How supply chain checks & balances help face a recall with confidence
Remember that food contamination can come from several sources and can arise at virtually any point in the supply chain.
Freezing food is one of the best ways to assure it is safe to eat for a long time. But, even frozen food can fall victim to contamination and expose a company to expensive liability and losses. Remember that food contamination can come from several sources and can arise at virtually any point in the supply chain.
Pathogenic contamination involves bacteria, some of which can thrive or even grow in refrigeration.
For example, freezing or refrigerating food will not kill salmonella or E. coli, although it will stop the pathogens from growing or reproducing. And, although freezing temperatures will prevent Listeria bacteria from growing, they don't kill the bacteria, as microbes survive in the freezer.
Chemical contamination can also survive refrigeration. Examples include pesticide residue on fruits and vegetables, solvents used in cleaning equipment, drug residues in animal-derived foods or migration of particular packaging substances into foods. Food can also be contaminated by foreign matter, like fragments of metal, glass or plastic, which may occur when a piece of processing machinery is not replaced or fixed correctly or otherwise breaks down. These can have impacts that ripple through the supply chain, causing product recalls and wreaking havoc downstream.
All of these exposures can arise accidentally. But, intentional adulteration and food fraud can also play a role, such as when perpetrators intentionally replace ingredients with cheaper ingredients and pass off them as legitimate. The result can threaten public health—and financial viability – unless you have the right checks and balances in place.
Your company can help prevent recalls with strictly enforced protocols. And, you can protect your balance sheet by making sure there are solid contracts in place as part of a supplier approval process. Companies must vet each vendor and partner, and make sure suppliers have an insurance and risk management program of their own.
It’s also imperative for your company to ensure it has robust general liability coverage. Companies should also consider having a properly structured product contamination or product recall program. Recall expenses and financial damage (which are addressed by product recall coverage) are usually a more significant dollar item than the exposure to personal injury lawsuits (which are addressed by general liability coverage). Recall coverage includes reimbursement for brand rehabilitation expenses, like PR firms to handle the fallout from the recall, a new advertising campaign or special coupon offers to rebuild customer base. In short, companies need to have coverage to provide whatever it might take to rehabilitate the brand and get consumers back to buying your product.
Almost every company in the food industry conducts mock recalls and tests the traceability of products, generally from the operational side. What they don’t do and what they should do is conduct a recall simulation exercise from a financial or cost recovery perspective. This involves checking contracts, spinning through insurance, helping employees understand financial impact and brand damage impact. Doing so also helps you have a clearer picture and better information when determining how much coverage is needed because the company understands what a loss would look like.
Recall insurance also addresses lost sales. It’s designed to bring you back to where you should have been before the incident and to make you whole again. You can protect yourself by making sure elements of the supply chain assume responsibilities if they are liable, and be able to reimburse if you buy contaminated ingredients. You want to be able to push your losses down to the supplier if the supplier is the cause.
To achieve that, you want a contract that spells out what happens, who’s liable and who’s responsible in case of a recall. Unfortunately, a lot of food processors don’t employ the necessary checks and balances to ensure their contracts are solid. For example, they don’t require their suppliers to carry the right kind of insurance or the right amount of insurance to assure your protection.
In addition to having proper contracts in place, companies need to make sure that their people are communicating with each other. Organizational siloes hamper communication. The legal department doesn’t talk to the safety department, which in turn, doesn’t talk to risk management. As a result, the C- suite and key decision-makers might not know where the real exposure is. It’s not always easy to break down siloes because different departments often don’t speak the same language. They need a translator, and that’s where your insurance broker can work to bridge those gaps.
It’s critical to recognize strategic sources of supply. Some suppliers may be too important to potentially sue, and in other cases, the commercial relationship may not allow pursuit for recovery. This can grow even more complicated where global sourcing with sub-standard regulations is involved. Will you be able to recover losses from global suppliers? You have to think about how borders impact liability across the supply chain.
Assuring frozen food safety requires a group effort. You’ll need input from all stakeholders and constituencies, and make sure you have someone who can speak all the languages necessary to minimize any potential liability. You need tight contracts to address critical issues like who will control the recall and who will direct how the recall is conducted. Access to information is important, and comprehensively examining the issue is critical to surviving an incident.