6th IFC International Food Safety Forum Kyiv, Ukraine, March 15, 2017 MITIGATING RISK IN THE FOOD SUPPLY CHAIN BARRY LEE, Principal Industry Specialist IFC Manufacturing, Agribusiness & Services In partnership with
ON SAFARI… THE ANTICIPATION! Ready and Waiting… Will we see the Big Five? 2
THE ‘INFAMOUS’ WHITE ELEPHANT … • Obvious, Known and Unwanted • Of No Value Unwanted Plant, Machines and Gifts! 3
THE BLACK SWAN EVENT … • Highly Improbable, Unknown High Impact • Difficult to Understand the Total Impact • Eg, 9/11 2001, Russian Ruble Collapse 2014 Feeling of Helplessness 4
THE GREY RHINO EVENT … • Highly Probable and High Impact • Eg, Flood, Fire or Storm events • Asian and Global Financial Crises (1997, 2008) Feeling of Power to Respond 5
CONTENTS 1. FOOD SAFETY: THE LANGUAGE OF BUSINESS 2. GLOBAL TRENDS DRIVING GLOBAL FOOD SUPPLY CHAINS 3. RESILIENT SUPPLY CHAINS • THE FOUR PILLARS • THE THREE ENABLERS WHAT DO WE MEAN BY A ‘FOOD SAFETY CULTURE’? 4. 5. CLOSE: TAKE-AWAY MESSAGES 6
1. FOOD SAFETY: THE LANGUAGE OF BUSINESS ‘THE PROFIT AND LOSS’ (P&L)
THE BUSINESS CASE FOR BETTER FOOD SAFETY • Improved access to major retailers and Increase multinational restaurant chains sales/profits • Improved export potential • Reduced production losses Save on • Lower costs on recalls, withdrawals, and audits costs • Higher worker productivity and retention • Protects your brand • Builds consumer trust Reduce risks • Ensure more efficient, sustainable suppliers Source: client surveys; Investing Wisely in Food Safety: How to maximize the benefits and reduce costs 8
2. GLOBAL TRENDS DRIVING CHANGES IN GLOBAL FOOD SUPPLY CHAINS “ Amidst the predominant attitude that building trust is a necessary goal, the top two areas of importance for building consumer trust for both retailers and manufacturers were consumer health and wellness and food and product safety .” -- KPMG Global Consumer Executive Top of Mind Survey 2015
FOOD SYSTEM TODAY Source: John Floros, 2012 10
MAIN DRIVERS GLOBALIZATION URBANISATION • Global supply chains across national and CONSUMERS borders • Growth of discerning middle class • Technology and science to detect • Health-conscious consumers hazards and identify risks • Empowered and educated • Resource scarcity and minimisation of food waste consumers REGULATION • Scandals and increasing scrutiny • Rising regulatory standards eg FSMA • International Trade Agreements (aka. market access) 11
3. A FRAMEWORK FOR RESILIENT SUPPLY CHAINS* • THE FOUR PILLARS • THE THREE ENABLERS * Source: Deloitte 2013
RESILIENT SUPPLY CHAIN FRAMEWORK* VISIBILITY COLLABORATION CONTROL FLEXIBILITY PEOPLE PROCESS TECHNOLOGY * Source: Deloitte 2013 13
RESILIENT SUPPLY CHAIN FRAMEWORK: VISIBILITY VISIBILITY FLEXIBILITY COLLABORATION CONTROL PEOPLE PROCESS TECHNOLOGY Map, track and monitor supply chain processes in REAL time • Capability to address supply chain issues before they become problems 14
CHERNOBYL, 1986 IS THIS VISIBILITY? Need for Traceability and Accountability of Food Supply • Mandated reporting for radioactivity (Caesium-137, Sr90) • Labelling law requirements for irradiated foods Was it a Black Swan or Grey Rhino Event? (But now a White Elephant…) 15
IS THIS VISIBILITY? THE CHINA MILK SCANDAL, 2008 Need for Traceability and Accountability of Farmer Supply • Supply Chain Processes? Farmers or Distributors? • Melamine and/or Urea contamination • Infant deaths: 6, Reported 300,000 victims Was it a Black Swan or Grey Rhino Event? 16
IS THIS VISIBILITY? CHIPOTLE MEXICAN GRILL (CMG), 2015 Large US Mexican restaurant chain • UNKNOWN causes of E.coli, norovirus, salmonella issues • YoY2016/15 sales down $600 million • Market capitalization loss $11 billion (!) 460.140 Was it a Black Swan or Grey Rhino Event? 17
MOMENT OF TRUTH QUESTION? Have you got real time VISIBILITY in your supply chains? 18
RESILIENT SUPPLY CHAIN FRAMEWORK: FLEXIBILITY VISIBILITY FLEXIBILITY COLLABORATION CONTROL PEOPLE PROCESS TECHNOLOGY Adapt quickly in response to problems without significantly increasing operational costs • Mitigates impact of business interruption 19
IS THIS FLEXIBILITY? BANGLADESH TURMERIC RECALL, 2014 Product recall in the USA • Potential adulteration of product with lead oxide • Unable to identify source of contamination • Alternate supply from new farmers in a new region Was it a Black Swan or Grey Rhino Event? 20
IS THIS FLEXIBILITY? PLANT FIRE IN RUSSIA, 2010 Plant Fire resulted in $83 million insurance payment • Largest agri-business insurance payment in Russian history • Electrical fault and plant off-line for 2 years • Alternate supply required for processed meat products 60,000 tons per annum Was it a Black Swan or Grey Rhino Event? 21
IS THIS FLEXIBILITY? MAGGI NOODLE PRODUCTS INDIA, 2015 Maggi Noodles Banned • Total Cost of Recall and Fines ca. $200 million • Concerns about Lead and MSG by Indian Regulators Was it a Black Swan or Grey Rhino Event? 22
MOMENT OF TRUTH QUESTION? Have you got real time FLEXIBILITY in your supply chains? 23
RESILIENT SUPPLY CHAIN FRAMEWORK: COLLABORATION COLLABORATION VISIBILITY FLEXIBILITY CONTROL PEOPLE PROCESS TECHNOLOGY Work effectively with supply chain partners through symbiotic, trust-based relationships • Avoid business interruptions for ALL PARTIES and achieve common goals 24
IS THIS COLLABORATION? The ‘Shared - Expectations’ Approach • Common and Shared goals • Demand Planning and Profitability Franchisees / Company Distributors Suppliers 25
BIDCO KENYA: IS THIS COLLABORATION? WORKING WITH FARMERS, DISTRIBUTORS AND CONSUMERS, 2013 Provides farmer training (GAP) and distributors with ‘business management’ systems (SAP) for sales & inventory • Common and Shared goals • Demand Planning and Profitability 26
BRALIWRA RWANDA: IS THIS COLLABORATION ? WORKING WITH MAIZE FARMERS, 2015 Braliwra increased maize sourcing from 300 farmers to ca. 5,000 farmers • Common and Shared goals • GAP, Supply Management, Traceability and Profitability 27
MOMENT OF TRUTH QUESTION? Have you got real time COLLABORATION in your supply chains? 28
RESILIENT SUPPLY CHAIN FRAMEWORK: CONTROL CONTROL VISIBILITY FLEXIBILITY COLLABORATION PEOPLE PROCESS TECHNOLOGY Robust policies, monitoring and control mechanisms • Procedures and processes which are IN PRACTICE and NOT IN THEORY 29
THREAT OF LOSS OF EXPORT LICENCE IS THIS CONTROL? TO EU, SOLOMON ISLANDS, 2013 Weak fisheries management by Solomon Islands Government • Illegal, Unreported, Unregulated (IUU) fishing? • Yellow Card – Threat of tuna export ban to EU from Solomon Islands Was it a Black Swan or Grey Rhino Event? 30
WHO’S LIABILITY? IS THIS CONTROL? QUARANTINED CONTAINER IN ITALY, 2014 Container Packed in India Found to Container Rodents • Third Party ‘Packing’ of the Container • Product Quarantined and Destroyed • Can You ‘Contract’ Out your Responsibilities? • Lesson: ‘Duty of Care’ Was it a Black Swan or Grey Rhino Event? 31
IS THIS CONTROL? POLAND HEALTHY GRAINS COMPANY, 2016 A large EU importer of rice for snack-breads and rice-cakes • Annual audits of rice farms in Asia eg Cambodia, Thailand • Traders are licensed to supply from audited farms only 32
MOMENT OF TRUTH QUESTION? Have you got real time CONTROL in your supply chains? 33
RESILIENT SUPPLY CHAIN FRAMEWORK: PEOPLE VISIBILITY FLEXIBILITY COLLABORATION CONTROL PEOPLE PROCESS TECHNOLOGY The FOUR PILLARS are Thought, Word and Deed for people • A Food Safety Culture … Do you need a Psychologists View? 34
4. WHAT DO WE MEAN BY A ‘FOOD SAFETY CULTURE’? CHANGING ‘PEOPLE’ BEHAVIOUR
THREE REASONS Why people do not follow procedures: 1. The workplace culture does not encourage compliance 2. They don’t have the knowledge 3. They do not have the proper motivation https://www.youtube.com/watch?v=yAgf4MyOb9w Was it a Black Swan Source: Food Safety Culture: Creating a Behavior-Based Food Safety Management or Grey Rhino Event? System by Frank Yiannas, 2010 36
THERE HAS BEEN AN EVOLUTION IN FOOD SAFETY FOOD SAFETY CULTURE CAPACITY BUILDING COMPLIANCE HACCP 37
THE BUSINESS OF FOOD SAFETY CULTURE PE PEOPL OPLE E & & PROFIT PROCESS CULTURE CU TURE • Food safety • Award process • Staff talks incentives KPI’s • Team • Share of • HR recognition profits and workforce • Staff loyalty benefits planning • ‘Body & Mind ’ DO YOU KNOW WHAT YOUR STAFF THINK? DO THEY HAVE THE SAME ‘SHARED - EXPECTATIONS’? INDUSTRIAL PSYCHOLOGISTS CAN BE CATALYSTS FOR A FOOD SAFETY CULTURE 38
5. TAKE-AWAY MESSAGES TO CLOSE Messages From Today’s Forum: Mitigate Risks: Resilient Supply Chain Framework More Grey Rhino Events than Black Swans …Plan to Respond to the Grey Rhino’s today!
DON’T BE AN OSTRICH… WITH YOUR HEAD IN THE SAND! 40
CONTACT BARRY LEE Principal Industry Specialist, IFC Agribusiness E-mail: blee4@ifc.org 41
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