Being lean and mean in the food and drink manufacturing sector might pay off in terms of profits, but the practice has left the supply chain vulnerable to a crisis, according to a UK government report.
The government-commissioned report concludes that the drive for efficiency and the just-in-time philosophy used by the industry has progressively reduced stock levels throughout the supply chain -- with the resulting damage to its resilience when an emergency occurs. The study highlights the need for processors to have business continuity mangement (BCM) plans in place to deal with emergencies such as livestock diseases, bird flu, or fuel shortages, as well as site-specific events such as natural disasters, product contamination or terrorist attacks.
The independent study was done by Cranfield University for the Department for Environment, Food and Rural Affairs (Defra). Cranfield's Helen Peck, who wrote the report, makes a number of recommendations to government, including the relaxing of regulations to allow competitors to work together in times of emergency
Business continuity plans provide food and drink retailers with the measures needed to deal with any threat of disruption. "While the UK is good at dealing with sudden onset emergencies such as the 7/7 bombings, we remain less well prepared for the less obvious or well understood phenomenon of 'creeping crises," she said.
Of all the groups in the supply chain food processors and packagers were found to be in a more precarious position than the rest. "Their efforts centre around protection of key assets, because their operations are dependent on a few capital-intensive facilities," Peck wrote. "Some made no distinction between everyday operations, risk management and BCM."
UK manufacturers tend to rely on their ability to 'flex' production between sites as their main form of contingency, she found. However, most conceded that the redundant capacity that provides the basis of this strategy is being steadily eroded by the pressure to reduce costs and optimise asset utilisation, she said.
"Sites are being closed, consolidated and moved offshore, at which point the risk profiles for their UK operations change," Peck wrote. "The principal dependencies switch from manufacturing sites to transport, communications and the supporting infrastructure." One of her main conclusions is businesses are doing BCM out of enlightened commercial self-interest.
Best practice BCM encourages them to take action to maintain the Mission Critical Activities and Assets of their organisations, under an expectation of otherwise normal external circumstances. "They see the purpose of BCM being to protect the well-being of customers, employees and shareholders," she concludes. "It is not being undertaken for the 'public good' or to maintain operations in times of national emergency."
She found industry's biggest fears are product contamination and recalls, and companies overall are best prepared to deal with such crises. Food scares are what retailers and their branded suppliers most fear because contamination scares have destroyed brands in the past.
Traceability systems are in place throughout the sector and are tested with drills and genuine recalls, she found. "However, some managers pointed out that whilst their systems had risen to the challenge of recent product recalls, the Food Standards Agency's own systems were not always able to do the same," she wrote.
Loss of access to sites due to terrorism, social protests, or quarantines due to industrial contamination or livestock diseases were also cited as risks.
Loss of a site due to events such as a fire or flood could also cause a disruption in the supply chain. Statistically such events are predictable but, many managers pointed out that the trend toward fewer and larger production and distribution sites meant that the potential impact was increasing. Reduced capacity across the industry means that it is becoming harder to make good capacity shortfalls when sites are compromised or lost.
"Some manufacturers are struggling to reconcile their own strategies for network consolidation with customers' requirements to demonstrate an ability to switch production to alternative sites as a BCM requirement," she found. Disruptions from industrial action in the UK food and drink industry are rare so such events are considered less of a risk than others.
However, managers consulted for the study pointed out that the shortage of skilled logistics staff was a more pressing concern for some of the companies. She also noted that in some parts of the country there was a growing dependency on migrant workers for both manufacturing and distribution.
"A combination of market forces - in the form of competitive pressures from retailers - and government policy on energy costs were cited as the main drivers behind the flight overseas of agriculture, ambient and frozen food production, and packaging manufacturing," she noted. Peck's study examined the scope, extent and limitations of continuity planning within companies engaged in the supply of product categories key to the UK's food supply. Defra commissioned the study to determine the extent to which British food and drink manufacturers and retailers plan for emergencies. Such planning is known as business continuity planning management (BCM) plans.
The work involved surveying some of the county's leading supermarket chains, wholesalers, food and drink manufacturing companies, their suppliers and transport providers, together with a number of industry associations. A total of 61 senior managers from 28 organisations contributed directly to the report.
An emergency is defined in the report in line with the Civil Contingencies Act (2004) as "an event or situation which threatens serious damage to human welfare". Disruption to the supply of money, food, water, energy, fuel, communications or transport, as well as terrorism, are all situations deemed to pose such a threat.
The study was commissioned by Defra to strengthen the evidence base for government policy and to encourage business continuity planning in the industry. A separate paper on food security was published by Defra on 22 December.
Resilience in the Food Chain: A Study of Business Continuity Management in the Food and Drink Industry is available by clicking here .