Business Continuity Management in the Food Service Sector
Final Report to the Department for Environment, Food and Rural Affairs
Prepared by
Dr. Helen Peck
Security Studies Institute
CranfieldUniversity
DefenceAcademy, College of Management and Technology
Shrivenham
September 2009
List of Contents Page Number
List of Contents
List of Vignettes
List of Tables
Acknowledgements
Executive Summary
Section 1. Introduction
Research Objectives and Terms of Reference
Research Objectives
Terms of Reference
The Food Services Market and Industry Structure in the UK
The Food Services Market
Market Trends and Segmentation
The Vanishing Distinction between Food Service and Retail
The Profit Sector
Business Contract Commercial Catering
The Cost Sector
Purchasing in the Cost Sector
HM Prisons
NHS
Ministry of Defence
School
Social Services
Industry Structure
Operators
Wholesalers and Distributors
Who took part?
Limitations and Issues of Access
Structure of this report
Section 2. Findings – Business Continuity Management
The Food Service Operators and Their Customers
The Small Business Perspective
The Branded Restaurant & Grab & Go Chains
The Public Services Organisations
Food Service in Secure, Closed or Hostile Environments
Business Continuity in the Big Contract Catering Companies
Business Continuity Higher up the Supply Chains
Business Continuity in Wholesale/Distribution
Business Continuity for Suppliers of Foodstuffs
Section 3. Findings – Actual Disruptions and Known Weaknesses
Everyday Hazards: The Small Business Perspective
Fire
Flood
Water, Water Everywhere…but Not a Drop to Drink
Weather, Transport, and Climate Change
Commodity Prices, Failing Suppliers and the Downside of the Global Market
Local-for-local?
Livestock diseases
Food Safety
Reputational Risk and the Media
Skills Shortages
Section 4. Findings – Widespread Systemic Disruptions
Loss of Power
Fuel Shortage for Road Transport
Pandemic Flu – Loss of People
Facing a Pandemic: Views from the Hotels and Retail Front Line
Pandemic Planning for Vulnerable Populations
Pandemic Planning by the Contract Caterers and Wholesale Distributors
The Food Processors and Importers
Unanswered questions
Doing the Right Thing
Section 5. Findings – Withstanding an Emergency
Buffer Stocks, Surges and Waste Disposal
The Hoteliers, Retailers, Restaurant Chains
The Public Sector and Closed Environments
The Wholesale Distributors
The Contract Caterers
The Food Processors and Importers
The Cash Flow Question
Section 6. Conclusions
The Extent and Quality of Business Continuity in Planning
Size, Complexity and Business Models
Regulatory Compliance as a Driver of BCM
Customer Pressure
Actual Disruptions, Near Misses and Known Weaknesses in BCM
Localised disruptions
Sudden On-set Emergencies and Systemic Disruptions
Pandemic Planning
Minimising risk
Global v Local and the Transport Questions
Appendix A.
Business Continuity Management in the Food Service Sector - Interview Schedule
Part 1. Interviewee Profile & Business Continuity Management within the Organisation
Part 2. Disruptions, Near Misses and Known Weaknesses
Part 3. Widespread Systemic Disruptions
Part 4. Stock Holdings and Inventory Management
Part 5. Beyond your organisation?
Part 6. Other
Appendix B.
Review of Literature & Other Research
Sustainability and Food Security context
Sustainability and UK Policy Perspectives
Food Security and the UK: An Evidence and Analysis Paper
Promoting Sustainability within the UK
Public Sector Food Procurement Initiative (PSFI)
Research into Food Security and Defence in the UK
Research into BCM in the food sector supply chains
Oxford Brookes University: Sustainable Food Procurement for Contract Caterers
Chatham House: UK Food Supply in the 21st Century: The New Dynamic
International Concerns: Contamination and the Fear of Malicious Interventions
Protecting the Global Supply Chain
Food Security, US-Style
The US Food and Drug Administration (FDA) Centre for Food Safety and Applied Nutrition
Industry Self-Assessment Checklist for Food Security
Food Emergency Management in the US
Operation ‘Flu for Thought’
Academic Research in North America on food chain security and defence
Michigan State University
Georgia Institute of Technology
University of Minnesota
References
List of Vignettes Page Number
The Buncefield Fire: An Immediate Response………………………………………18
Lean Production Principles for the Hospital’s Catering Operations…………………23
‘Rat Packs’: A Taste of Home……………………………………………………….27
Managing Conflicting Demands……………………………………………………..36
Planning for Business Recovery: Examples of Depot Events………………………40
Buncefield: The Retailer’s Response ………………………………………………49
Summer Flooding: Lessons from a NorthEast CoastTown………………………...50
Feeding the most Vulnerable………………………………………………………...51
Contingency Planning for a LondonHospital……………………………………….53
Ready Meals: Getting the Price Right…………………………………………….....59
Security of Supply or Greenwashing?..……………………………………………...62
New Processes for the Fast Growing International Chain…………………………...68
The Impact of Sudan 1……………………………………………………………….69
Fresh Produce………………………………………………………………………...70
The Undercover Journalist…………………………………………………………...71
Energy Policy?..……………………………………………………………………...73
Limiting Factors……………………………………………………………………...82
Preparations in Prison………………………………………………………………..90
The Hospital Caterer: First in the Queue?..………………………………………….91
The Plea for Joined-up Thinking Off-shore……………………………………….....93
Demands and Difficult Decisions……………………………………………………97
The Undeclared Emergency………………………………………………………...105
Pay-As-You-Dine…………………………………………………………………...107
The Supply Chain For Deployed Operations……………………………………….108
Contract Changeovers from a Unit Manager’s Perspective………………………...111
Cash Flow at the Catering Company………………………………………………..116
List of Tables Page Number
Table 1: Sample Company and Respondent Profiles…………………………….. 9
Acknowledgements
The author acknowledges the support of both the Department for Environment, Food and Rural Affairs and the Centre for the Protection of National Infrastructure, as commissioners of this work.
The author also wishes to thank Lt ColMarc Haywood RLC, for his work on the preparation of this final report. Last, but not least, the author wishes to thank the organisations who participated in this study and the managers themselves, who gave up their time and shared their knowledge and experience for the benefit of us all.
Executive Summary
This report presents the findings of a study of business continuity management (BCM) in the food service industry. The aim of the research was to ascertain the state of BCM in the food service sector. The work was commissioned by the Department for Environment, Food and Rural Affairs and the Centre for Protection of National Infrastructure.The work builds on and complements an earlier study,Resilience in the Food Chain, conducted in 2005 in the food retail sector.
The purpose of the work is to contribute to evidence-based policy making, in relation to Defra’s responsibilities as Lead Government Department for Food and Drink under the Cabinet Office Capabilities Programme. The supply of food and water are two of nine elements of the UK’s Critical National Infrastructure.
The research is a qualitative study which draws directly on the knowledge and experience of 41 managers from 26 organisations across the food service industry. They included some of the best known High Street chains; leading contract catering, facilities management and wholesale distribution companies; owner proprietors of a small sandwich bars and independent hotels; managers from a hospital trust, a city council and representatives of the armed forces, together with suppliers of fresh produce, meat, ready meals and a representative of an industry association. The interviews were conducted over a 10 month period between September 2007 and June 2008.
The findings of the research show that in terms of BCM, there are in effect two separate agenda running in parallel across the industry. One is everyday BCM/operational risk management, including food safety and everyday commercial risk. The other is pandemic planning.
The study found that in both the private and public sectors BCM provision is more or less fit for the purpose. However, fit for purpose does not mean that the organisations could continue operations in any circumstances, or that they are rigorously implementing best practice, as set out in the British Standard BS 25999. It means that the private sector organisations have, for the most part, implemented measures to comply with regulatory requirements in terms of food safety, traceability and recall, and have complied, where appropriate, with Stock Exchange requirements for corporate governance. They have taken steps to safeguard their businesses from the most obvious threats/hazards to their mission critical assets and activities where a business case exists.
In the public sector, organisations are also planning around mission critical activities, but usually focusing on core service provision. Food service is a support activity for most of these organisations, not a core service. Key food service suppliers are increasingly being required to undertake BCM as a contractual requirement, but their planning tends to be based on maintaining operations in otherwise normal circumstances – often with bought in sandwiches as a default option. They are not planning for prolonged national emergencies. There are of course exceptions, e.g. PFI prisons, where pandemic planning is a requirement.
The larger food service companies have looked at the problem of pandemic planning – often in response to the demands of their customers. The financial service sector has been influential in driving this forward. The City has been putting pressure on its own service suppliers, and the insurance companies have been offering consultancy services to help larger companies understand the requirements. Some of the food service operators have already established contingency menus and protocols, some had asked their wholesale or distribution companies to prepare pandemic plans. Beyond that they are maintaining a watching brief of the World Health Organisation’s advice, and looking to Government for further instruction.
There are already shortages of skilled and unskilled workers in many parts of the food service industry. In a pandemic demand is expected to fall in the most profitable areas of food service, but a surge in demand is expected in other critical areas, including sections of the low-margin cost sector. Staff shortages are expected to intensify in all areas, including processing and distribution. The contract catering companies are essentially people businesses; they raised some important unanswered questions about human resources management and their legal positions over duty of care. The operators providing food services in secure environments and to vulnerable populations would also face particular problems in finding replacement staff quickly, because of the requirements for security and Criminal Records Bureau(CRB) checks.
The Department for Health and City firms have encouraged suppliers to engage in pandemic planning exercises. These were reported to have been useful to those involved. There were requests that similar direction and coordinated planning be given to food service companies supporting the off-shore industry and across the distribution sector. The regional hotel proprietors (owners of large independent regional hotels) also expressed a willingness to engage actively in supporting Government efforts to assist their local communities.
Food scares were always damaging, but for other localised disruptive events such as fires or floods, larger multi-site companies had coped well with the loss of single sites. The food service operators rely heavily on the ability of the wholesale and distribution companies to help them overcome disruptive challenges. The Buncefield fire demonstrated that a major event close to one of the distribution hubs can knock out several different businesses’ distribution centres, as they cluster at the same locations. Nevertheless the distributors have demonstrated an ability to overcome localised or short-term problems. For small single site businesses the loss of their operating premises is more likely to be catastrophic.
Some of the larger food service companies had experienced localised disruptions from flooding in 2007, but had successfully switched activities to other sites. Most of the large operators and the military had received requests to assist with supplies of bottled water. In the worst affected cities the large supermarket chains had also supported local authority emergency planners with supplies of infant formula, as well as clothing and essential supplies of personal hygiene products. There were specific lessons learned about managing the feeding requirements of distressed and displaced people.
The managers involved in this study reported few problems from the 2000 fuel protests, other than that staff in some areas had been unable to get to work. Food supplies were maintained. Some of the food processing companies did envisage problems in event of a prolonged fuel shortage. The operators and wholesale distributors were perhaps over confident that they could rely on fuel suppliers, public service customers and, ultimately, the Government’s priority user scheme to guarantee supply.
Some of the managers also clung to a belief that they would receive priority status for energy supplies, and for generators in an emergency situation. Few had thought through in any detail how their businesses would cope with a widespread or prolonged failure of the national grid.
On a day-to-day basis the food service sector is inherently resilient because of its diversity. The combination of very large and very small operating businesses, using a variety of business models, also adds to its flexibility.
The contract caterers’ business models avoid the use of working capital (they rely on takings to pay suppliers), as such they are designed to minimise financial risk. However they are susceptible to cash flow problems, whether caused by late payment or rising costs and slowing demand. Loss-making contracts would render small companies bankrupt, larger ones are more likely to withdraw from the contract.
The distribution element is also a combination of a few very large businesses and thousands of small ones. The wholesale distribution business is the most consolidated, and is recognised across the industry as the point of greatest vulnerability for larger food service operators, and for the cost sector as a whole. If one or both of the two largest wholesale distribution companies failed, few of the other businesses could step in quickly to manage their volumes.
From across the food service operators, the public sector, and the food suppliers themselves, there were reports of exceptionally high instances of supplier bankruptcies, including some very well established food production and supply businesses. Successive shortages of foodstuffs, rising fuel and energy prices, together with changes in the exchange rate, were all affecting the food service supply chains. Suppliers were refusing to renew supply contracts for more than a few months, others were walking away unless terms were renegotiated.
Despite the problems with food inflation, or perhaps because of it, the sector is moving forward in other ways on the whole question of sustainability. It is recycling packaging, composting food waste and switching vehicle fleets to run on bio-fuels, often using its own recycled cooking oil. Demand for locally-sourced produce has also grown in recent times amongst clients and customers. Local-for-local is the mainstay of some of the smaller operators’ food service offer, but the UK as a whole could not switch to indigenously produced foods. The sector remains heavily dependent on large volumes of imported foodstuffs, including meat, cereals, fruit and vegetables. Any disruption to international trade would rapidly impact upon the food service industry, particularly the high volume and low margincost sector.
1
Section 1. Introduction
Research Objectives and Terms of Reference
Research Objectives
The purpose of this study is to ascertain the current state of BCM in the food service sector; in particular the scope, extent and limitations of continuity planning, practices and procedures. As such it builds on and complements Resilience in the Food Chain, explicitly addressing its two stated limitations:
- It acknowledges that food chains are increasingly international. Whilst this study still addresses the supply of food and drink to England, it accepts from the outset that there are UK-wide and international dependencies.
- It recognises that a serious disruption to supply in one sector (food retail) will likely result in a displacement of demand to others. Limitations of time and resource precluded the inclusion of the catering sector. This study addresses that shortcoming.
The work will contribute towards evidence-based policy making in relation to Defra’s responsibilities as Lead Government Department for food and drink supply under the Cabinet Office Capabilities Programme (Cabinet Office, 2006). To that end it will aim to provide some indication of the wider resilience of the system and insight into the scale of event/potential disruption that could absorbed, given current planning assumptions. It is anticipated that the proposed approach will allow conclusions to be drawn about where industry does not provide resilience, and enable generic improvement options to be identified that would reduce levels of risk.
Terms of Reference
- To assess the extent and quality of Business Continuity Planning in the food service sector: public sector; restaurants (including fast-food and takeaways); pubs and hotels, and the supply chains on which the food service sector depends.
- Identify cases of actual disruptions experienced, near misses and known weaknesses in this sector that illustrate the extent and range of significant disruptions, for which measures should be undertaken to ensure Business Continuity.
- To highlight (without identifying individual companies), potential or actual shortcomings in Business Continuity Planning processes within the companies studied.
- To identify generic options for improvement that could be used to minimise unacceptable levels of risk, identified as likely to cause significant disruption to the food service sector.
- To consider the extent to which the Food Service sector supply chains are becoming increasingly international and whether over-reliance on food imports could make the sector susceptible to disruption, if transport / logistics and other dependencies were to be disrupted.
- A systems-based approach will be used to identify linkages between threats to food supply and to identify monopoly suppliers and their significance in relation to food security.
- The researcher is to undertake a selective review of the relevant literature and related research programmes, building on that carried out for Resilience in the Food Chain.
The Food Services Market and Industry Structure in the UK
The Food Services Market
Put simply, the food service sector comprises all outlets involved in the “provision of meals out of home” (IGD, 2005).