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In partnership with

MITIGATING RISK

IN THE FOOD SUPPLY CHAIN

6th IFC International Food Safety Forum

Kyiv, Ukraine, March 15, 2017

BARRY LEE,

Principal Industry Specialist

IFC Manufacturing, Agribusiness & Services

ON SAFARI… THE ANTICIPATION!

Will we see the Big Five?

Ready and Waiting…

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THE ‘INFAMOUS’ WHITE ELEPHANT …

Unwanted Plant, Machines and Gifts!

• Obvious, Known and Unwanted

• Of No Value

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THE BLACK SWAN EVENT …

Feeling of Helplessness

• Highly Improbable, Unknown High Impact

• Difficult to Understand the Total Impact

• Eg, 9/11 2001, Russian Ruble Collapse 2014

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THE GREY RHINO EVENT …

Feeling of Power to Respond

• Highly Probable

and High Impact

• Eg, Flood, Fire or

Storm events

• Asian and Global

Financial Crises

(1997, 2008)

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CONTENTS

1. FOOD SAFETY: THE LANGUAGE OF BUSINESS

2. GLOBAL TRENDS DRIVING GLOBAL FOOD SUPPLY CHAINS

3. RESILIENT SUPPLY CHAINS

• THE FOUR PILLARS

• THE THREE ENABLERS

4. WHAT DO WE MEAN BY A ‘FOOD SAFETY CULTURE’?

5. CLOSE: TAKE-AWAY MESSAGES

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1. FOOD SAFETY:

THE LANGUAGE OF BUSINESS

‘THE PROFIT AND LOSS’ (P&L)

THE BUSINESS CASE FOR BETTER FOOD SAFETY

Save on

costs

Increase

sales/profits

Reduce risks

• Improved access to major retailers and

multinational restaurant chains

• Improved export potential

• Reduced production losses

• Lower costs on recalls, withdrawals, and audits

• Higher worker productivity and retention

• Protects your brand

• Builds consumer trust

• Ensure more efficient, sustainable suppliers

Source: client surveys; Investing Wisely in Food Safety: How to maximize the benefits and reduce costs

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2. GLOBAL TRENDS DRIVING CHANGES

IN GLOBAL FOOD SUPPLY CHAINS

“Amidst the predominant attitude that

building trust is a necessary goal, the top

two areas of importance for building

consumer trust for both retailers and

manufacturers were consumer health and

wellness and food and product safety.”

-- KPMG Global Consumer Executive Top of Mind Survey 2015

FOOD SYSTEM TODAY

Source: John Floros, 2012

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MAIN DRIVERS

URBANISATION

and CONSUMERS

• Growth of discerning middle class

• Health-conscious consumers

• Empowered and educated

consumers

REGULATION

• Scandals and increasing scrutiny

• Rising regulatory standards eg FSMA

• International Trade Agreements (aka. market access)

GLOBALIZATION

•Global supply chains across national

borders

•Technology and science to detect hazards and identify risks

•Resource scarcity and minimisation of food waste

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3. A FRAMEWORK FOR

RESILIENT SUPPLY CHAINS*

• THE FOUR PILLARS

• THE THREE ENABLERS

* Source: Deloitte 2013

RESILIENT SUPPLY CHAIN FRAMEWORK*

VISIBILITY FLEXIBILITY COLLABORATION CONTROL

PEOPLE PROCESS TECHNOLOGY

* Source: Deloitte 2013

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RESILIENT SUPPLY CHAIN FRAMEWORK:

VISIBILITY

Map, track and monitor supply chain processes in REAL time

• Capability to address supply chain issues before they become problems

VISIBILITY FLEXIBILITY COLLABORATION CONTROL

PEOPLE PROCESS TECHNOLOGY

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IS THIS VISIBILITY?

• Mandated reporting for

radioactivity (Caesium-137, Sr90)

• Labelling law requirements for

irradiated foods

Was it a Black Swan or Grey Rhino Event?

(But now a White Elephant…)

CHERNOBYL, 1986

Need for Traceability and Accountability of Food Supply

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IS THIS VISIBILITY?

• Supply Chain Processes? Farmers or Distributors?

• Melamine and/or Urea contamination

• Infant deaths: 6, Reported 300,000 victims

Was it a Black Swan or Grey Rhino Event?

THE CHINA MILK SCANDAL, 2008

Need for Traceability and Accountability of Farmer Supply

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IS THIS VISIBILITY?

• UNKNOWN causes of E.coli, norovirus, salmonella issues

• YoY2016/15 sales down $600 million

• Market capitalization loss $11 billion (!)

Was it a Black Swan or Grey Rhino Event?

CHIPOTLE MEXICAN GRILL (CMG), 2015

460.140

Large US Mexican restaurant chain

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MOMENT OF TRUTH QUESTION?

Have you got real time

VISIBILITY

in your supply chains?

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Adapt quickly in response to problems

without significantly increasing operational costs

• Mitigates impact of business interruption

VISIBILITY FLEXIBILITY COLLABORATION CONTROL

PEOPLE PROCESS TECHNOLOGY

RESILIENT SUPPLY CHAIN FRAMEWORK:

FLEXIBILITY

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IS THIS FLEXIBILITY?

• Potential adulteration of product with lead oxide

• Unable to identify source of contamination

• Alternate supply from new farmers in a new region

Was it a Black Swan or Grey Rhino Event?

BANGLADESH TURMERIC RECALL, 2014

Product recall in the USA

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IS THIS FLEXIBILITY?

• Largest agri-business

insurance payment in

Russian history

• Electrical fault and plant

off-line for 2 years

• Alternate supply required

for processed meat

products 60,000 tons per

annum

Was it a Black Swan or Grey Rhino Event?

PLANT FIRE IN RUSSIA, 2010

Plant Fire resulted in $83 million insurance payment

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IS THIS FLEXIBILITY?

• Total Cost of Recall

and Fines ca. $200

million

• Concerns about

Lead and MSG by

Indian Regulators

Was it a Black Swan or Grey Rhino Event?

MAGGI NOODLE PRODUCTS INDIA, 2015

Maggi Noodles Banned

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MOMENT OF TRUTH QUESTION?

Have you got real time

FLEXIBILITY

in your supply chains?

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Work effectively with supply chain partners

through symbiotic, trust-based relationships

• Avoid business interruptions for ALL PARTIES and

achieve common goals

VISIBILITY FLEXIBILITY COLLABORATION CONTROL

PEOPLE PROCESS TECHNOLOGY

RESILIENT SUPPLY CHAIN FRAMEWORK:

COLLABORATION

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• Common and Shared goals

• Demand Planning and Profitability

IS THIS COLLABORATION?

The ‘Shared-Expectations’ Approach

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Company

Suppliers

Franchisees /

Distributors

IS THIS COLLABORATION?

• Common and Shared goals

• Demand Planning and

Profitability

BIDCO KENYA:

WORKING WITH FARMERS,

DISTRIBUTORS AND

CONSUMERS, 2013

Provides farmer training (GAP) and distributors with

‘business management’ systems (SAP) for sales &

inventory

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IS THIS COLLABORATION?

Braliwra increased maize sourcing from

300 farmers to ca. 5,000 farmers

BRALIWRA RWANDA:

WORKING WITH MAIZE FARMERS, 2015

• Common and

Shared goals

• GAP, Supply

Management,

Traceability

and

Profitability

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MOMENT OF TRUTH QUESTION?

Have you got real time

COLLABORATION

in your supply chains?

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Robust policies, monitoring and control mechanisms

• Procedures and processes which are IN PRACTICE and NOT IN

THEORY

VISIBILITY FLEXIBILITY COLLABORATION CONTROL

PEOPLE PROCESS TECHNOLOGY

RESILIENT SUPPLY CHAIN FRAMEWORK:

CONTROL

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IS THIS CONTROL?

• Illegal, Unreported,

Unregulated (IUU)

fishing?

• Yellow Card – Threat

of tuna export ban to

EU from Solomon

Islands

Was it a Black Swan or Grey Rhino Event?

THREAT OF LOSS OF EXPORT LICENCE

TO EU, SOLOMON ISLANDS, 2013

Weak fisheries management by Solomon Islands

Government

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Container Packed in India Found to Container Rodents

Was it a Black Swan or Grey Rhino Event?

IS THIS CONTROL? WHO’S LIABILITY?

QUARANTINED CONTAINER IN ITALY, 2014

• Third Party ‘Packing’ of

the Container

• Product Quarantined and

Destroyed

• Can You ‘Contract’ Out

your Responsibilities?

• Lesson: ‘Duty of Care’

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• Annual audits of

rice farms in Asia

eg Cambodia,

Thailand

• Traders are

licensed to supply

from audited farms

only

POLAND HEALTHY GRAINS COMPANY, 2016IS THIS CONTROL?

A large EU importer of rice for snack-breads

and rice-cakes

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MOMENT OF TRUTH QUESTION?

Have you got real time

CONTROL

in your supply chains?

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The FOUR PILLARS are Thought, Word and Deed for people

• A Food Safety Culture … Do you need a Psychologists View?

VISIBILITY FLEXIBILITY COLLABORATION CONTROL

PEOPLE PROCESS TECHNOLOGY

RESILIENT SUPPLY CHAIN FRAMEWORK:

PEOPLE

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4. WHAT DO WE MEAN

BY A ‘FOOD SAFETY CULTURE’?

CHANGING ‘PEOPLE’ BEHAVIOUR

THREE REASONS

1. The workplace

culture does not

encourage compliance

2. They don’t have the

knowledge

3. They do not have the

proper motivation

Source: Food Safety Culture: Creating a

Behavior-Based Food Safety Management

System by Frank Yiannas, 2010

https://www.youtube.com/watch?v=yAgf4MyOb9w

Was it a Black Swan

or Grey Rhino Event?

Why people do not follow procedures:

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THERE HAS BEEN AN EVOLUTION IN FOOD SAFETY

HACCP

COMPLIANCE

CAPACITY

BUILDING

FOOD SAFETY CULTURE

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PROFIT

• Award incentives

• Share of profits and benefits

PROCESS

• Food safety process KPI’s

• HR workforce planning

PEOPLE &

CULTURE

• Staff talks

• Team

recognition

• Staff loyalty

• ‘Body & Mind’

THE BUSINESS OF FOOD SAFETY CULTURE

DO YOU KNOW WHAT YOUR STAFF THINK?

DO THEY HAVE THE SAME ‘SHARED-EXPECTATIONS’?

INDUSTRIAL PSYCHOLOGISTS CAN BE CATALYSTS

FOR A FOOD SAFETY CULTURE

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5. TAKE-AWAY MESSAGES

TO CLOSE

Messages From Today’s Forum:

Mitigate Risks: Resilient Supply Chain Framework

More Grey Rhino Events than Black Swans

…Plan to Respond to the Grey Rhino’s today!

DON’T BE AN OSTRICH…

WITH YOUR HEAD IN THE SAND!

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CONTACT

BARRY LEE

Principal Industry Specialist, IFC Agribusiness

E-mail: blee4@ifc.org

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