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Enhancing Brand Value – Tracking and Tracing Applications in the Food Industry
TABLE OF CONTENTS
Introduction
Regulations and Consumer/Retailer Requirements
The Bioterrorism Act of 2002
EU Regulations
HACCP
RFID
Initiatives to Meet Regulations and Consumer/Retailer Requirements
Tracking and Tracing for Food Safety and Security
Supply Chain Management
Documentation of Product
Continuous Improvement Opportunities
Inventory Management
Product Quality and Consistency
Activity-Based Costing
Tracking and Tracing Solution
Components to Be Tracked
Requirements
Automatic and Manual Data Collection
Reporting and Visibility
Value to Food Manufacturing Companies
Regulatory Compliance and Product Documentation
Supply Chain
Inventory Management
Quality and Consistency
Introduction
Companies that manufacture products for the consumer market invest considerable resources to establish and maintain the integrity of their brands. For those engaged in the food industry this means bringing to market a product whose value can be both perceived and measured. Perceived brand value can encompass an understanding, by the consumer, of what the product is, how it looks on the shelf, how it tastes and how it is used. Measured brand value can be the investment made by the food company to establish the brand – in marketing, in research and development and in distribution as well as in the sales performance and revenue of the product.
Building a strong market position, one in which the consumer has a well recognized and positive association with the product, requires that the manufacturer exercise a great deal of control in the product’s components or ingredients and in the processes used to make it. A resource tracking and tracing system makes such control possible both in the context of a single plant and in a network of plants making the same product.
To this, and in response to external events which could compromise the integrity of manufactured food products, must be added the aspect of food safety and security. Here the emphasis is on concern with ensuring that there is no physical, chemical, or biological contamination of food products, either accidentally or through some malicious act. To support this, the capability to monitor and track the production of food products and provide traceability has become a major issue for food manufacturers, particularly in the face of regulations that have been promulgated by governmental agencies.
In addition, retail distribution channels are requiring more information from their suppliers about the products they are receiving. The capability of making rapid adjustments and finding business opportunities in a changing environment will help determine their success.
Manufacturers are finding that the same processes necessary for consistent production, government compliance and supply chain efficiency go a long way toward helping establish brand value in the minds of consumers. From raw material procurement through manufacturing to shipping and distribution all the way to stocking the shelves in the retail outlet, the timely information derived from tracking and tracing operations drive greater efficiencies into the operation and make for a much more responsive enterprise.
This paper focuses on these issues and suggests how resource tracking and tracing can help in the quest to build and preserve brand value for food manufacturers.
Regulations and Consumer/Retailer Requirements
The safety of the food supply weighs heavily on the minds of most industry professionals. According to Food Processing’s 2003 Manufacturing Survey, a full 50 percent of respondents rated food safety as their most important concern, making it inarguably the survey’s top-scoring issue[1]. Tracking and tracing of food products throughout production is most important to food safety and security. Recent threats to security and terrorist activity have led to the development and enactment of several regulations aimed at food safety.
The Bioterrorism Act of 2002
The U.S. Food and Drug Administration published the Code of Federal Regulations (CFR) requirements to support the implementation and enforcement of the Bioterrorism Act onDecember 12, 2003. As of December 12, food and beverage companies have between six and eighteen months to comply with the legislation. While there are limited exemptions, the law is intended to be broadly applied to all persons that manufacture, process, pack or hold, transport, distribute, or receive regulated food product. With FDA authority over about 80 percent of the U.S. food supply and over 500 new inspectors to begin enforcement of applicable civil and criminal penalties, this law is destined to have more impact on the food and beverage industry than all other regulations combined.
Under this act, there are several new regulations to which food and beverage companies must comply.[2]
- Registration– domestic and foreign food facilities that manufacture, process, pack or hold food for human consumption in the United States must register with the FDA.
- Four-hour rule – Upon inspection, companies have four hours to respond to FDA inquiries. Small companies have 12 months to comply with this provision and large companies 6 months.
- Prior notice – Food importers must notify FDA at least one day before a shipment arrives in the United States, disclosing the contents and estimating the arrival time.
- Detention –Failure to comply with registration would result in detention of product.
- Maintenance of records – companies must maintain a record of the tracking of ingredients and products. In the event that product is found to be adulterated, records help FDA determine where a product originated.
Similar regulation is either enacted, or about to be enacted, around the globe. Here are some of the notable regulations:
- Agriculture and Agri-Food Canada’s Agriculture Policy Framework (APF) has defined an objective of achieving 80 percent traceability for Canadian Food by 2008.
EU Regulations
EU Regulation 178/2002 is best known as the legislation establishing the European Food Safety Authority, and specifies the basic conditions for safeguarding food safety. Two provisions merit particular attention; the requirement that it should be possible to trace food and feed at all times; and the requirement that unsafe products should be withdrawn from the market.
Article 18 of the Regulation states the following requirements:
- Traceability must be guaranteed at all stages of production;
- Businesses must be able to identify from whom they have received any products used or to be used;
- Businesses must be able to identify to whom their products have been supplied;
- Businesses must have in place tracing systems and procedures;
- Tracing information is made available to the competent authorities on demand;
- Products must be adequately labeled or identified.
Articles 19 and 20 of the Regulation require producers of food and feed to withdraw unsafe products from the market.
HACCP
Food safety is a concern for everyone. The United States Centers for Disease Control reports that as many as 76 million illnesses are caused by food contamination every year in the United States (source Food-borne illness can be introduced physically, chemically, and/or biologically.
Global sourcing brings food products into the United States consumer market from around the world. Meanwhile, the FDA and USDA have limited resources for conducting physical inspections of the food supply. Recognizing these factors, and the opportunity to leverage new technology, the FDA and the USDA are taking a proactive approach based on internationally recognized methods for ensuring food safety – particularly by embracing Hazard Analysis and Critical Control Points (HACCP) methodology.
HACCP has a 40-year-old history, with its roots in the U.S. space program. Since then, the Codex Alimentarius Commission, which develops FAO (Food and Agriculture Organization) and WHO (World Health Organization) food standards and guidelines, has adopted HACCP as the international standard for food safety.
HACCP methodology consists of seven principals that food manufacturers work from as they tailor their HACCP plan to their particular product, production process, and method of distribution. Its basic concept involves using a cross-functional HACCP team to perform an analysis of the manufacturer's production process and to put a HACCP plan in place. Once set, HACCP plans are binding for all HACCP-regulated industries and subject to review by Food Safety Inspectional Services.
RFID
On June 10, 2003, Linda Dillman, CIO of Wal-Mart announced that the top 100 suppliers to Wal-Mart would be required to utilize Radio Frequency Identification tags on their cases and pallets by January, 2005. The Wal-Mart mandate goes further to apply to all suppliers by January, 2006. There are some questions about how many retailers may follow suit, but Wal-Mart is clearly demonstrating its ability to influence, and even set, industry practice. This mandate is giving the RFID sensor technology its first broad, real-world test, and is also prompting Wal-Mart suppliers and competitors to learn about the wireless technology, which enables companies to identify and track items in the supply chain automatically.
Outside of retail, several industry groups are driving their own requirements. The Department of Defense (DOD) recently held a meeting with over 200 of their suppliers to explain its RFID strategy. The potential impact of such requirements on manufacturers could be even bigger than the Wal-Mart initiatives. The U.S. Department of Homeland Security recently showed how RFID technology could speed the movement of people across boarders while reducing the threat of terrorism. In addition to these entities, suppliers of Customer Relationship Management software (CRM), IT and Web Services are all gearing up to meet the RFID challenge.
Initiatives to Meet Regulations and Consumer/Retailer Requirements
Governmental regulations and requirements from the distribution channel have created business issues that result in food manufacturers reviewing their existing systems to determine how well they can meet the new regulations and demands, and what new systems might be required to ensure compliance. They are also looking at production operations and their supply chain to see how they can improve the efficiencies of their distribution channel, become a better partner, and improve their operations. Each of these responses has to be examined, prioritized, and reviewed in the context of ongoing continuous improvement projects.
Tracking and Tracing for Food Safety and Security
Government guidelines are requiring food manufacturing companies to implement either systems or applications that allow them to meet the tracking and tracing regulations. These manufacturers are now determining the best method to collect the data needed and make it quickly available to regulators. In the past, they have made their best estimate based on paper records. To successfully meet the regulations, they must be able to respond quicker and with greater accuracy.
The tracking and tracing procedures and applications also assist food manufacturers in responding to product recall situations. Most major manufacturers have had a recall where a product that could be harmful to the general public has been distributed. In these situations, companies must use their best judgment to identify which products might be recalled. In cases where they have an issue with a raw material, they make a determination of which products may contain the material, and then expand the recall to ensure that none of the adulterated product is left on retail store shelves. When these manufacturers have a tracking and tracing system, they have much more accurate information on where products were shipped and what components were in each product. This enables them to minimize the number of products that are actually recalled, because they no longer have to recall product that might otherwise not contain the material.
Supply Chain Management
Major retail outlets are demanding a more responsive supply chain to reduce extra inventory held in their stockrooms. To be in compliance, supply chains are evolving a just-in-time production system. Retail outlets are communicating the quantity of product sold on a daily basis and expect food manufacturers to ship just enough product to replenish their shelves. This can be accomplished by increasing the quantity of product in finished goods inventory, but to do so is not cost effective. Rather, the production process itself must be adapted to respond to the demands from the retail outlets and distribution channel. To effectively schedule the production, the food manufacturers require real time information on such variables as the status of current production, what is being manufactured, how much has been produced, and whether it has been shipped from the facility.
One of the requirements of a well-implemented product tracking and tracing solution is the ability to provide a view into what is being produced. A manufacturing company generates work orders that specify what products are to be manufactured, the quantity of product manufactured, and the deadline to complete manufacturing. Many companies are using systems (computerized or manual) that pass the work orders to the production floor and only provide feedback when the product is entering finished goods inventory on a pallet. This does not give the company sufficient visibility into operations to permit a response to requests from customers for information on actual delivery dates or to confirm that it can deliver an expedited order. By having a system that tracks production through each manufacturing area, it has sufficient data to make informed decisions regarding actual completion dates, or to reschedule high priority products through the manufacturing facility.
Documentation of Product
The RFID chip, which Wal-Mart and many of the major retail outlets are beginning to require of manufacturing companies, contains information specific to the pallet on which it is affixed. This requires of the manufacturer a precise knowledge of the product, batch, and sku of items placed on each pallet. A tracking and tracing system gives them the ability to collect this data so it can easily be documented in the RFID chip on the pallets.
Another major issue facing food manufacturers is the need to track the components in the food and the country of origin for each product. Labeling requirements are driving food companies to provide more information to the consumer about the composition of each product. This, in turn, drives a need for the manufacturer itself to obtain greater information about the product, including the ability to identify the country of origin for each of the components in the product. Tracking and tracing systems allow the manufacturer to accurately identify each of the components in the product, its batch or lot number and the information needed to meet the labeling and country of origin requirements.
Europe is a leader in requiring food manufacturers to identify any genetically altered components in their food products. The European Union regulations require specific labeling if the content of a product contains more then .9 percent of genetically altered products. Products above the .9 percent threshold require documented traceability. Because the main source of genetically altered material is soybeans and corn, and because the United States - the largest producer of genetically altered products - exports over $1.1 billion per year of soybeans to the European market, it is incumbent upon Tracking and Tracing systems to provide the information to food manufacturers to determine the actual level of components in the final product and the required documentation.
Continuous Improvement Opportunities
Food Manufacturers understand that the true value of tracking and tracing applications extends beyond their ability to achieve regulatory compliance and meet retailer requirements. The data derived from the tracking and tracing applications provide information that can be used to provide visibility into the production process, to analyze operations, to identify root causes of production problems, and to implement changes to improve operations. There are multiple areas where food companies have improved operations based on the data in tracking and tracing applications.
Inventory Management
A focus of many continuous improvement processes is the measurement, management, and reduction of raw material, work in progress, and finished goods inventory. The reduction of these inventories reduces the amount of capital invested in the inventories and frees it for other uses. It also reduces the inventory carrying costs associated with the extra inventory.
Inventories within the manufacturing facility can be reduced by implementing tracking and tracing systems that monitor and record actual usages in real time. Since most manufacturers do not have these types of systems, they assume that a standard quantity of raw material is used in each step of the process. The standard usage is then deducted from the quantity of inventory maintained in the business system. The actual quantity of material in the inventory is reconciled with the business system only weekly or monthly. Since the actual usage may vary significantly from the standard, the inventory quantity is likely not to be accurate. Companies must then maintain costly safety stock to ensure that they have enough raw material to meet the demands of their customers for product. The safety stock is manifested not only in raw materials, but is also maintained in the finished goods inventories.