By Morehouse, Constanze Freienstein and Lola Cardoso
The Grocery Manufacturers Association (GMA) and its Science and Education Foundation (SEF) partnered with A.T. Kearney to execute a study on consumer product fraud in the food, beverage and consumer product industry.
This study was requested by the GMA following a series of incidents where substitute food ingredients in China and elsewhere were deliberately introduced into food products, the most famous being the melamine episode in 2007. Since food fraud can take place at any stage along the global value chain, this is an issue that is of particular importance to supply chain executives, distributors and retailers.
For the purposes of this discussion, food fraud is defined as the deliberate placement of food on the market, with the intention of deceiving the consumer for financial gain. The Food Standards Agency in the United Kingdom considers two main types: 1) the sale of food that is unfit and potentially harmful, such as recycling animal by-products back into the food chain, and 2) the deliberate mis-categorization of food. While not necessarily unsafe, the latter fraud deceives the consumer as to the nature of the product (wherein a cheaper alternative is substituted), for example, farmed salmon sold as wild salmon.
Melamine was perhaps the proverbial straw that broke the camel’s back and acted as the trigger point for all industry stakeholders. From melamine, the industry recognized that one economic adulteration incident could have global market consequences, with broad and deep implications for company brands, industry performance, peoples’ lives and countries’ reputations. With a $10 billion price tag, 290,000 consumers affected around the world, more than 50,000 hospitalizations and six deaths in China, the melamine contamination created a new reality.
UNDERSTAND PRODUCT PORTFOLIO VULNERABILITIES
The first step to incorporating defensive measures relating to food fraud into an existing quality and safety program is to understand the vulnerabilities in the product portfolio. This requires creating a data repository to gather more and better information and intelligence and using models to forecast potential risks. The following offers more details.
Manufacturers and suppliers must create a perpetual repository of information. A repository of information consolidates all relevant historical information about internal fraudulent incidents and external industry insights. The repository can harbor information on internal adulteration/fraud incidents—including specific details such as ingredient, adulterant, source, date of incidence, cost to the firm and actions taken. Information from external incidents can be gathered through participation in structured industry clearinghouses, informal communication networks and alert tools.
Such a repository can be useful in spotting trends and identifying themes. For example, it can answer questions such as what types of products or ingredient characteristics are most frequently targeted? What are the issues within the supply chain? What methods are used? This kind of information will help identify where the risk of economic adulteration lies.
MARKET INTELLIGENCE, MODELS TO FORECAST RISKS
A good way to predict potential risks is through a risk-forecast model. Because a single industry-wide model has not been identified, companies use a variety of sources to forecast and prevent threats internally. First, information captured in the repository can be used to develop key criteria to identify targeted products and develop scorecards to prioritize targeted products.
Next, emerging market intelligence on supply and demand distortions is embedded into the risk assessment, and scientists and industry experts are engaged to perform simulations to predict future threats. Finally, the assessment is adjusted depending on the riskiness of a supplier. This is not a one-time procedure, but rather something that should be reviewed and reprioritized periodically to remain relevant. This process will not only help identify current risks, but also make it easier to identify and predict emerging risks.