Being too lean leaves firms vulnerable to major crises

Food manufacturers in Britain are highly vulnerable to crises, such as fires, floods or an avian flu pandemic, because of the commercial pressures they are under to cut spare capacity to the bone, according to a new government report.

Britain’s food industry supply chains are susceptible to a range of disruptive events according to the year-long study conducted by Cranfield University for the Department for Environment, Food and Rural Affairs. Systems based on just-in-time deliveries, where minimal stocks of ingredients and finished goods are held, make manufacturers even more vulnerable.

While retailers are inherently resilient because few of their assets are mission critical, claimed the report, food processors and packagers are in a more precarious position. To make problems worse, retailers said they would look to their suppliers to provide cover in the first instance, expecting them to hold redundant capacity and capability and provide the logistical flexibility to meet exceptional circumstance.

The project Resilience in the food chain: a study of business continuity management (BCM) in the food and drink industry, which involved interviews with 61 executives from 28 organisations in retail, manufacturing and logistics, looked at the nation’s supply chain and cast a critical eye over contingency planning within the sector. According to the report’s author Dr Helen Peck, while progress had been made in implementing robust BCM, much remained to be done.

“While the UK is good at dealing with sudden onset emergencies such as the 7/7 bombings, we remain less well prepared for the less obvious or well understood phenomenon of ‘creeping crises’,” she said.

Peck has made a number of recommendations to government in event of major crises. These included the relaxation of regulations in times of emergency: from restrictions on working hours and rules on traceability; to permission for manufacturers to produce nutritionally safe and functional product that might vary in formulation from that specified on the label.

But the biggest problem for manufacturers centres around their need to protect key assets since, in many cases, their operations are dependent on a few capital intensive facilities. They often tend to rely on their ability to ‘flex’ production between sites as their main form of contingency.

“However, most conceded that the redundant capacity that provides the basis of this strategy is being steadily eroded by the pressure to reduce costs and optimise asset utilisation,” stated the report. “Sites are being closed, consolidated and moved off-shore, at which point the risk profiles for their UK operations change; the principal dependencies switch from manufacturing sites to transport, communications and supporting infrastructure.”

Fewer and larger production and distribution sites mean that the impact of disasters such as fires and floods is increasing. Only one company in the study was investigating contingent capacity, and then only after the business had been damaged by being too lean.

However, the report did suggest that large supermarkets had implemented their own priority user supply agreements during the last UK fuel crisis, by making fuel available to suppliers of key product lines and service suppliers as well as their own vehicle fleets.