to pass the FSMA, the first significant revision to food safety laws in more than 70 years.
Manual Records Be Gone
For food manufacturers with multiple steps in their production processes—and a manual system to track it all—finding receipts, purchase orders, bills of lading, and other paperwork becomes a daunting process. Producing the necessary information within the four-hour window mandated by the FDA is nearly impossible for these companies.
Manual record-keeping methods are also notoriously error-prone. It’s very easy to transpose or skip digits. Lot No. 145 could mistakenly be written down as No. 154, making it practically impossible to trace contaminated product in the food chain.
The impact of poor, incomplete, or manual records was underscored when Inspector General Daniel R. Levinson of the Office of Inspector General (OIG), U.S. Department of Health and Human Services, disclosed some bleak findings on protection of the U.S. food supply. A study conducted by OIG revealed the following:
- Only five of 40 products purchased could be traced through each stage of the food supply chain back to the farm or border where they entered the country.
- Thirty-one of the 40 products purchased could not be traced through each stage of the food supply chain; OIG was able to identify only the facilities that likely handled the products.
- For the remaining four of the 40 products, OIG could not identify the facilities that handled these products.
Why couldn’t the majority of products be traced? The lot-specific information necessary for end-to-end traceability simply did not exist, either on paper or electronically.
To address this complex challenge, leading food manufacturers have adopted enterprise software to automate and integrate traceability across the multiple steps in their supply chains.
Lot-tracing capabilities enable the manufacturer to track a defective lot from finished good back to raw ingredient, from raw ingredient to finished good, or from mid-production backward or forward—all within a few hours. Should a food safety issue occur, this capability can help prevent death and illness.
However, the issue goes beyond regulatory compliance. Food manufacturers are also seeing increased demand for brand protection measures from their larger customers in retail and distribution. Many national retail chains such as Wal-Mart and Kroger require their food suppliers to conduct mock recalls. Some are even validated by external audit firms as a part of comprehensive food safety audits.
For a processor, the cost of a failed mock recall can be catastrophic. And in the case of a safety recall, not having lot-specific information will often force the manufacturer to expand the size of the recall, thereby compounding the costs, due to inability to accurately identify the affected lots.
In response to the food safety crises of the past few years, the industry is stepping up its policies and standards. Food industry organizations and associations are leading initiatives to develop traceability standards to ensure that the resulting data can be transmitted up and down the production chain.
The Produce Traceability Initiative, for example, is spearheaded by the United Fresh Produce Association, the Produce Marketing Association, and the Canadian Produce Marketing Association. And leading retailers like Wal-Mart now require suppliers of produce and other food products to be certified against GFSI standards.
Additionally, ISO 22000, the newest international standard for food safety management systems, requires further integration of people, processes, and systems to improve traceability.
For a processor, the cost of a failed mock recall can be catastrophic. And in the case of a safety recall, not having lot-specific information will often force the manufacturer to expand the size of the recall, thereby compounding the costs.
With all this mounting pressure from the government, retailers, consumers, and the food and beverage industry, what can small and midsize regional processors expect?
There’s little doubt that some companies simply will not survive the tsunami of regulations and the growing pressure from industry and consumers. Many food manufacturing companies have had to close their doors due to a complete recall of all products because they did not or could not trace the problems in a reasonable time period.
Others will suffer significant losses as they struggle to pass mock recalls required by their retail customers. And even more processors will be swept up by larger competitors that have the systems, infrastructure, and processes to manage the long and increasing list of requirements.
The Right Technology
These challenges present great opportunities for forward-thinking processors that can leverage the right technology for competitive advantage.
Enterprise resource planning technology that is tailored for food and beverage companies provides an effective way for processors to automate and integrate traceability across their supply chains, improving reaction times, reducing costs, and providing a greater measure of brand protection.
A solution with lot-tracing capabilities allows a company to trace back to the source of all ingredients and trace forward to the distribution of all food products made and sold. If a safety alert arises, the processor can access information about the grower, supplier, and date range associated with the affected lots.
Armed with this information, a company can recall the affected product lots, preventing illness and avoiding having to recall product that is perfectly safe and salable.
These capabilities also enable food processors to earn greater trust from retailers and consumers. Plus, they engender confidence among auditors, regulators, and inspectors.
This is key, because in today’s marketplace, establishing a reputation for food safety and easily accessible supply chain information is a competitive advantage that translates into higher market share among distribution channels and consumers.
Finally, the right integrated solution offers detailed visibility into costs, inventory management, and product and customer activities, helping businesses make better decisions and identify opportunities for improving efficiency and increasing profitability. It also helps companies avoid or minimize the expenses associated with recalls while delivering the audit or mock recall performance customers demand.
One could argue that the FSMA does not specifically require food companies to adopt an ERP system. In fact, technology requirements are still being evaluated, and many of the key requirements mentioned in this article won’t take effect until later this year.
However, this is clearly no time to sit on the sidelines. Start planning for these changes now. And adopting the right technology is the most practical, efficient, and cost-effective way to ensure continued compliance with these evolving regulations.
Jack Payne is vice president of enterprise software for CDC Software.