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Are you prepared for a recall?

02 October 2016

Andy Archer argues that the food sector needs to consider industry specific enterprise resource planning (ERP) solutions to ensure end-to-end traceability. 

According to data collected by global insurer, Locton, last year recalls in the food and beverage manufacturing industry rose by around 78%.  There were  regular Food Standards Agency Alerts and media news stories about contaminated ingredients or faulty labelling, even in some of the UK’s largest retailers. 

Mistakes in the manufacturing process can put consumers at serious risk, so it is vital to have a good understanding of traceability. This is a legal requirement for food and beverage manufacturers, but it also gives the ability to trace goods, raw materials and processes back and forth along the supply chain as well as out toward the end user.

Recalls often have a detrimental affect on food businesses, and usually have a major financial implication. Chocolate giant, Mars for example, had to recall its chocolate bars in 55 countries earlier this year due to the fear of plastic being found in the chocolate. This cost the company tens of millions of dollars. Not surprisingly, retailers are now demanding that food businesses cover the costs of losses incurred on their profits, as well as the administration fees and marketing spend associated with a recall. On top of that, the business may face fines, insurance claims and many other indirect and reputational costs, including lost sales, exclusion from future range reviews and the impact to the company’s market value. 

In the first half of 2015 alone, insurance claims submitted by UK food manufacturers were worth almost  £40 million. In addition to the costs, there is also a very real threat to a company’s brand and reputation if a recall is mishandled.
Manufacturers need to take measures to minimise the chances of a recall occurring and emergency processes should be in place for if the worst happens. ERP systems, for example, can help companies to be better prepared due to their traceability processes. However, before tackling traceability as a legitimate problem, there are a few key points to consider.

Level of insight
Businesses that are using an industry-agnostic ERP system will be able to gain insight into processes. However, this might not be enough for a food and beverage manufacturer. The demands of the sector and its need for a high level of end-to-end traceability requires an ERP system which is able to provide detail at every stage of the manufacturing process.

Food production firms need to be able to track their products from the raw ingredients and any packing material which comes into contact with the product to the finished goods and vice versa. In order to do so, data from every point in the supply chain must be recorded to provide an audit trail. If you cannot trace even a tiny element of a product, it could take weeks or months to pinpoint problems, and may result in huge financial losses to a business due to complete recalls, lost inventory and legal actions.

Materials management
Many businesses overlook the day-to-day materials management when traceability is at the forefront of their minds. It is important to take a look at the things that are causing problems, not only for the business but for the inbound supply chain and outbound distribution. Although materials such as packaging have a long shelf life and typically cause fewer problems, faulty packaging is nonetheless a risk. Other vital ingredients can spoil or cause production problems if they are not used at their peak, and must be appropriately managed.

Having the right ERP system can help to more accurately forecast and report production, consumption and fulfilment, meaning the amount of inventory can be minimised and more frequent material orders can be placed. This means that the likelihood of spoilage is reduced and businesses can deliver higher quality products to their customers while saving on costs and running more efficiently. 

Food and beverage manufacturers face the constant pressures of being able to stay on target for ‘day one for day one’ order and delivery processing. Having an ERP system that is designed for their unique business requirements can help businesses to plan appropriately for multiple product attributes and grades, as well as retailer-specific packaging so they can properly fulfil order-to- delivery with short notice.

Food and beverage manufacturers who prioritise traceability will be the ones who succeed, and having an ERP system specifically designed for the unique business requirements of the food industry can help do this. Although it may not be possible to fully prevent a recall from happening, having the right system in place will certainly help to reduce the risk and cost associated with mass recalls and unused inventory.

Andy Archer is regional vice president UK and Ireland at Epicor Software.


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