Europe’s latest food scandal is a potent reminder of one of the business world’s most important golden rules – know your suppliers.
It’s being called the “2013 meat adulteration scandal,” and it’s not over. Investigations by European governments are still ongoing as to how horsemeat ended up in products being sold to unwitting consumers both in Europe and further afield. And while the scandal involves a limited number of companies, its impact and the implications for Europe’s food industry will be far reaching, particularly on a continent that prides itself on maintaining the highest standards of food safety and quality. European consumers, producers, and regulators are now asking themselves how this could have happened and whether the systems currently in place are adequate.
How it happened
This unfortunate saga started late last year when foods advertised as containing beef were found to also contain undeclared horsemeat, as much as 100 percent in some cases, in several countries in Europe. Other undeclared meats, such as pork, were also detected. The issue first came to light on January 15 this year when it was reported that horse DNA had been discovered in frozen beef burgers sold in several Irish and British supermarkets. While horsemeat is normally not harmful to health and is eaten in some cultures, it’s considered taboo in many countries and by some religions.
The source of the meat was a Romania-based slaughterhouse that legally slaughtered horses and sold their meat labeled as such. An inquiry by the French government showed that the meat had left Romania clearly and correctly labeled as horse. It was afterwards that, along the supply chain, it was relabeled as beef.
From public documents and media reports, we know that the Romanian slaughterhouse supplied the horsemeat under a contract to a Cyprus-based meat trader that operates in the Netherlands but is owned by a British Virgin Islands holding company. After the horsemeat was delivered to a cold storage company in the Netherlands, the frozen meat was then sold to a French meat processing company. After processing, the meat was sold to another meat processor in France, from where the end products were sold. There are now allegations that the French company that originally purchased the meat from the Netherlands falsified documents regarding the contents of the product.
Know your supplier
As the horsemeat scandal dramatically illustrates, supply chains are becoming increasingly globalized, and, as a result, the need to know each of the players along the chain is now more critical than ever. In a February 18 statement, the UK’s Chartered Institute of Purchasing and Supply (CIPS) said that the current scandal was a devastating example of what can happen if you don’t have control and knowledge of your suppliers. It added that supplier relationship management was a key function of a professional approach to purchasing and managing a supply chain effectively. Many companies, even large corporations, get caught out at lower levels in their chain – such as tier 2 and 3 – and although they may have a good relationship with the first tier, they have no idea what the others are doing.
Industry experts recommend that, as commerce moves from local to international suppliers, companies carry out advanced due diligence before starting to work with a supplier or subcontractor. Constant feedback and assessment of suppliers also need to be built into any contractual arrangement. To the extent possible, suppliers should act as an extension of your business and be treated as such, rather than at arms length. In choosing a supplier, try to find those with the same standards as your own company.
Having a system of full traceability is also critical, especially if things go wrong. In the food and health industries, there are now numerous quality assurance and traceability systems operating in the market, such as the UK’s Red Tractor Assurance whose logo on a product is a guarantee of quality and origin. Such systems can ensure that every critical step of the supply chain is independently inspected to ensure the product is produced to quality standards from the factory or farm to the consumer. For some companies with multiple sites, it may be worth investing in a system that can centrally hold all product details for staff to access all along the supply chain.
In response to the scandal, it is expected that the European Union will impose new legislation requiring companies to better control processes within the supply chain and be more accountable for the information provided on their products.
Without waiting for full legislation, on February 13, the European Union’s agricultural ministers announced a three-month program of DNA testing of processed meat across the EU. The plan calls for 2,500 random tests on processed foods for horse DNA and 4,000 for phenylbutazone (bute), a veterinary analgesic used on horses. Testing has begun, and initial results are to be announced on April 15. Europol is also looking into possible criminal conspiracy to defraud.
What this means is that having a robust in-house means of accurately collating, monitoring, and managing product and ingredient information may no longer be voluntary. Companies therefore should start thinking in terms of pre-empting any new requirements or legislation as a way to avert potential damage to their reputation or bottom line. It may be more cost-effective to introduce the necessary systems early than to later have to spend resources recovering one’s reputation, which can take time while others are gaining market share.
Change must come from the top
Some companies are not waiting around to take action. The British grocery conglomerate, Tesco, which has had to pull four products off its shelf, as of mid-March, has revealed plans to clean up its food supply chain in the wake of the scandal. Its Chief Executive, Philip Clarke, promised fewer imports of meat from other countries, closer relations with British farmers, and a stronger in-house system for testing products. He said Tesco was counting on the government to come up with a better way of testing food products to avoid similar scandals. However, he cautioned that the industry could not guarantee that a more robust system would not translate into higher costs for the consumers.
But not everyone in industry or government may be ready to embrace change. In a recent survey by CIPS, it noted that 86%of supply chain managers did not believe that regulators understood supply chains, while 36% claimed that their chief executive was not engaged in dealing with the potential risks from supply chain mismanagement. The good news is that 62% of companies surveyed said they were treating potential risks in the supply chain more seriously following the recent scandal.
Whether it’s the unwillingness or incompetence of the companies to exercise better supply chain management, in today’s flat world, your supply chain is likely to consist of suppliers from multiple countries. Knowing who your suppliers are and having a transparent supply chain will provide competitive advantage to your brand while minimizing reputational risks.