Assessing and Managing Risk Becomes an Enterprise-wide Pursuit in Food and Beverage

Anticipating what can go wrong and devising systems that minimize threats to a business’ viability are the essence of risk management, and food companies have multiple options to accomplish that.

By Kevin T. Higgins, Managing Editor

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In the event a machine guard is removed or fails to protect the operator, proof of safety standard compliance is the first line of defense. Plaintiff’s attorneys “never go away; they’re going to find something to hang their hat on, but at least you have a defense,” he says.

Unlike the European Union, where a wealth of machine standards can be referenced, the U.S. has many gaps in safety standards, and OEMs must default to general or approximate guidelines. The bakery segment is addressing this with the Z50 Safety & Sanitation Committee, which currently is addressing sanitary design aspects to help wholesale bakers comply with the Food Safety Modernization Act.

DeRosier is one of 45 end users, suppliers and interested parties who are shaping the ANSI Z50.1 and Z50.2-2003 standards, which would supplant the long-standing BISQ standard, widely viewed as inadequate in the baking community.

Many of the new and revised standards are incorporating a risk-assessment requirement, DeRosier notes. An example is B155.1, which was created by the Packaging Machinery Manufacturers Institute in 2006. Like processing equipment, packaging machines typically undergo several modifications by multiple owners during their useful life, and B155.1 puts the onus to conduct a risk assessment on end users and, to some extent, on machine operators.

Certifications and policy procedures are not the end points, Komoto emphasizes. Monitoring and modifying the action plan also must be done. “When you can say ‘We’re doing enough and are confident,’ you then have to ask, ‘Are we executing the process?’ ” she says.

One client instituted drug tests and background checks for new hires, but when her firm audited the process, it found that the farther a facility was from headquarters, the less likely it complied with the policy. “Successful companies are constantly monitoring their processes and procedures,” she says.

Poor process control doesn’t necessarily pose financial or human health dangers. Komoto recalls the manufacturer of protein bars that maintained an inventory of regular and organic almonds and walnuts. After a routine internal audit, the firm discovered only regular almonds were used in one day’s production, despite a work schedule that called for organic and walnut recipes. To prevent a repeat, a visual factory system was adopted, along with training that required minimal spending. “They were having recalls, and they were able to show that this stopped recalls,” she concluded.

Besides financial and regulatory risks, food manufacturers must deal with operating risks. “It all boils down to the quality controls they have in place, the checks and balances of the raw materials,” suggests Karl Ederle, vice president-product management at Plex Systems (, Troy, Mich.

Conducting quality checks from the time raw materials are received through each stage of production and to final product generates considerable amounts of data, particularly for checks done in line. The sheer volume and the need to organize and retrieve it quickly is a data management challenge.

“ERP systems are designed to capture not only financial information but also what is happening on the floor,” says Ederle. Effective cost accounting requires inputs on labor, equipment depreciation, maintenance and other variables, and storing that information in an ERP database addresses operating, financial and regulatory risks.

Whether a machine failure or product defect occurs, finger-pointing and blame-shifting is likely to occur. The deadly Listeria outbreak tied to cantaloupes from Jensen Farms in 2011 is a case in point. Within a week of the owners’ guilty pleas to six counts of introducing adulterated food into interstate commerce, they filed suit against the food safety auditors that gave them a superior rating, accusing them of negligence. Regardless of the suit’s outcome, the case serves notice to third party auditors of the risk inherent in endorsing a processor’s food safety defenses.

From a risk management perspective, that’s a good thing, suggests Lockton’s Harrison. Citing the Global Food Safety Initiative standards, Harrison says critical reviews are an element of risk management. “Manufacturers are being audited more thoroughly, and the auditors are being far more rigorous and critical than they used to be,” he says.

Fresh meat is a high-risk product, and the frequency of public health events and large-scale recalls has driven about two-thirds of meat suppliers to secure recall insurance, Harrison estimates. The ratio in other food categories is considerably lower and, assuming adequate systems to narrow the scope and frequency of events are put in place, are likely to remain low.
Insurance is only one tool for controlling risk. Well-managed firms have other options for reducing threats to business viability.

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