PRODUCT RECALL
Minimising the risk of supplier-driven recalls
Evidence suggests that food-related product recalls are increasing, whether as a result of undeclared allergens, other forms of non-compliance, contamination or food fraud.
The knock-on effects of this rise include shifting relationships – between retailers and manufacturers and between manufacturers and their suppliers – and changes in the kind of checks implemented along the supply chain.
Data from different sources vary, but figures from the Food Standards Agency (FSA) indicate that it issued 56 food alerts during 2013 and the same number in 2014, but that the figures rose to 121 in 2015 and 148 in 2016.
Financial and reputational costs can be high – and unpredictable. Earlier this year, meat supplier Russell Hume, went into administration in the wake of – and arguably as a direct result of – a high-profile recall.
So, any strategy to reduce the risk of recalls must bring supplier relationships into sharp focus. But while manufacturers feel pressured to address potential threats in the supply chain, there are different pressures coming from the other direction, opening them up to further risk.
A recent food and beverage report from insurance broker Lockton surveyed 200 industry respondents in the second half of 2017. Three-quarters of them claimed they were under pressure to reduce prices. One in ten had already opted to use cheaper ingredients and over 70% said they would consider doing this in future.
“This decision will often be given to the procurement team,” says managing director Vince Shiers at product recall consultancy RQA. “They will be asking whether they can get the same ingredient for less money.
“But the quality department should be an integral part of the process of approving new suppliers. As good practice, this is more and more common – but it should be standard, without exception.”
Other implications can’t be ignored in the pursuit of cheaper ingredients, warns Food Standards Scotland (FSS). “Changes must be supported by accurate information given to the consumer,” says chief executive Geoff Ogle. “It may just be a quality issue, and typically is not a safety issue. But, if cost pressures give rise to adulteration rather than substitution, that is clearly another matter.
“We’d like to see more effort put into ensuring that this kind of information comes through to regulators. If a price point is being pushed too far, and it is untenable for that price to be delivered, then the situation may well not be in the interests of the consumer.”
As Ogle notes, whistleblowers in the industry today have no lack of opportunity for raising concerns, whether through the Groceries Code Adjudicator, the Food Industry Intelligence Network or by other means.
Horsemeat scandal aftermath (back to top)
Since the horsemeat scandal, there has been an increasing focus on the authenticity and potential adulteration of raw materials, says Adele Adams, food defence expert and director at Adele Adams Associates (AAA). “This has increased the amount of testing typically carried out, but this should always be risk-based, so as to optimise the use of resources,” Adams advises.
As she says, ingredients testing is an important weapon in the food manufacturer’s armoury, but should be used with discretion.
“Authenticity testing has grown significantly around areas like speciation testing. Other methods are developing at a rapid pace, but we must carefully consider the efficacy of the test and how meaningful the results are.
“It is often cost-prohibitive to do much more than periodic or random testing, which can be so infrequent it becomes of little use.”
Testing needs to be looked at carefully in other ways. As Adams explains, the manufacturer may require each batch of raw material to be accompanied by a Certificate of Analysis on tests carried out on the supplier’s behalf. “These will then be verified by the manufacturer on a risk-based frequency,” she says.
But as Shiers at RQA points out: “The ingredient may come with a Certificate of Analysis saying, for instance, that a product is nut-free, but if the supplier used a lab that was not accredited for doing allergen testing, then the value of that claim comes into question.”
As FSS and the FSA make clear, the majority of recalls are to do with undeclared allergens. “But a lot of recalls are related to microbiology, too, and that’s often down to suppliers,” says Cliodhna McDonough, a food regulation specialist at law firm Stephenson Harwood. “Salmonella, typically, is the primary contaminant.”
As well as quality control, one part of her job in vetting prospective suppliers on behalf of clients is to look at their recall insurance. “I would not encourage manufacturers to use suppliers that do not have this type of insurance,” says McDonough. “It should cover reimbursement for any recall, replacement costs, loss of profits and brand rehabilitation.”
Cost pressures (back to top)
While McDonough talks about her clients wanting their risk “evenly spread”, Ian Harrison, head of product recall at Lockton argues: “Cost pressures in the supply chain have been huge, and ingredient suppliers are now seeing the ‘reverb’ of sterling’s depreciation. Manufacturers are looking for ways to pass costs back up the chain.”
Specifically, manufacturers are becoming increasingly keen to see suppliers pay the cost of a recall, Harrison says. “They will want this to be part of the contract. If a supplier does not want to sign, they will want to know why not.”
According to Lockton, insurers are seeing recalls happening not only more often, but also on a larger scale, and manufacturers as well as suppliers are suffering as a result. The company’s 2017 survey showed that half of the 200 companies questioned expected retailer liability insurance demands to price them out of future contracts.
Beyond the vexed question of rights of recovery, the real objective is to avoid a recall happening in the first place. “One angle on due diligence is to think of the supplier as a potential long-term partner,” says Shiers. “Due diligence also implies checks on financial stability. Will the company find itself in a situation where it needs to contract out work?”
Most manufacturers will do some financial due diligence when looking at suppliers, but few do corporate due diligence, suggests Eoghan Daly, manager of forensic and counter-fraud services at consultancy Crowe Clark Whitehill.
“This has to be about individuals. Who is the controlling mind in the organisation, and do they have any sort of record or reputation?” he asks.
“In-country checks should be carried out. In countries such as Turkey, records will not be digitised, so you need people on the ground to make those checks for you. The cost will pale into insignificance compared with the cost of the product – and certainly in comparison with the cost of any incident.”
Like product testing, audits tend to work on a risk-based approach. “For a low-risk product, a manufacturer may accept BRC certification, or other Global Food Safety Initiative (GFSI) approved standards,” says RQA’s Shiers.
“Otherwise, they may also include a visit by the quality team or a third-party visit. RQA, for instance, will carry out audits either to our own standards or to the specific standards of a food manufacturer.”
Too many suppliers (back to top)
Shiers claims many manufacturers are addressing the sheer number of ingredients suppliers on their books. “The tide might be turning here,” he says.
“One company may have 500, even 1,000, suppliers. They may conclude this is too many to manage effectively, and that with fewer suppliers, they would have a better handle on them – manufacturer and supplier would get to know each other better.”
While fewer suppliers may mean stronger relation-ships and better lines of communication, the proviso here must be that companies would avoid reducing their rosters to the extent that they end up relying on a single supplier for a given ingredient.
“One benefit could be that it enables you as a manufacturer to see what checks your supplier carries out on its own suppliers,” says Daly at Crowe Clark Whitehill.
If there is a drive to shorten and reduce the complexity of supply chains, there is an equal impetus to be better informed about them. Adams at AAA believes that testing alone, however sophisticated, will not prevent another horsegate scandal.
“Supply chains are now being mapped to a level of detail many have not considered before,” she says. “This is the starting point in being able to manage the risks, as we must know all the touch-points first.
“We are at the start of driving a lot of change in raw material supply chains, but this will take considerable time and effort, and it will be a long journey.”
In the context of the individual recall, this particular journey should not be considered over until a review stage has been undertaken, says Victoria Cross, head of the business resilience practice at communications consultancy Instinctif Partners.
In fact, for the 50 or so businesses that have used Instinctif’s online RecallOptic and CrisisOptic tools to quantify recall-readiness over the past couple of years, the average score in the review category was just over 50%, she says.
“Companies large and small should want to get back to business-as-usual,” she admits. “But we were staggered by a failure in many cases to review at all. It’s not only to do with setting up a collaborative discussion about how it went for all involved and how communications flowed. It’s also about implementing practical mitigation steps.”
It’s evident then, that many of those practical steps, before and after any recall, should actively involve suppliers.
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Collaboration with suppliers
When it comes to building relationships with stakeholders, including suppliers, to prevent and manage recalls, the secret should be “collaboration” rather than “communication”, says Victoria Cross, head of business resilience at communications consultancy Instinctif Partners.
The risk, she says, is that those making contact from within the manufacturer see this as a one-way process.
“It should imply two-way collaboration, based on the understanding that you need to be working with each stakeholder,” she says. “You need to plan who the audiences are that will be impacted by a recall, and who owns those relationships.”
The internal comms team will need to develop a ‘route map’ for action in the event of a recall and a consistent message for a given incident, and will then have oversight of the communications inside and outside the company.
Some of the most important communication will take place while deciding whether a recall is necessary in the first place.
“It might be a quality concern rather than to do with food safety. At that point, you need a risk-based technical conversation with the supplier,” Cross suggests.
