Ensuring Food Safety and Achieving Competitive Differentiation through Multi-Dimensional Traceability

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1 Traceability 2.0: W H I T E P A P E R Ensuring Food Safety and Achieving Competitive Differentiation through Multi-Dimensional Traceability Executive Summary In response to the many highly publicized large scale food recalls that have occurred over the last few years and diminishing consumer confidence, both regulators and the industry are responding with stricter guidelines and policies to ensure the safety of the U.S. food supply. As a result of this increasing scrutiny, along with the growing complexity of the food supply chain, many food company executives are re-examining their ability to ensure the safety and quality of their products. With even greater emphasis being placed on prevention, food company executives need to assess their intervention methods to minimize the exposure of a food safety incident, if not prevent them entirely. Existing measures and solutions may no longer be adequate to meet the increasing standards. Simply having the ability to conduct one-up and one-back traceability (i.e., the ability to determine the supplier of a raw ingredient or the destination of a finished good) may no longer be sufficient to operate in today s market. Consumers today demand much higher assurances of safety and quality. In order to meet these new challenges, food processors must be able to automate the traceability process across multiple dimensions.

2 Introduction Multi-Dimensional Traceability (MDT) is a business process that allows food processors to collect and analyze complete information at every step in the production process chain. Unlike basic one-up and one-back traceability, automated MDT allows food processors to work from any stage in the process. This enables food processors to rapidly determine the source of a defective food product with multiple ingredients, and multiple process steps, often involving the mixing and blending of batches, the economical use of scraps, rework, co-products and by-products. True automated MDT can be characterized as the ability to maintain traceability in four principal dimensions: Breadth: amount of information the traceability system records Depth: how far upstream, downstream in the supply chain the system tracks Precision: degree to which systems can pinpoint a particular product s movement, characteristics Access: speed with which track/trace information can be communicated to supply chain members Strategic Implications Many manufacturers see quality and compliance as a regulatory conformance issue rather than as an opportunity to improve operational excellence. This is because quality and compliance must still be built into business processes and the culture, from design forward. AMR Research Quality and Compliance: Boston Scientific Gives Executives, Investors a Wake-Up Call, January 2006 Traceability is an important issue for food processors because it provides a standard that can be used by multiple organizations in response to tainted or otherwise defective food items. Indeed, traceability is a way of achieving high levels of quality assurance, and a key to generating confidence in food production and the supply chain. It is also important to understand automated MDT as an ongoing business process that addresses two key drivers for food processors: Compliance This includes both routine regulatory compliance as well as meeting key requirements for emergency traces in response to product recalls. In the U.S. market, the Food & Drug Administration (FDA) and the U.S. Department of Agriculture (USDA) are the main custodians of food safety policy with which food processors must comply. Compliance-related expectations for improved traceability are expected to increase as the FDA begins implementing the Food Protection Plan. The Food Protection Plan seeks to revamp the way in which the agency handles food safety crises by putting greater emphasis toward prevention and empowering the FDA to issue a mandatory recall if voluntary recalls are not effective. Value Automated MDT offers food processors an opportunity to improve and better control value so that manufacturers can be more competitive and responsive to customer and consumer needs. The customers of food processors - which include retail giants, foodservice distributors, and restaurant chains are demanding ever greater assurances that food products for sale under their brand names meets stringent quality and safety criteria. In overseas markets characterized by comparatively stringent regulations governing traceability such as the EU and Japan U.S. food processors also must implement automated MDT-capable solutions to remain competitive. Key MDT Players Key players that are typically involved in implementing automated MDT solutions include corporate and plant level IT executives (including Chief Information Officers), as well as, quality control (QC) and quality assurance (QA) managers at the corporate and plant level. But the demand for traceability has repercussions at all levels of food processing. MDT affects all managers and leaders who are responsible for and/or directly involved in food processing operations. For example, supply chain managers in the food industry can use automated MDT systems to improve inventory management. Account executives, facing ever-increasing demands for quality and favorable pricing, can leverage automated MDT to outmaneuver competitors. CDC Software Traceability 2.0: Multi-Dimensional Traceability White Paper

3 Food processors that ignore the growing imperative to employ solutions capable of automated MDT face the prospects of losing their competitive edge in an extremely unforgiving marketplace. Without programs capable of automated MDT, food processors risk losing their ability to remain competitive as major retail and dining customers ratchet up their traceability requirements. Already, inadequate traceability has directly resulted in measurable losses for food companies and their customers as a result of large scale recalls. Consider the following: A southern California based meat company recalled 143 million pounds of beef in early 2008 the largest recall on record. As a result of their slaughter practices and this recall, the House Energy and Commerce Committee subpoenaed the company s CEO A tainted meat scare prompted a northeastern meat company to recall ground beef produced in their production facility in Over 20 million pounds of ground beef an entire year s production run was recalled and a week later, the 67-year-old company went of out of business. An outbreak of E. coli in packaged spinach in the fall of 2006 depressed sales nationwide; a year later, spinach sales were still down 30%. Food-borne illnesses at a leading fast-food chain in late 2006 caused an estimated $20 million loss in profits due to depressed sales In response to these and many other food safety crises, the industry is stepping up their policies and standard; meeting regulatory compliance won t cut it any longer. Food industry organizations and associations are leading initiatives to develop industry standards for traceability in order to ensure that the resulting data can be transmitted up and down the production chain. The Produce Traceability Initiative, for example, is spearheaded by the United Fresh Produce Association, the Produce Marketing Association, and the Canadian Produce Marketing Association. Leading retailers like Wal-Mart now require suppliers of produce and other food products to be certified against Global Food Safety Initiative standards. Additionally, ISO 22000, the newest international standard for food safety management systems, requires further integration of people, processes, and systems to improve traceability. Many Organizations Ill-Equipped Rapid and reliable communication throughout the supply chain is essential to ensuring that all relevant food safety hazards are identified and adequately controlled at each step in the distribution channel. However, a December 2006 study on traceability by the Aberdeen Group suggests that many in the industry are ill-prepared to address the ever-increasing scrutiny being placed on food safety. The study showed that 93% of food companies still rely on manual processes to manage compliance and traceability; given the rising food safety standards and the growing complexity of today s food supply chain, this approach may soon be obsolete. However, there are hopeful signs. Leading food processors are laying the groundwork for larger and more effective initiatives. Analysis of the food processing industry s direct investments in Governance, Regulatory, and Compliance (GRC) infrastructure shows that industry is addressing greater governmental scrutiny and market demands for better traceability. According to the analysts, the stated objectives for GRC spending in the food processing industry include: Mitigation of operational risk; Compliance with FDA regulation; Compliance with customer specifications; Manufacturing process certification; and Traceability From 2007 to 2008, food processors increased their investment in GRC by five percent. Over a third of mid- and large-sized ($1B+) companies expected to invest over $3 million in GRC initiatives. CDC Software Traceability 2.0: Multi-Dimensional Traceability White Paper

4 Operational Considerations: Attacking Data Silos Many practices that support elements of automated MDT are already in place. This includes quality assurance surveillance (QAS) via visual onsite inspections and witnessed sign-off of final testing. Certificates of traceability compliance (CTCs) are often provided by brand owners along with proof of manufacturing to specifications. Quality control and quality assurance staffs also maintain records for traceability operations (though often these records are maintained in paper-based systems). Indeed, the greatest obstacle that food processors must overcome to effectively implement automated MDT solutions revolves around breaking down the silos that separate organizations and data repositories. They require a way to capture and integrate information on: All contractors, suppliers, and co-packers involved in the production process; Critical processing equipment; All process specifications and handling methods; Packaging/preservation, storage facilities, transportation; and Shelf life aging controls. Internal Data Silos: Barriers To Effective Food Product Recalls Traces of lubrication oil contamination were recently discovered in jars of a name-brand peanut butter product, prompting an expensive nationwide product recall. The peanut butter manufacturer s records were based on simple lot data that provided little insight into the source of the oil contamination. The manufacturer knew which of its plants had produced the peanut butter, but did not immediately know the precise source of the contamination. After several weeks of investigation along with significant losses in production time and revenue the manufacturer determined that defective production machinery was the source of the oil contamination. Isolated silos of company data exacerbated the impact of this recall. Plant maintenance management systems had been tracking the defective machinery, but not the plant s production management system. Automated MDT at this plant would have integrated maintenance data into production decisions, which could have prevented or limited the impact of the recall. For example, an automated MDT system could have alerted on-site production personnel to the potential for oil contamination before the product was released for distribution and sale. Alternatively, the manufacturer could have used automated MDT data to better focus its investigation to isolate the malfunctioning machinery and limit production downtime to hours or days, instead of weeks. Competitive Differentiation Through Supply Optimization By implementing solutions capable of automated MDT, food processors can confidently go to market with products that will consistently meet customer expectations. Quality and delivery requirements can be met even when there are high levels of variability in market conditions and the quality of raw food materials (which are subject to seasonal variations and availability). According to the Aberdeen Group study, Best-In-Class food processors are five times as likely to measure performance in real-time than other manufacturing industries. This indicates that top performers are already using the elements of MDT to refine their processes and improve profitability. Indeed, the study showed that food processors see more value in gaining a competitive advantage with enhanced traceability than in reducing costs or managing risk. CDC Software Traceability 2.0: Multi-Dimensional Traceability White Paper 4

5 More Than Security and Risk Mitigation: How MDT Adds Value There s a better reason to employ automated MDT than keeping regulators and recalls at bay. Automated MDT gives food processors a new tool to increase revenue. Armed with automated MDT, food company management can better confront one of their most vexing challenges, quality variability in raw materials. For example: An unexpectedly low quality crop or delivery of tomatoes requires adjustments to manufacturing processes to meet customers expectations for quality and consistency. But an unexpectedly high quality crop or delivery of tomatoes presents an opportunity for higher revenues and better margins, because the processor can temporarily focus on orders for premium-paying customers and higher revenue product. Automated MDT adds value to food processing value chain because it gives managers total situational awareness even before ingredients are actually processed. By allowing food processors to identify risks and opportunities at the earliest practical moment in the production cycle, managers are better able to measure and control production and add to the bottom line with production that responds precisely to changes in both supply and demand. Automated MDT s Costs and Benefits The actual costs associated with automated MDT investments vary according to the complexity of the processes and traceability objectives of each individual project or program. However, the basic cost elements associated with investing in automated MDT are made up of: Integrated enterprise software applications capable of MDT; Consulting/business process management; and Personnel training Effectively implemented, automated MDT solutions can improve: Access to quality data from the entire value chain; Automatic data collection from multiple sources; Automated S&OP documentation Visibility into raw material and finished goods inventory Automated employee training, Automated risk management...conclusion Highly publicized food safety incidents have resulted in greater scrutiny from regulators and increased emphasis on the creation and adoption of food safety standards from industry stake holders. Furthermore, the growing complexity of the food supply chain has forced food companies to change the way they do business. Existing solutions that are limited to one-up and one-back traceability or that involve manual processes will no longer be adequate to address these growing requirements. The benefits of automated Multi-Dimensional Traceability are compliance with increasing regulatory and industry standards, greater efficiency, competitive differentiation through improved quality, and ultimate brand protection assurance. CDC Software Traceability 2.0: Multi-Dimensional Traceability White Paper

6 About CDC Software CDC Software, The Customer-Driven Company, is a provider of enterprise software applications designed to help organizations deliver a superior customer experience while increasing efficiencies and profitability. CDC Software s product suite includes CDC Factory (manufacturing operations management); Ross ERP (enterprise resource planning) and SCM (supply chain management); IMI warehouse management and order management; Pivotal CRM and Saratoga CRM (customer relationship management); Respond (customer complaint and feedback management); c360 CRM add-on products, industry solutions, and development tools for the Microsoft Dynamics CRM platform; Platinum HRM (human resources); and business analytics solutions. These industry-specific solutions are used by more than 6,000 customers worldwide within the manufacturing, financial services, health care, home building, real estate, and wholesale and retail distribution industries. The company completes its offerings with a full continuum of services that span the lifecycle of technology and software applications, including implementation, project consulting, outsourced business services, application management, and offshore development. CDC Software is the enterprise software unit of CDC Corporation and is ranked number 12 on the Manufacturing Business Technology 2007 Global 100 List of Enterprise and Supply Chain Management Application vendors. For more information, please visit For more information or a complete list of our worldwide offices, please visit Copyright CDC Software All rights reserved. The CDC Software logo is a registered trademark of CDC Software.