Is there horsemeat in your supply chain? Time to invest in Supplier Risk Management

The horsemeat scandal questions how food companies manage Procurement Supplier Risk

Earlier this year, European consumers have been shocked when discovering in the news that horse meat was found in various food meals (from burgers to frozen lasagna and Spaghetti sauce) that were misleadingly sold as “beef” products at major grocery stores. Headlines of the horse meat scandal prompted removal of the meals from retailers’ and suppliers’ shelves, damaging consumer confidence in well-known brands in the food industry. At the time of this post, investigations are still ongoing to identify whether the addition was by mistake or by criminal design. What seems clear though is that the scandal questions how well leading food companies handle their internal processes regarding Procurement Supplier Risk and quality controls throughout their supply chain.

Could food manufacturers and retailers have foreseen this event?

Easier said than done, but there were signals that could have alerted top management at these companies:

  • First, the opacity of the production chain in some cases should have triggered more due diligence on potential weak links. As an example, increased scrutiny over a lasagna meal, labelled by a well-respected consumer brand and sold across Europe, unveiled to the public a complex supply chain. The Swedish consumer brand was outsourcing its lasagna production to a mid-sized company in France, through a subsidiary plant in Luxembourg. “Beef” was supplied by a French meat processor that leveraged global commodity markets (through traders in Cyprus and the Netherlands) to buy its raw meat at the lowest cost. In that particular case, horse meat allegedly originated from an Eastern European slaughterhouse.

  • Second, recent trends on soaring manufacturer’s costs, with beef prices reaching record highs at a time when retailers were squeezing price down, should have raised red flags on potential quality issues down the meat processing chain.

So, what exactly could have been done to prevent the scandal?

We sometimes hear from Purchasing executives that they cannot be held responsible for the behaviour of their many suppliers as they cannot inspect every factory or farm. However, there are a few steps that Procurement could have taken in order to prevent this kind of issue or at least mitigate its impacts.

  • As a start, the sourcing process should have included audits at their Tier 1 supplier and further investigation on how audits were performed down the chain, at their supplier’s suppliers. Interestingly, Business Continuity Institute revealed in its Supply Chain Resilience Survey 2012 that 39% of companies that reported supply chain disruptions in 2011 identified that the issue originated from below their immediate supplier.

  • In addition, an active and well-designed Supplier Risk management process would have raised red flags regarding the supply chain complexity and triggered appropriate action plans. Events such as the beef price increase would have generated more controls along the supply chain. Continuity plans would have been designed to efficiently react to any supplier disruption or quality issue.

How good is your organization at managing Procurement Risk?

A recent survey from Capgemini Consulting (2012-2013 Global CPO Survey) revealed that, if interest for Procurement Risk Management has increased among CPOs, “too little investment has been made – for instance on risk-focused training or a technology – in order to say that risk management is now fully embedded in Procurement DNA”.
Events such as the horse meat scandal may be the opportunity for organizations to question current practices and build a structured approach on Procurement Risk Management.