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.
ENHANCE DETECTION PROGRAMS
Most leading companies already use a number of sophisticated testing methods for detecting common day-to-day, known-quality and safety concerns. Yet due to the inherent variability within natural raw materials, it is difficult to test for every unknown threat. Verifying the authenticity of an ingredient, rather than verifying the absence of every possible adulterant, provides the best way to detect adulteration.
At this time, companies are challenged in the area of authentication testing due to the variability in farming conditions and the limited availability of suitable ingredient reference standards. Given these challenges, the following are ways to improve existing detection programs:
Determine where testing occurs: Ingredients should be tested as close to the original source as possible, since ingredient adulterants are easier to detect before an ingredient has been diluted or combined with other ingredients. Testing ingredients prior to receipt can also prevent contamination within a company’s own supply chain.
Establish how often testing is performed: A testing frequency schedule should be executed based on the risk of adulteration for each ingredient and supplier. The higher the risk, the more random the testing should be.
Define ingredient standards: When possible, define specific ingredient standards and require supply chain partners to also conduct necessary testing. This can help reduce the incentive for suppliers to compromise ingredient quality.
Identify testing methods used: Given the volume of ingredients and desire to maintain product affordability for customers, companies can consider both inexpensive testing methods—such as simple microscopy and other routine methods that test for viscosity, coloration changes, solubility levels, and temperature reactions—and more advanced analytical technologies. The advanced tests include infrared and mass spectrometry, chromatography and other scientific methods. Employing a full range of tests will provide an extra layer of protection.
EMPLOY COMPREHENSIVE DETERRENCE STRATEGIES
Many companies have implemented a variety of deterrence programs because, as the melamine incident so aptly highlights, the industry currently has an opportunity to leverage and optimize technologies to detect the endless possibilities of unknown adulterants. Yet testing alone for adulteration is ineffective due to the enormous costs associated with testing for all known and unknown contaminants.
The best way a company can protect its consumers and brands is to apply a comprehensive set of deterrence strategies to prevent adulteration before it enters the supply chain. For example, most manufacturers have strategies in place to manage complexity within their supply chains, including streamlining product quality and safety and reducing costs.
They also already enforce the highest manufacturing standards using tools such as Hazard Analysis and Critical Control Points (HACCP), International Organization for Standardization (ISO) and accredited third-party certification schemes like the British Retail Consortium (BRC), Safe Quality Food (SQF), Dutch HACCP and International Food Safety (IFS). These tools help reduce the risk of an issue and provide added security within the supply chain. That said, there are additional strategies that can enhance existing deterrence programs. They include:
Develop appropriate ingredient specifications: Procuring safe and quality raw ingredients requires working with suppliers to develop adequate ingredient specifications. Industry leaders do not just accept standard supplier ingredient specifications; rather they take the time to define the highest quality material specifications. For newer and niche ingredients, it is also important to develop monographs, reference materials and methodologies that maintain the potential substitutes or adulterations to a product.
Establish an efficient supplier audit program: A supplier audit program is one of the single best strategies for deterring economic adulteration. To use Ronald Reagan’s frequently quoted statement—“trust, but verify.” Companies should always try to work with legitimate suppliers, and verify that these trustworthy suppliers are meeting the required specifications. Top companies spend the time up-front qualifying each supplier through in-depth interviews and assessments. Some companies have redefined the supplier qualification process to include behavioral assessments similar to criminal investigations, detailed verification of recordkeeping and comprehensive site audits.
In addition, they invest in supplier development programs that strengthen relationships and educate suppliers, resulting in higher compliance to standards. Suppliers that are treated as true partners will regularly collaborate with their upstream and downstream partners when challenges arise.
Employ current intelligence networks: Leading companies continually monitor issues that suppliers may be facing. A good way to do this is to get input from “boots on the ground” employees, ingredient brokers and customer complaint trend analysis. Existing employees within a country can offer valuable insights, while reaching out to brokers that deal with day-to-day issues can provide an informal way to gather timely local information. Finally, monitoring customer complaints can identify issues early and allow for a timely reaction.
Increase traceability within the supply chain: Because the amount of risk in the supply chain decreases as transparency increases, it is important to instill mechanisms that allow full supply chain visibility—down to the individual farmer, where possible. Packaging and product identification, such as serialization, RFID tags or other inside-the-product markers can facilitate traceability throughout the supply chain, both upstream and downstream.
Recognizing that the costs of these technologies may be prohibitive, at minimum, companies can develop a “line of sight,” where the buyer has an obligation to understand the supply chain path and the various touch points along the path back to origination. As more companies become sensitive to using the spot market or brokers due to less transparency in the supply chain, they can simply reduce the number of steps and increase transparency with verification and validation at each step.
Minimizing risks to consumers, the industry and the global marketplace requires “all hands on deck.” As the food, beverage and consumer product industry continues to demonstrate its commitment to protecting consumers and product brands, now is the time to harness the tools outlined in this study to reduce consumer product fraud through effective deterrence and detection programs.