The Impact of QMS on Profit & Reputation Protection for Food & Beverage Companies

The Food Safety Modernization Act (FSMA) was passed in 2011 with the goal of encouraging food and beverage manufacturers to take a more proactive approach to preventing contamination, rather than react and respond to it. As a result, the FDA declared that product recalls were no longer voluntary, but mandatory for compliance. Increasing the odds of a recall is the fact that most companies today estimate only a 30% visibility into the practices of Tier 1 suppliers, and no visibility to Tier 2 or 3 suppliers.

Recalls Impact More Than Just the Bottom Line

The expense of a food and beverage recall extends far beyond the initial cost of pulling suspect items from shelves. In addition to a loss of tangible, monetary profit on recalled goods, there are more intangible costs, such as expenses associated with rehabilitating the brand.

In 2013, insurance organization AIG launched NOVI, a service that estimates the cost of product recall incidents. The Vice President of Crisis Management for AIG’s Property Casualty division, Nicky Alexandru, noted that, in some cases, the cost of a recall due to poor product quality can equal up to “20% of the annual sales of the company.”

In addition, companies that deal with a recall face additional loss of market share. A 2009 survey by risk management firm Deloitte revealed that 57% of consumers polled have stopped eating a particular food as a result of a recall. These respondents also indicated that they were likely to temporarily or permanently discontinue consuming a food or beverage product as a result of a recall. This loss of profit and consumer trust heightens the importance of a sound supplier quality management strategy.

An additional layer of expense is incurred by companies who must scramble to rehabilitate the brand’s public image as a result of a recall.

One example of a recall damaging a brand’s reputation involved the popular Clif brand of energy bars. A 2012 post on the social media site, Reddit, went viral that contained an image of a bar purchased by a consumer that contained live maggots and larvae. A Clif Bar representative responded to the consumer and dismissed the possibility that a certain type of moth had gotten into the product’s packaging at the factory level. Instead, the representative offered that the insect may have entered while the product was in transport to the point of sale or that the insect had entered within the consumer’s own pantry once it had been purchased.

Food Packaging Regulations and Safety

This incident followed on the heels of an earlier 2012 Clif Bar recall in which the brand’s Coconut Chocolate Chip bars were mislabeled as bars of the White Chocolate Macademia variety. A recall was necessary to prevent the product from winding up in the hands of consumers with coconut allergies.

Very often, it’s not just the quality of a product itself, but food and beverage packaging can also lead to a recall. Due to the increasing number of prominent food allergies or sensitivities among adults and children, it’s imperative that packaging is clearly labeled to alert consumers that the product contains common allergens such as dairy, gluten, soy, eggs, peanuts, or tree nuts -- to name just a few. The mislabeling of packages that erroneously do not disclose common allergens can lead to a recall.

In addition to the FDA’s food packaging requirements calling for companies to clearly denote ingredients on a product’s packaging and labeling, consumers have been vocal in their desire for accurate product packaging. A heated debate has taken place between consumers who are against products containing genetically modified organisms (GMOs) being labeled as “natural” or “organic” and grocery manufacturers petitioning to allow food that contains GMOs to be labeled as such.

Since no regulations have been passed to date, there are no legal ramifications that food and beverage companies face on this facet of product packaging and labeling. However, there is the possibility that not disclosing GMOs can contribute to an erosion of trust between a brand and its consumers.

Staying Prepared As More Regulations Add to the Threat

Since the passage of the FSMA, recalls have become more frequent. The U.S. Department of Agriculture notes that at least 30 Class I and Class II recalls occur each week.

Food & beverage organizations that leverage EQMS for a holistic approach to quality management stand to be more prepared to take swift action in the face of a recall. In many cases, especially where foreign suppliers are involved, U.S. branches of a food and beverage product cannot access the inventory of a foreign supplier. By extending supplier quality management and connecting internal quality processes with third-party suppliers, companies can provide greater info across teams -- and international boundaries -- to validate processes in place, such as authorizing products that ship and ensuring they meet standards.

Without a quality system in place, there is a limited portal of data that is accessible by all. A product such as TrackWise helps food and beverage companies effectively manage the process of production, shipping, and distribution to track any recalls and help minimize damage to a brand’s reputation.

For more information, download the eBook "Four Best Practices to Improve Quality in the Supply Chain."

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