Preventing recalls before they happen is the ideal scenario. However, given the diversity and complexity of the modern supply chain the reality is retailers need a proactive supply chain risk mitigation strategy to maintain consumer trust.

A series of highly publicized food product issues, such as the recall this past summer by General Mills of flour suspected of E. coli contamination, have given rise to widespread industry discussions about how best to mitigate the risk of bringing products to the shelf that may have compromised source ingredients.

Preventing recalls before they happen is the ideal scenario but given the diversity and complexity of the modern supply chain this ideal is difficult to reach. The situation at General Mills, as with other recent recalls, involved material that entered the supply chain sometime before the formulation of the final product. To minimize the possibility of this occurring retailers must be able to quantify, qualify, and anticipate the risks in its supply chain by evaluating each source ingredient across its catalog and the prevalence of that ingredient (and its supplier of course).

Global Consumer Expectations

In 2016 Oracle Retail surveyed 13,267 consumers across 12 countries and uncovered some interesting sentiments such as the fact that consumers ranked quality assurance as their highest priority when shopping in front of value and product availability (The Power and the Money, 2016). In fact, over 42% of the global respondents demand to know where the products were sourced from. These consumers believe the information should be pervasive on the website, in store and on products. They even expect associates to have the information on hand in the call center. At least 29% of the respondents indicated more information would drive their loyalty to the retailer.

The Risk and Reward of Private Label

While ingredient sourcing is an important capability for all retailers, it is particularly important for retailers selling products under their own private label. Increasingly retailers – from traditional grocery to mass merchants, specialty beauty and beyond, have made significant investments to develop, stock and sell their own brands. This is not limited to low-cost generic brands we tend to think of first. These are brands that consumers prefer over, particularly millennials, over name brands. If you get it right, the economics of private label, both in terms of growth potential and margin, brand affinity and market share are compelling.

But if the reward factor is high, so is the risk; a private label positions you not just as a seller of goods, but a manufacturer. A product recall, particularly one involving food safety, would be perceived as a breach of your brand promise, potentially leading to a major and long-term drop-off in customer loyalty. Industry statistics show that once the loyalty of a consumer is lost, it can take up to five years for that customer to come back to the store.

So while an adulterated or defective ingredient from a supplier is not technically the retailer’s fault, it is the retailer’s responsibility to ensure that products are as risk-free as possible. A retailer who is proactive about monitoring the supply chain will minimize the number of products they recall, and thus reduce the cost incurred in the event of a recall.

Auditing Suppliers

We recommend that retailers consider the implementation of a compliance lifecycle solution like Oracle Retail Brand Compliance Management Cloud Service (ORBC). This gives retailers the ability to set up performance and quality criteria for every product component, to audit each component for compliance to these criteria as it enters the supply chain, and to make informed decisions at each step in the process as to whether it might be preferable to consider an alternative source for a particular ingredient or component.

To make these decisions quickly and accurately, ORBC incorporates business intelligence capabilities, such as a dashboard and a scorecard engine, which allows retailers to build a visual indication of compliance against any chosen criteria. These criteria can be shared with the supplier of each ingredient, who then files a report into the system for each new shipment entering the supply chain which informs the final score. Based on the final score, ORBC advises on the next appropriate action. If all is well, the recommended action might be to simply accept the shipment. Or it might recommend an audit. It might recommend performing 10 audits a year on a particular supplier—or it might advise that this supplier represents too high a risk for this particular retail to take on.

The average retailer now handles more than 10,000 active products from 2,000 production sites globally. Particularly given the growth of retail private labeling, retailers, far more than the world’s legislative or regulatory bodies, drive product safety and quality. Transparent, proactive management of the supply chain is no longer optional; it is a vital capability.

Retailers need to drive change to satisfy multiple factors, all of which rely upon absolute transparency into what they are selling. In our latest Beyond Retail report, Chain Reaction: Why the Supply Chain Must Change we examine consumer expectations for product transparency and brand communications and provide insight into how retailers can proactively manage the inherent risk of a global supply chain.

Interested in continuing the conversation?

Join Paul Woodward, Senior Director, Oracle Retail Supply Chain Solutions, at the GFSI Conference in Houston for an interactive discussion on building consumer trust through collaboration with your global supply chain network on Thursday, March 2, at 8:30am in room #372.

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