Food safety, government regulations, and brand protection

Every year, approximately 40,000 cases of salmonellosis are reported in the United States and about 600 people die of it, according to the CDC. By Predrag Jakovljevic and Olin Thompson of Lawson Software

The US Centers for Disease Control (CDC) also reports that as many as 76 million illnesses are caused by food contamination every year in the US. In addition to the public cost, the impact of food safety lapses can be devastating within the food industry. While many food industry executives think of regulatory penalties as a risk, the major risks are potential shut downs or, even worst, more permanent damage to brands and companies. The news media of today is attuned to food safety stories. They know that food safety stories sell a lot of newspapers and generate a lot of TV viewers. Does the consumer care? A survey of the United Kingdom (UK) consumers conducted by the UK Food Standards Agency (FSA) revealed that 71 percent of consumers were concerned about food safety while only 16 percent were not.

Many food companies are investing significant money and effort to build awareness for their brands in the market, which strategy can pay-off amply in competitive, commodity markets. One highly publicized recall and the negative image generated in the media, however, can turn an established brand asset into a liability.

Nervous consumers can cause distributors and brokers to quickly abandon such tainted products in the channel. For non-branded manufacturers, such as ingredient suppliers or private label manufacturers, a company can become tainted in the eyes of customers. For distributors, food service operators and grocery retailers will question their credibility and the ability to keep their names out of the media. For retailers and operators, negative press can keep the consumers from your door. It is important to note that major retailers are clearly concerned about food safety. For example, the mock recall requirements from Wal-Mart or Costco exceed the requirements stated in most regulations.

Global Issue
Food safety is a global issue, and the present-day threats and potential costs associated with food safety have never been higher. As companies seek to increase their control and in turn, minimize the risks, they discover that many varied activities, both within and outside the organization and both up and down the supply chain, must be considered and addressed.

Most countries have governmental agencies, such as the US Food and Drug Administration (FDA) and US Department of Agriculture (USAD), which are responsible for regulating food products. These agencies help to ensure that foods are safe to eat and do not contain any harmful additives. Correct labeling of food products is strictly enforced and some countries now exercise strict guidelines relating to product advertising. Food control and safety will only increase with the closer linking of food supplies among countries and regions, especially in light of illnesses such as mad cow disease and avian (bird) flu, which can spread to humans through food consumption.

The rules typically cover all food products sold in the country and therefore, any product imported into the country is covered by the regulations. For all members of the food supply chain, the import, export and domestic impacts of the worldwide regulations must be considered. As concerns for food safety continue to rise it’s not surprising that industry regulations and enforcement, are becoming more stringent. Many food producers regulated by the FDA and USDA have thus implemented hazard analysis and critical control point (HACCP) programs to standardize their practices in food quality and safety, thereby streamlining the business processes and reducing the risks of compliance while keeping the operational costs down as much as possible.

The two markets with the most impact worldwide are the US and the EU, given that these markets are among the largest and are major importers and exporters of food. The US Bioterrorism Act of 2002 is playing a major role in the worldwide food industry. This has created a new requirement for consumer goods manufacturers, whereby they must track the source of raw materials as well as the destination customer of the finished goods, whereby the participants in the entire supply chain have to maintain inventory attributes such as: lot number, revision codes, manufacturing date, expiration date, serial number, etc., all of which should enable everyone to combat bio-terrorism threats and manage product recalls should it be necessary.

Most of the bioterrorism security regulations require food manufacturers, distributors, and logistics companies to establish and maintain records that would allow inspectors to conduct a trace investigation to protect the food and animal feed supply. It requires having means that provide the reporting mechanisms required beyond traditional lot traceability. With the US FDA having authority over about 80 percent of the US food supply, the Bioterrorism Act will have more impact on the worldwide food and beverage industry than all other regulations combined. While limited exemptions exist, the law is intended to be broadly applied to all companies that manufacture, process, pack, hold, transport, distribute, or receive regulated food product. It estimated that the US Bioterrorism Act covers over 400,000 US and foreign facilities.

The US Bioterrorism Act is being replicated throughout EU to ensure the safety of the food supply from a terrorist attack. On January 10, 2005, Markos Kyprianou, the new EU Commissioner for Health and Consumer Protection in Brussels indicated that the Commission's guiding principle, primarily set out in its 2000 White Paper on Food Safety , was to apply an integrated approach from farm to table covering all sectors of the food chain, including feed production, primary production, food processing, storage, transport and retail sale. This clearly indicates that food safety concerns impact all members of the food supply chain.

The European Food Safety Authority (EFSA), setting forth the basic conditions for safeguarding food established EU Regulation 178/2002 . Article 18 of the regulation, which specifies that the traceability of food shall be established at all stages of production, processing and distribution, or from farm to fork including growers, processors, manufacturers, distributors plus retail and food service. Indeed, the stricter new EU regulations make food processors legally bound to have traceability systems, even if their customers do not necessarily require them. This is applicable to the entire supply chain (production, storage, purchasing, quality control, and so forth), and to everything that contributes to food safety (including packaging, closures, seals, bottles, jars, and the like). This is in contrast to the former requirement to identify only the source of a ingredient http://www.technologyevaluation.com/Research/ResearchHighlights/BusinessApplications/2001/04/news_analysis/NA_BA_XPC_04_09_01_1.asp). There is also the need for backward traceability for multiple ingredients, as well as forward traceability, for recall purposes.

Another current example is the EU's general food law Article 15, whose amendment mandates fast tracking capability for all food, food products and animals that are used for food. Such regulations underscore the need for an automated distribution system that can provide prompt and accurate tracking and tracing. The UK food scare in 2005 involving chili powder contaminated with the red dye Sudan1 was a major test of the traceability legislation introduced in January 2005. The dye had been banned from food products the EU in 2003, but it surfaced in a batch of imported chili powder used to make a Worcestershire sauce, which was in turn used as an ingredient in a wide range of products. The FSA then ordered the withdrawal of hundreds of products from supermarket shelves, and the problems were eventually traced back to a contaminated shipment of chili powder that came to the UK in 2002 from India. Hence, as regulations become more stringent and global safety concerns grow, all aspects of the food and beverage product lifecycle management (PLM) must integrate internal best practices, customer requirements and regulatory compliance.

Brand Protection
Companies are sorting out what regulations to comply with, and how to meet retailer’s demands because they understand that enhancing food safety provides them with information and traceability capabilities that offer a new marketing opportunity to establish product differentiation, boost client loyalty and ultimately improve profits.

Today it is common to see supermarket shelves stacked with products promoting “organic” or “free range” origins and “fat free” content. Growing consumer demand for “clean and green” products and information on food sources makes food safety information a golden opportunity to build business and brand differentiators. By providing products with a wealth of product information, retailers can meet their customer’s demands, and manufacturers can provide retailers with a continuous stream of new and improved products.

Lawson believes that greater transparency across supply-side management processes can also enhance operational efficiencies across an organization. This is done by streamlining areas such as inventory management, improving access to information that can reduce the impact and costs associated with issues such as product recalls, and improving collaboration and relationships with trading part¬ners.

There is no doubt about it—emerging regulations will place greater account¬ability on those companies involved in the global food chain. However, investment in more effective food safety and traceability capabilities should also be viewed as an integral part of running a successful food business.

About Lawson
Lawson provides software and service solutions to 4,000 customers in the manufacturing, distribution, maintenance and service sector industries across 40 countries. Lawson solutions include Enterprise Performance Management, Supply Chain Management, Enterprise Resource Planning, Customer Relationship Management, Manufacturing Resource Planning, Enterprise Asset Management and industry-tailored applications. Lawson solutions help customers simplify their businesses or organizations by streamlining processes, reducing costs and enhancing business or operational performance. Lawson is headquartered in St. Paul, Minn., U.S., and has offices around the world. Visit Lawson online at www.lawson.com.

About the Authors
Predrag Jakovljevic is a principal analyst with Technology Evaluation Centers (TEC), with a focus on the enterprise applications market. He has nearly twenty years of manufacturing industry experience, including several years as a power user of IT/ERP, as well as being a consultant/implementer and market analyst. He holds a bachelor’s degree in mechanical engineering from the University of Belgrade (Yugoslavia), and he has also been certified in production and inventory management (CPIM) and in integrated resources management (CIRM) by APICS.

Olin Thompson is Vice President of Industry Strategy at Lawson Software. He has over twenty-five years of experience as an executive in the software industry, and has been called the “father of process ERP.” He is a frequent author and award-winning speaker on topics such as gaining value from ERP, SCP, e-commerce, and the impact of technology on industry.