managing vendor compliance

In the not-too-distant past, delivering quality produce on time, in full, at a fair price was a true advantage for growers and shippers. However, the supplychain stakes are growing ever higher. Retailers are raising standards for fulfill-

ment perfection, requiring greater product variety, and initiating a wide variety ofcompliance programs.

These compliance programs address multiple aspects of supplier operations includ-ing food safety, traceability, corporate social responsibility, and indemnificationagainst losses. Standards, audit methods, and reporting requirements vary by retailerand may venture beyond federal and state regulation. Suppliers must comply or runthe risk of penalties, chargebacks, and a loss of business.

The supplier challenge is not the existence of vendor compliance programs; the prob-lem is their lack of uniformity. It’s as if retailers are yelling “Jump!” but each has a dif-ferent answer to “How high?” The more commodities, growing regions, and retailersserved by a supplier, the more complex and costly the compliance situation becomes.

To gain a better understanding of vendor compliance challenges and how to bestaddress them, I spoke with industry professionals from four different organizations.Each provided valuable insight into the current and emerging requirements being im-posed on suppliers, strategies for harmonizing the compliance process, and tactics forstaying in the good graces of retailers without breaking the bank.

FOOD SAFETY CHALLENGESFood safety is a massive compliance challenge for suppliers. They must deal with

state and federal regulations, including U.S. Food and Drug Administration require-ments which stem from the Food Safety Modernization Act (FSMA).

The rules focus on product safety, preventative controls, sanitary transportation, intentional adulteration, and foreign supplier verification. Accurate record keeping iskey to demonstrating compliance, according to Jennifer McEntire, PhD, vice pres-ident of food safety and technology for the Washington, DC-based United Fresh Produce Association. McEntire notes that many of the regulatory requirements were de facto market access requirements before they became regulations.

“Keeping records of training, test results, and how your food safety system is per-forming is not something new,” she says. “But when it shifts to regulatory require-ments and compliance, there may be increased anxiety in making sure that records areaccurate, legible, and retrievable in a timely fashion. You never know when an inspec-tor will show up and ask you to show you’re in compliance.”

Oct/Nov/Dec 2019 | Blueprints — 59www.producebluebook.com

Growers and suppliers face a wide and evolving spectrum of

vendor compliance requirements.

BY DR. BRIAN GIBSON

Managing Vendor Compliance

The importance of uniformity

SUPPLY CHAIN SOLUTIONS

Uniformity is critical to meeting compliancechallenges for:

state and federal regulations stemming from FSMAindividual retailer audit requirementswhole-chain traceability via PTI and blockchaintransparency in sustainable farming and ethical business practicesindemnification contract modifications by retailers.

To learn more about each key element, lookfor the symbols throughout the article.

Supply Chain Solutions.qxp 9/6/19 11:06 AM Page 59

60 — Blueprints | Oct/Nov/Dec 2019

Evolving retail requirementsMarket requirements may go beyond

state and federal regulations, with indi-vidual retailers establishing their ownstandards and demanding third-party audits to confirm that suppliers have acompliant food safety system.

Part of the challenge for suppliers isthe one-upmanship activities of some re-tailers that alter or increase requirementsto highlight their unmatched commit-ment to food safety. More, however, isnot necessarily better if these additionalrequests do not generate greater safety.

“Each time you add information or adocument, it creates additional work onthe back end,” mentions Andy Kennedy,cofounder and advisor for softwareprovider FoodLogiQ in Durham, NC.“There has to be a process developed to acquire the information, verify thatyou documented it properly, and then share it.”

In an effort to ease these challenges,Kennedy worked with the Produce Mar-keting Association and Purdue Univer-sity’s Open Ag Technology & SystemsGroup in the development of Trellis.

Trellis provides an industry-specificframework to electronically exchange au-thenticated fresh produce food safetyaudit data and other customer-requiredinformation between trading partners.

“The documents are kept in their orig-inal form and shared as an electronic filethat can go straight into the database foruse,” Kennedy says.

Seeking standardizationAnother retailer-induced challenge is

the variety of auditing schemes. KristenGranger, PhD, food safety manager forBancroft, WI-based RPE, Inc., indi-cates customers generally want their suppliers to pass food safety audits thatare GFSI (Global Food Safety Initiative) recognized.

However, she adds, “Certain customerswant us to use certain auditors that mayhave slightly different questions, docu-mentation requirements, and platforms.One may want us to use PrimusGFS andanother wants a USDA audit becausethey have a government contract. Tech-nically, we do two audits per farm, although they are basically the same.”

From the perspective of suppliers, a per-fect world scenario would have the indus-try moving to a common food safety dataset, information sharing framework, andaudit processes. Yet given the number oforganizations with profit motives involved,complete harmonization is unlikely—though GFSI, Trellis, and related effortsachieving some level of standardizationmay be the best hope for suppliers.

TRACEABILITY EFFORTSThe fundamental ability to track prod-

uct across the supply chain is essential forfood safety and recall activities. Each sup-plier must have a traceability system inplace to track produce one step forwardand one step back. This work is madeeasier by establishing lots so each can betraced separately.

“We need to know who we sold thepotatoes to,” Granger states. “If the des-tination is Costco, did it go to a ware-house club or a distribution center?”Further, Granger explains, “We alsoidentify where we got the potatoesfrom—the packing house or the farm,plus we capture more detail than the



audit may require, including when it washarvested, the bill of lading, and thetransportation company.”

Testing and trackingTo demonstrate RPE’s one step for-

ward, one step back traceability withintwo hours, the company conducts mockrecalls every six months at its year-roundfacilities. One of the recalls must involvepackaging, which is then traced by lotnumber to determine if all bags are foundand accounted for.

“Some customers’ contracts also re-quire us to monitor environmental condi-tions for warehousing and transporta-tion,” Granger points out. “We generallyhave to check the condition and tempera-ture of the trailer before we load. Then,it’s the driver’s responsibility to conformto the requirements.”

Whole-chain traceability compliancerequirements will rise as more retailersparticipate in the Produce TraceabilityInitiative (PTI) and blockchain pilottests. Back in 2013, Walmart issued a directive to its produce suppliers to tagcases with PTI-compliant labels.

Other retailers have slowly followedsuit, and the Produce Marketing Associ-ation estimates 60 to 65 percent of all cases within the U.S. supply chain are now tagged with barcoded PTI-compliant labels.

On the blockchain front, Walmart,Kroger, and Wegmans are working withDriscoll’s, Dole, and leafy greens suppli-ers on rapid traceability back to thepoint of harvest via IBM’s Food Trust Network. This blockchain-enabled solu-tion securely connects supply chain data across the ecosystem with trust and transparency.

In addition to providing provenanceinsights, the pilot tests are achieving opti-mized supply chain processes, increasedfreshness, improved food safety, and min-imized waste and fraud.

Added details and value?Kennedy sees another traceability op-

portunity that may drive further develop-ment of compliance requirements. As theindustry learns more about how produc-tion practices impact nutritional elementsof fruits and vegetables, there will be

more tailoring of seeds and more preciseproduction practices. This, when com-bined with personalized nutrition andfood as medicine trends, will requiremore information collection and sharingof supply chain data with consumers.

Once point-of-sale systems are able toconsistently read these tags, Kennedy says grower information will also be tiedto the product. This then “opens up theability for micro-segmentation of prod-ucts where you can provide detailed nutritional value and tailored informationto customers at the package level usingGTINs [Global Trade Item Numbers].”

Such batch lot traceability is an expen-sive and challenging proposition rightnow, but Kennedy believes this is wherethe industry will be headed over the nextten years.

CORPORATE SOCIAL RESPONSIBILITYSustainability is another major con-

cern of consumers. They’re willing to paymore for organic and sustainably pro-duced food, but want verifiable informa-tion before they pull out their wallets. Asretailers seek to fulfill these market prior-ities, they require sustainability compli-ance audits and additional reportingfrom suppliers.

For some retailers, the focus goes be-yond issues of pesticide use, water con-servation, and crop rotation. They’re ad-vocating corporate social responsibilitywith a balanced focus on people, planet,and profit.

In addition to complying with thelegal requirements of food safety, retail-ers want proof suppliers are followingethical business practices with labor, pri-oritizing sustainable farming practices,and pursuing economic efficiency toeliminate waste.

Joining forcesA number of well-known growers

and retailers have partnered with the Equitable Food Initiative (EFI) in Wash-ington, DC, to increase transparency andassurances regarding grower businesspractices. Standards cover labor condi-tions, food safety, and pest management,according to Kenton Harmer, EFI’s director of certification.

“It’s built upon labor-managementcollaboration with leadership teams


62 — Blueprints | Oct/Nov/Dec 2019


www.producebluebook.com

SUPPLY CHAIN SOLUTIONSworking together to solve problems onthe farm, and to keep the farm in conformance with EFI standards,” Harmer says.

“We help put the team in place andprovide soft skills training in collabora-tion, problem solving, communication,and conflict resolution,” explainsLeAnne Ruzzamenti, EFI’s director ofmarketing communications. “We thenstep away from the farm and let theteam [advance] the operation toward the standards. When they decide they’rein compliance, they call for a third-party audit.”

After certification across EFI’s 300standards is granted, growers are allowedto use the EFI label on products. “Whenproduct is sold to participating retailers,suppliers can charge the EFI premium,the majority of which is returned to the worker in the form of a bonus,” reports Ruzzamenti.

This holistic focus on corporate socialresponsibility, cross-chain stakeholderengagement, and collaboration generatespositive benefits for the 30-plus farmscertified by EFI. Worker recruitmentand retention is better, continuousprocess improvement is prioritized, andaudit fatigue is reduced. Working withone set of standards and guidelines like EFI is far less stressful, costly, andtime consuming than dealing with the individual audit processes of multiple retailers.

INDEMNIFICATION AND RISKIn the wake of recent produce recalls

and safety advisories, indemnificationand insurance have become of greaterconcern to retailers. McEntire says con-tracts have long been in place to dealwith product recalls from suppliers.Should a contamination issue or otherproblem arise that is attributable to asupplier, then it is financially responsiblefor compensating the retailer.

The issue becomes murky in theevent of a government advisory like theNovember 2018 Centers for DiseaseControl-issued national ban on sales andusage of romaine lettuce. This type ofadvisory is not necessarily covered by re-call or general liability insurance; hencemany retailers and other romaine lettucepurchasers were unable to recover their

costs from suppliers during the week-long advisory.

As a result, retailers may alter theircontracts and vendor compliance pro-grams to ensure they are financially pro-tected against such events and/or otherproduct quality issues. McEntire con-firms receiving questions about theterms of recall and general liability in-surance. “What do they cover? What dothey not cover? Who’s responsible forwhat? Things are starting to shift a bit,”she says.

“We hope an advisory of this magni-tude never occurs again,” McEntireadds, “but everybody’s starting to thinkthrough how they can recoup some oftheir costs. They want to make sure theirsupply chain partners won’t leave themstranded and responsible for covering all the costs.”

Suppliers would be wise to thinkthrough these indemnification questionsand familiarize themselves with the con-tract language modifications being pur-sued by retailers.

COMPLIANCE DEMANDS Growers and suppliers face a wide and

evolving spectrum of vendor compliancerequirements. The challenge is to de-velop proactive strategies to keep pacewith retailer demands and maintain required standards.

This is no easy task, and trying to op-erate in a business-as-usual manner willonly lead to audit fatigue, compliancefailures, and potential loss of business.

The experts featured in this articleidentified multiple options for keepingpace. First, dedicate a team member tovendor compliance. Food safety man-agers juggle a wide variety of responsibil-ities and dedicating more time to auditswill detract from their primary focus.While costly at the outset, having an in-ternal expert to oversee audit processes,answer questions, and feed the auditportals will avoid problems in the long run.

Second, standardize data capture andshare accurate information. Movingaway from pencil-and-paper or home-grown spreadsheets is essential to accu-rate and timely data availability foranalysis and reporting. Also, adoptingappropriate tools and a framework like

Trellis can streamline the exchange ofaudit and compliance data between trading partners.

Third, participate in industrywideinitiatives. Proactively adopting GFSIstandards, engaging in PTI, and workingwith organizations like EFI will demon-strate a supplier’s capabilities and itscommitment to vendor compliance. In some situations, this will serve as aproxy for a retailer’s program and avoidthe need to participate in yet anotherunique audit.

Although the tactics discussed abovewon’t preclude every retailer from pursu-ing a tailored vendor compliance initia-tive, it may encourage some retailers toadopt more standardized processes. Plus,taking an active approach to compliancewill ensure suppliers understand funda-mental requirements and are well posi-tioned to successfully navigate the longroad ahead.

Dr. Brian Gibson is executive director ofAuburn University’s Center for SupplyChain Innovation and a former logisticsmanager. He is coauthor of Supply ChainManagement: A Logistics Perspective (10thed.) and active in supply chain executive education, research, and consulting.

Images: A_KUDR, TeddyandMia, Icon Craft Studio, Anton V. Tokarev &3RUS/Shutterstock.com

Oct/Nov/Dec 2019 | Blueprints — 63


managing vendor compliance

Documents