Date: 11/02/2019

Supplier Risk Management in the food industry often gives the impression of being a privilege in the supply sector of just a few companies.

Rarely do companies establish programs that go beyond superficial monitoring and, as a result, end up suffering significant damage to their brand and reputation. Therefore, to overcome this and other challenges, it is critical to implement an effective Risk Management system.

Our content has been designed especially for you, who face the challenges related to Supplier Risk Management inside the food industry on a daily basis. Especially when it comes to ingredients.

Read through the following article and understand how the relationship between supplier and contractor can be best managed.

Supplier Risk Management: What your ingredients supplier should not do

Supplier Risk Management defines what should or should not be analyzed when choosing new ingredients suppliers (natural flavours, proteins, vegetable fats, flours) for food formulation and other supplies.

It basically covers how managers, administrators and other responsible roles in the chain study, identify, change and monitor the risks that may arise when requesting inputs to a new or current supplier. And how can they handle these possible risks.

But what are these risks?

  • Delay in product launching, growth plans or organization projects;
  • Delay in product delivery and ongoing operations interruption;
  • Possible compromised reputation that affects the company’s image;
  • Bureaucratic irregularities;
  • Inability to meet environmental, health and safety plans.
  • Constancy in the quality of deliveries aiming to guarantee a good final product every time.

Considering this you should take some requirements into account to make a more accurate choice:

  • Consumer opinion;
  • Regulatory compliance;
  • Vendor integrity and production capacity.

Such evaluation requirements are based on the collection of specific data from each sector/product. Their definition depends on the inputs in question, but it is important to be clear about what data is relevant to determine the risk of suppliers. This analysis considers:

  • Quality of inputs;
  • Supplier scores;
  • Business permanence plans;
  • Information security plans;
  • Breach notification plans;
  • Supplier management plans when there are subcontracted vendors;
  • Internal requirements of the business applicant;
  • Internal risk recommendations;
  • Conformity;
  • On-time deliveries;
  • Cost of guarantee;
  • Flexibility;
  • Response time;
  • Among others.

Supplier evaluation good practices

1. Qualification: does the supplier follow quality standards such as HACCP (Hazard Analysis and Critical Control Point) and Global-GAP (Agricultural Guarantee Program)? That is, certifications that guarantee quality and reliability in the ingredients produced.

2. Financial stability: entrusting the supply of ingredients in the “hand” of a certain company is a complex decision. Obviously, the manager must opt ​​for the company that has a stable cash flow.

3. Operational Performance: understanding logistics is essential when choosing the company that will be responsible for the supply. Logistics encompasses the planning, cash flow control and storage of raw materials, from the point of origin to the point of consumption, adapting to the requirements of the customer. Good operating performance is also linked to:

  • Alignment of supplier and contractor goals;
  • Return on supplier performance;
  • Increasing level of satisfaction from the evolution of supplier performance.

4. Practices and management processes: does the company perform automated (or not) measures to achieve consistency and results aligned with the contractor’s strategic objectives? Is it leading to improved organizational performance and business results?

5. Acquisition of the product or service: directly considering the supply of ingredients, the purchase must be made through a purchase order. In it should contain the purchase information such as:

  • Quantity;
  • Delivery time;
  • Ingredients composition;
  • Presence of allergens (if any);
  • Nutritional table;
  • Product shelf-life;
  • Storage conditions;
  • And any other relevant features to the product bought.

6. Quotation: setting quotation as an evaluation requirement is one way to ensure that your company will always get the best value for money. This also avoids hiring companies with unethical conduct.

Selecting the correct partner

Based on the stated above, it is important to find suppliers that are up to the expected results. This means seeking companies that work with stimulus and application of new technologies.

The modernization of the production chain, as well as the whole process of treatment, storage and delivery of the inputs guarantees the delivery of higher quality products.

The control of the productive chain as a whole can be translated in the data that we mentioned above. A company that has an adequate structuring of all phases of the production process certainly also has the information and tools needed to prove these procedures and results.

These numbers are the guarantee and the result that a certain supplier is in line with the best practices of the sector.

An example of the impact of these actions it is the processing time of the ingredients. In a structured and well-managed process, it tends to be much smaller. For the contractor, this represents the certainty of always having fresh and suitable ingredients for the application in the final products.

Between the differentials that should be considered when choosing ingredients suppliers, we highlight:

  • Traceability: the traceability process happens with the verification of products origin, from the farm to the consumer table. This type of control guarantees great safety for the company because it reduces risks related to foodborne diseases, fraudulent activities in the food chain, fake products, contamination or deterioration, etc. This type of analysis is even more powerful and guaranteed in suppliers that dominate the entire production chain, from production to final product.
  • Customization: each formulation requires precise technical specifications to support all its characteristics. A good vendor should be able to meet these specific variables. Therefore, the ability to customize the ingredient is a very important variable to be observed.
  • Fresh raw material: using fresh raw material is a great differential with direct impact on the quality of the final product. It is more interesting to seek partnerships with suppliers who work on the production process, taking the necessary care from the breeding and slaughter to the synthesizing of the ingredients. In the end, it is a matter of logistics and structure, which can be identified as explained in the previous topics.
  • Innovation applied to the production chain: nowadays technological advances allow the production of ingredients with high nutritional and sensory value, with a drastic reduction in harmful components. Such as pigments and excess trans fats.

A good example of the applied innovation and trends mindset is the development of Clean Label products. The best definition of Clean Label is transparency. A detailed description of the components in products for human nutrition conveys more confidence to the consumer that is each day more critical to processed foods.

Topics such as appearance, net weight and nutritional values ​​can make the difference in the purchase. Thus, ingredient suppliers can be the gateway to companies in these new market trends. 

To select the best ingredients supplier can be labor-intensive, but brings quality and safety.  Assessment practices minimize risks by ensuring that the demands are executed with no interference and can be improved over time.  A reputable vendor should maintain a positive track record, pointed out by customer feedback, financial stability, and past audit process results.

In addition, it must compliance with the current industry regulatory requirements.

With regards to Risk Management, we know that its development was driven in part by the growing demands of customers. In this sense, it is fundamental to detect and reduce as much as possible the errors related to the lack of planning, guaranteeing an agile and efficient performance.