When horse DNA was first found in beef products being sold in Britain, many felt we had reached a high water mark. There was a general feeling that food supply practices had become unsustainable and lacked transparency. Major retailers withdrew ten million burgers from their stores within the first few months of the news leaking.
Two elements are widely believed to have contributed to the situation. The first is the increasing complexity of modern supply chains. This was apparent throughout the horsegate investigation, which exposed just how many actors were involved in the meat sourcing process. The more suppliers there are and the more territories they operate in, the more difficult it is to achieve a sufficient level of transparency.
Secondly, the era of supermarket price wars favoured short-term solutions to keeping prices low. Suppliers found themselves under increasing pressure to undercut their rivals and as a result, some began taking greater and greater risks.
Following the scandal, the Elliot Review was published. This report delved into the failings of food supply networks and made a series of recommendations aimed at avoiding a repeat. It also highlighted the ongoing unsustainable practices that had led to horsegate and pointed out that the UK wholesale market is one of the cheapest in Europe.
One of the Elliott Review’s recommendations was for more stringent checks on food to be undertaken by the public sector. It also highlighted the need for retailers to prove that they have carried out due diligence when purchasing from suppliers. The report states that buying at prices well below market level should be enough to set alarm bells ringing.
The Review was welcomed by retailers and suppliers. Many hoped it would set the foundations for the creation of localised, more transparent supply chains and above all, a more sustainable process. There was also some scepticism. The rise of discount supermarkets such as Aldi and Lidl was pointed out as one reason retailers were not going to simply forget about margin.
Four years down the line
Initially, retailers began backing local suppliers. At the time, Chris Mallon, national director of the National Beef Association, told the Guardian: “When horsemeat was found, there was a recognition that providence matters, traceability matters, welfare matters, and that local supply chains are the way to go”. As a consequence, demand and prices for local beef grew.
However, it did not take long for the situation to begin to revert. Beef prices soon began to fall, alongside demand for local cattle. “Once it got out of the public consciousness and out of the papers, [the commitment] became less and less, and then [supermarkets] went, ‘OK, Irish beef – we can use more of that, it’s cheaper. […] People have short memories.,” explained Mallon.
This is a worrying trend, particularly as a UK consumer survey published by Globescan in August 2016 found that 92% of people believe it is the responsibility of food companies to ensure the ethical and sustainable nature of their supply chains. A second scandal would seriously affect the perception and performance of major retailers.
The solution is of course a more strategic and holistic approach to sourcing and supply chain management. Easy words to say but what does that mean in practice? Well there are a number of tangible ways procurement can support:
- Ensure that the market research and insight team are focused on identifying and keeping up to date on high risk origins and supplier incidents and communicating to the sourcing teams
- Review the standard evaluation criteria for high risk ingredient suppliers – potentially build supplier audit questions into RFPs and engage the audit team to front load assessment
- Check all terms and conditions are sufficiently robust around measuring, identifying and resolving quality defects as well as incident management for major breaches
- Make sure that there are clear supply chain transparency terms in the contract, e.g. origin, notification of change in a supplier’s supply chain
- Integrate quality into SRM programmes – make sure suppliers understand that it is a priority
- Don’t forget about the tail. What is the optimal way of ensuring quality for smaller suppliers? Perhaps quality is now a driver for greater consolidation?
- Run a make/buy assessment on supplier auditing – are there better options externally or is it too risky to remain outsourced?
Perhaps the most important thing procurement can do is to make supply chain quality a priority of the whole department. An appropriate KPI or two for the procurement senior leadership team would certainly focus minds…