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An Organic Enterprise
Enterprise business systems can play a role in organic product manufacturing
by Beth Berndt
Last weekend, I stopped by my favorite coffee shop for a quick morning latte. I noticed the barista’s menu offered organic soy milk as one of the many ingredient choices available to enrich my coffee sipping experience. Perhaps even more impressive was the hastily handmade sign advising customers that organic soy milk was off the menu for the day due to unexpected demand.
This example is one of many illustrating the fact that U.S. consumers today are using their pocketbooks more and more to vote for healthy eating. This trend includes the increasing availability of new organic food products, both fresh and processed, now being certified by the U.S. Department of Agriculture (USDA), marketed in the mainstream, and offered for purchase through food service restaurant channels and directly off retail shelves. And, perhaps just as important, consumers have demonstrated a willingness to pay a higher price for organic food products, in turn motivating brand owners to make organic products even more readily available.
Despite little existing scientific evidence supporting the health benefits of eating organic foods, consumers are increasingly incorporating organic food products into their daily diets. This switch to organic is part of an effort to avoid ingesting the pesticides used in cultivating food crops, a growing interest in fresher food products, and a perception that organic products are more healthful and nutritious. The expanding organic food market in the U.S. has one of the fastest growth rates in the food industry. In 2006, there were annual consumer sales of more than $16 billion and a growth rate of better than 20%, according to a manufacturer survey conducted by the Organic Trade Association. Although these numbers underscore the promise of the market, there are many challenges in meeting certification requirements for organic foods. Enterprise business systems are one tool that can help meet these challenges.
Responding to Market Demand
The availability of organic products such as fresh produce, whole grain products, and packaged foods, including breads and desserts, dairy products, and even organic pet food, reflects these current upward trends. And both small and large brand owners are responding to market demand, seeking to make more organic products available in greater volumes in local boutique organic markets, as well as across national grocery retail chains.
With an eye towards increasing profit margins in an industry that’s both price and cost conscious, the market consolidation of organic food processors is already underway and is expected to continue as brand owners look to expand as quickly as possible into these lucrative, organic demand-driven supply networks.
At the same time, U.S. consumers may be largely unaware of what’s required to earn and retain a USDA-certified organic label on the food products they select every day. In order for a food product to be organically certified, its manufacturer must be able to provide, on an ongoing basis, the origin of all food ingredients and flavorings. The company must also be able to provide detailed quality and sourcing information that shows that the ingredients were grown without the use of conventional pesticides, artificial fertilizers, or sewage sludge for a sufficient period of time.
Organic food manufacturers must also capture and maintain detailed manufacturing records that show that each organic food item quantity produced by control lot has been minimally processed, without the use of ionizing radiation or additives. Additionally, processing and handling during production, as well as transportation of organic ingredients and products to and from the warehouse and through the distribution network, must reflect quality control methods and testing. The process must be carefully managed so that no potential commingling or cross-contamination with other, nonorganic, processes can compromise the integrity of these certified organic foods.
Another fact consumers may not realize is that varying levels of organic USDA certifications have been established and can appear on a retail product’s organic label. These USDA seal designations are based on the ability of a manufacturer to establish a record keeping audit trail that certifies that organically produced foods have been processed and handled according to organic standards. Organic labeling of a processed food product is also dependent on the manufacturer’s ability to demonstrate that a product contains an allowable majority of organic ingredients, based on organic ingredient thresholds of 70%, 95%, or 100% of the total processed organic food product ingredient list.
It is also important to note the impact of the recent rise in market awareness of food product recalls. The resulting increase in public scrutiny of the food industry has led to an ongoing evaluation of the auditability of sourcing, handling, manufacturing, and labeling best practices and processing procedures from growers and harvesters, manufacturers, distributors, and retailers. This work is intended to reassure consumers of the safety of our food sources.
Beginning in 1990 with the introduction of organic product certification guidelines as part of the Organic Foods Production Act, the USDA further established a new level of standards and guidance in 1992 as part of the National Organic Program Standards. These standards describe the necessary best practices for adherence to current stringent certification regulations. As they continue to evolve, the standards will be enforced for consumer product manufacturers in relation to the ongoing handling and monitoring of food products, including the sourcing, production, preparation and processing, warehousing, and accurate quality labeling disclosure of organic products.
But it is also a well-recognized fact among brand owners and food manufacturers that public opinion regarding food quality and related health concerns sets a higher standard of expectation than even the USDA’s current regulatory levels of compliance. Commitment based on consumer perception may be especially important for organic food companies, which must provide the proper ingredient sourcing, material handling, controlled processing, quality testing, accurate record keeping, and labeling disclosure all the way from field to table.
Amid calls for improving quality and alleviating related safety concerns surrounding food product recalls over the last few years, consumer response has placed accountability squarely on the shoulders of brand owners. And organic food brand owners have reacted by placing strict quality and procedural mandates on their own food processing plants, ingredient suppliers, and private label food processors to adhere to their own internal best practices. They are ensuring that the appropriate controls are in place and in a constant and ready state as part of supplier audits and contracted terms for payment. This is especially true with regard to retracing organic handling activities, product processing, and quality test results at any point in time.
Participating members of the organic food supply chain understand that they face this added responsibility, and this knowledge makes it paramount for today’s growers, ingredient suppliers, value-added organic food manufacturers, and supply chain storage facilities and transporters to have formal systems in place to support both one-up and one-back traceability. These systems ensure compliance with regulatory controls and meet consumer expectations at the same time, thus enabling the successful delivery of organic food products to both retail and food service U.S. markets.
Protection and Certification
Another trend affecting the delivery of organic food products in today’s market is the general reshaping of trading partner relationships taking place throughout the food manufacturing industry. New contractual agreements among brand owners, ingredient suppliers, and private label, third party food processors blur the traditional lines of engagement in an effort to lower the cost of delivering food products to market. For example, fresh food ingredient suppliers are outsourcing grower contracts to third party farmers and ranchers in order to provide a consistent volume and quantity at an agreed price. This is happening just as brand owners of processed food products have discovered they can better extend their production capacity by authorizing food processing outside their own plants.
While these efforts to grow market share and improve efficiency and productivity are helping brand owners to maintain or even grow profit margins, they are discovering that outsourced manufacturing places added pressure on their own business processes, record keeping, accountability, and ultimately, their ability to provide an audit trail based on best practices. This market trend is certain to impact the ability of organic food brand owners to certify the integrity and quality of food ingredients, material handling, and value-added production processes, both within and beyond their own company boundaries.
As a result, in order to meet existing USDA certification requirements for organic products, the entire global food chain, including food processors, continues to invest in both enterprise and production operations business systems. The goal is to better manage their ingredient sourcing, material handling, quality testing, and controlled production processing in order to capture and retain clear and detailed audit trails about the receipt and value-add processing of ingredients, intermediate, and shelf-ready organic food products. These systems also manage the information links of both on-site and off-site third party manufacturing and warehousing as organic ingredients and products move through the extended supply chain.
Providing automated traceability of product and process history for each individual product and lot means being able to track saleable products to the end consumer, back through the warehouse, through all value-add manufacturing processing steps. It also requires retaining and managing all incoming ingredient quality and quantity information from each organic grower and harvester as products make their way through the steps in the organic supply chain.
It is expected that USDA organic guidelines will continue to evolve, refining and redefining the necessary guidelines and best practices associated with providing organic versus “industrial” foods. Current organic certification standards have been targeted by growers, suppliers, manufacturers, and retailers who contend that they’re too strict and that growing consumer demand for organic foods is already greater than their ability to deliver certified organic foods to meet that demand.
For growers, this challenge is primarily a result of the elapsed pesticide-free time required to certify their first organic crops. Similarly, organic food manufacturers are concerned about the stringent business processes they must adhere to in order to gain and retain labeling certification for both organic ingredients and processed organic products. This introduces quality considerations into the production processing environment.
Isolated and Managed Processing
When organic and nonorganic foods are produced in the same food plant, processing must be isolated and managed according to USDA certification guidelines. For example, the USDA requires that organic products be isolated in order to avoid cross-contamination with nonorganic food products that don’t contain the required percentage of organic ingredients or adhere to the organic food processing standards required for foods to be certified or labeled organic.
Just as it is critical to control and manage the growing activities and quality of crops in certified organic fields, food processors must be able to automate the control of production schedule sequencing and actual detailed processing activities required when both organic and nonorganic products are being manufactured in the same plant, often during the same shift, and possibly on the same production line or lines. In some plants, this may be accomplished by following—and reporting adherence to—strict cleanup procedures and quality testing confirmation after the completion of nonorganic processing and prior to beginning organic processing.
Some food manufacturers may actually assign specially dedicated organic-only production lines—with the added costs of equipment and operators—in order to ensure isolated processing and protect the existing certification of organic products. Clearly, it is critical that organic food processors be able to demonstrate compliance and operational best practices that support the necessary level of control for USDA organic certification.
Continued advances are also necessary to extend the scope of capturing accurate and real-time factory performance information and to manage access to this information as part of the overall enterprise business systems that coordinate the purchase, production, and ultimate sale and delivery of organic products. This level of information allows organic food manufacturers and ultimately, brand owners, to rely on the ability of their trading partners to provide an auditable means of capturing and retrieving, on demand, the detailed quality and movement information expected by governing agencies and ultimately, the consumer. Automating this critical information link helps to provide the information backbone necessary to meet organic certification standards for, and ensure the safety of, organic products and processes.
Today’s organic food manufacturers are being challenged—both for competitive reasons and to support compliance with regulatory and consumer expectations—to invest in the automation and institutionalization of these best practices within their enterprise and production operations business systems. In this growing consumer products organic food marketplace, it is flexibility, along with repeatable, scalable, and transferable adoption and compliance to organic certifications standards, that will allow manufacturers to gain competitive market share while ensuring the proper handling and processing of organic products.
Berndt is director of product management, consumer products, for CDC Software, an enterprise software company. Reach her at firstname.lastname@example.org.