Total Recall
- 04 February, 2008 12:58
Reader ROI
- How to limit a recall's cost and scope
- What supply chain systems are needed for recall efficiency
- Why the frequency of recalls is increasing
At lunchtime one day last January, Jill Hein, an Iowa mother of eight, took a jar of Peter Pan peanut butter out of her pantry. She opened the lid. Everything seemed fine. No funny odour. No odd colour.
Hein fed the Peter Pan to one son and one daughter. Within hours, they were cramping and vomiting. Hein's three-year-old boy, Bowen, had to be taken to the emergency room the next day. Hein ate some herself two weeks later and was hospitalized for dehydration. And renal failure.
Alone or with jelly, for US consumers peanut butter is as classic as Elvis, who preferred his on white bread, mashed with bananas and fried. Americans eat 700 million pounds of crunchy and creamy each year - enough, the Peanut Advisory Board says, to coat the floor of the Grand Canyon.
Hein never expected a simple peanut butter sandwich to go so wrong.
Neither did ConAgra Foods, the $US12 billion conglomerate that makes Peter Pan.
One of ConAgra's oldest and best-known brands, Peter Pan brought in $US109 million in sales in 2006, says Information Resources, which tracks retail spending. ConAgra also supplies some of Wal-Mart's Great Value house brand and sells peanut butter toppings to companies like Carvel and Sonic, bringing total peanut butter sales to $US147 million in 2006. But when an outbreak of a rare salmonella strain was traced to ConAgra peanut butter, the company would have to try to get it all back.
The Peter Pan recall eventually involved 148 million kilograms of its own and Wal-Mart's peanut butter, plus 99,953 cases of toppings. So far, ConAgra has spent more than $US78 million dealing with an estimated $US1 billion worth of potentially infected product. Its peanut butter sales were down 63 percent in fiscal 2007, the company says.
No one knows how much ConAgra will need to spend to re-establish trust in its product. Hiring Tinker Bell to ask people to clap if they believe in Peter Pan won't fix this.
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Why Recalls Depend on the Supply Chain
Peanut butter isn't ConAgra's only recall trouble, either. The company has had to call back hundreds of kilograms of ground beef in the past few years, and in October ConAgra's Banquet pot pies were recalled when at least 211 people in the US got salmonella poisoning, which the Centres for Disease Control and Prevention links to the pot pies.
But it's not just ConAgra. Recalls are blooming like flowers in spring: Dole's e.coli bagged salads; Metz Fresh's salmonella spinach; REI's faulty children's bikes; Mattel's lead-painted and choking-hazard toys, just to name a few. Globalization accounts for some of the surge. Many companies depend on overseas production, where quality controls are difficult to monitor. And it's not just hard goods like toys from China. Food, too, arrives by container ship from other countries, and sometimes it's contaminated.
But mainly, things go wrong. That's business. That's life.
"One risk every company faces is a recall," says Jane Barrett, an analyst at AMR Research in Boston. So if recalls are inevitable, a CIO must help create a supply chain ready to cope with them, she says, by quickly providing the relevant data to facilitate the process. And a recall conducted under pressure from federal regulators, an angry public and plaintiff's lawyers tests every supply chain management decision a CIO makes.
Best practice calls for companies to be able to track and trace the pedigree and whereabouts of the raw materials used to make their products all the way through the manufacturing process and out to end-point customers, says Steve David, former CIO of Procter & Gamble. But many companies, for many reasons, don't have supply chains that can do that, and that becomes evident in clumsy recalls that go on too long, cost too much, and have the potential to damage corporate and product reputations.
"The ugliness of bad data management really hits you when you have a product recall," David says.
As soon as the decision is made to recall a product, companies should release consistent, correct information to minimize brand damage, says Joe Barkai, a practice director at Manufacturing Insights. "But," he says, "now [traceability] is mainly a manual procedure. Companies don't have it automated."
And that's a problem. ConAgra, for example, had to revise its recall twice as it learned more about how much infected product it could have manufactured and where it might have gone, according to FDA records. The original Valentine's Day 2007 announcement recalled peanut butter made after May 2006. In early March, ConAgra expanded the scope to December 2005 and added toppings made in its Humboldt, Tennessee, plant using peanut butter from its Sylvester, Georgia, plant, where the original contamination had occurred. A week later, ConAgra pushed the date back to October 2004 - 22 months before the first reported illness.
ConAgra declined to comment on the recall. Talking about how its IT and supply chain managers perform recalls, a spokeswoman says, "doesn't align with our priorities". But it's clear the experience revealed problems at ConAgra. Paul Hall, vice president of global food safety, gave a talk at the Food Marketing Institute in April, after the recall was under way. The peanut butter recall taught ConAgra lessons other food manufacturers can use, he noted, including knowing where all of your product is going, such as toppings, and assessing ahead of time overall recall and traceability processes across your supply chain.
Hall himself is at ConAgra as a result of the recall. The company created a global food safety group after the recall and hired him to lead it.
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Lead Paint and Other Horror Stories
When the boss sweats through hostile questions from Wall Street or is sworn in to testify before US Congress, as were both ConAgra senior VP of operations David Colo and Mattel CEO Bob Eckert, he doesn't tap on a keyboard looking for answers from the company's factory floor software. He's got a piece of paper in his hands and a trusted adviser whispering in his ear. He's not working with data; he needs information. IT leaders have to provide it, turning numbers into ideas.
For example, in his testimony, Eckert outlined the history of Mattel's early August recall of those Chinese-made toys containing lead paint.
When product samples failed lead tests performed for a Mattel trading partner in France, Eckert said, Mattel product integrity employees in China then inspected the manufacturing records the company requires its Chinese contractors to keep, showing data such as pigment tests that can be matched to specific containers of paint in use on the factory floor. The containers get stickers with batch number, test number and other information. That data must be kept available for periodic audits.
By assessing data the factory handed over, as well as data it couldn't - such as authorization to use paint from a source not approved by Mattel - Mattel tracked the lead to yellow pigment in paint used on some parts of certain Dora the Explorer and Sesame Street toddler toys.
"Based on what I saw within the first week of this hitting them, they had a pretty solid contingency plan in place," says John Quelch, a business administration professor at Harvard Business School. (Mattel declined a request for an interview.)
CIOs who want to mitigate risk during a recall must move information to where it needs to be: whether it's to state or government regulators or to factory employees and to the public, says Rick Blasgen, former senior vice president of integrated logistics at ConAgra.
Blasgen, who left ConAgra in 2005 to become president and CEO of the Council of Supply Chain Management Professionals, declined to talk specifically about ConAgra. But during his three years there and his five years leading Nabisco's supply chain operations before that, he was part of several recalls. "Particularly if there's product that can hurt someone, you stop what you're doing and focus on that," he says. "You want to be as accurate as possible."
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Wants Yesterday's Data? (You Do)
Accuracy, unfortunately, is not an absolute. Manufacturing systems commonly fail to feed production-line information into corporate data warehouses, where it could be kept to trace bad products or bad ingredients down the road, says Fernando Gonzalez, CIO of Byer California, a $US300 million clothing company. Gonzalez has managed IT at aerospace, medical device and chemical companies before coming to Byer, and has been involved in several recalls, including one of railroad car room deodorizers contaminated by bacteria.
"If you can't tell it was this production line on this shift on these days," Gonzalez says, "then you're stuck with an estimate and doing an expensive recall just to be safe."
Manufacturing execution systems, such as packages from Atos Origin or Manugistics, keep that kind of data. SmartOps offers a supply chain dashboard that managers inside and outside the factory can use to watch manufacturing activity and be alerted to problems, such as failures in quality control.
On the deodorizer recall, Gonzalez's company could trace the offending ingredient back to a supplier in the UK. But that supplier didn't keep records to show whether the raw materials had come in contact with other ingredients. "All we could do was assume that everything from the UK supplier was contaminated," he says, adding that the recall cost "several million dollars".
Sometimes data isn't stored long enough or outside companies hired to manage your warehouses or ship your products don't retain their data as long as you do. Barkai, at Manufacturing Insights, remembers wanting to study one year of supply chain activities at a US auto maker. "I was told I would not be able to receive [the data] because they had limited server space, so they purged it," he says. "Someone decided six months was good enough."
When deciding how long to hold data, factor in the product's life span, as well as any local health department requirements, federal antiterrorism legislation and the potential for litigation if something goes wrong, recommends a data security manager at ConAgra, who asked not to be named. He said data collection during a recall is "an arduous task" at the company, but "not a scramble". (For more tips, see "How to Turn the Tide", end of story.)
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How to Manage a Recall
As Blasgen explains, the central goal in a recall is to figure out how much of the bad product was manufactured and where it went.
To do that, he recommends starting by querying your manufacturing execution system, which keeps data on production lines, product batches, ingredients and conditions inside the factory when products were made. ConAgra, according to its Web site and other corporate communications, uses a mix of Manugistics and SAP software in its factories to schedule and monitor manufacturing runs.
Next, Blasgen says, IT managers should pull shipping records from their transportation management systems. (Kewill Ship and HighJump Software are typical systems.) Search for date, lot or batch codes to figure out which distribution centres or customers were sent the suspected bad product, Blasgen says. Then match that information against data in the distribution centres' and customers' receiving systems.
Those are the steps Blasgen recommends. But most supply chains are not configured to allow a CIO to follow them. "Do you see what's happening?" Blasgen asks. "Multiple systems with their own ways of querying and no magic 'recall button' to press for any of this."
Fixing a Hole Where the Rain Leaked In
ConAgra had streamlined its supply chain with its $US300 million "Project Nucleus" started in 2003 and mostly led by Blasgen. The company closed factories, consolidated distribution centres and standardized on SAP enterprise resource planning software. Blasgen says that any company that reworks its supply chain to be more efficient will make and move products faster. That's good when the products are good and bad when they're not.
Steve David, the former Procter & Gamble CIO, notes the irony. "You take the bad with the good," he says.
In financial statements filed late last year with the Securities and Exchange Commission, ConAgra claims savings of $US275 million so far from its supply chain revamp. That pot has helped offset the $US78 million ConAgra reportedly has spent to date on the recall - costs that include customer notifications, installing and staffing a toll-free hotline, consumer refunds, and collecting and disposing of bad peanut butter.
Another $US15 million to $US20 million went to overhauling the Sylvester factory. ConAgra bought a new peanut roaster, upgraded finished-product testing procedures, built new factory walls and designed other ways to keep peanut dust and raw peanuts away from already roasted peanuts (heating to 74 degrees kills salmonella). It also put up a new roof and installed a new sprinkler system. Why?
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Because the company has a theory as to how salmonella got into Peter Pan in the first place. For an undetermined period of time, broken sprinkler heads dripped inside the Sylvester plant while rainwater seeped through the factory's leaky roof.
The moisture from those sources may have awakened dormant salmonella bacteria in peanut dust or in stocks of raw peanuts. That what ConAgra's Colo told the US Congress back in April. ConAgra's finished-product tests missed the contamination, Colo testified. The company then trucked jars to distribution centres and from there to Wal-Mart, Dollar General, Kroger and other supermarkets, warehouse clubs, food distributors and restaurants across the US.
At last count, the Centres for Disease Control and Prevention reports that 628 people in 47 states got sick.
"When we asked people who were sick: 'Can you take out your jar and tell us the brand and lot code?'," says Anandi Sheth, a CDC doctor who investigated the outbreak, "we repeatedly saw Peter Pan and Great Value and lot code 2111."
That's the data string ConAgra's uses to identify products made in Sylvester. For example, one bad batch was coded "21115055 00 1037A". After the 2111, the 5 indicated 2005, the year made; 055 was Julian date, for the 55th day of the year; 1037 was military time; and A showed which production line within the factory.
How Recalls (and Peanut Butter) Stick
While Peter Pan returned to stores in time for back-to-school shopping in late August, and a new "Miss Georgia Peanut Festival" was crowned on schedule in October at the annual event ConAgra sponsors, the company predicts sales won't return to pre-salmonella heights anytime soon.
ConAgra CFO Andre Hawaux told financial analysts in June that peanut butter "will be a lower profit contributor" next year, even compared with this troubled year's figure. That's "due to relaunch investments and lower [sales] volume planned". he said.
Predictably lawsuits abound. Parents are suing on behalf of their children; a prisoner in upstate New York serving 12 years for manslaughter got sick and he's suing, too. In another suit, a man says his wife, after eating Peter Pan, had to have her gallbladder removed, which meant he subsequently "suffered the loss of spousal and other services commonly provided by his wife".
Sixty-seven cases, including that of Hein, the Iowa mom, were consolidated in July in US District Court in Atlanta, accusing the company of, among other charges, negligence and liability for product defects. ConAgra has denied all charges.
Hein and her children have recovered, but they no longer eat Peter Pan.
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Sidebar: How to Turn the Tide
Five best practices to prepare for product recalls
There's a lot of stuff swimming upstream against the supply chain tide these days. So assume you will get hit by a product recall, and get ready to provide clean, complete data to senior executives working to mitigate the damage.
Here are five ways to prepare for the inevitable:
1. Create an R-team. Designate a recall task force of managers from sales, customer service, manufacturing and IT. Tap people from supplier relations, say, or transportation, as needed. Everyone should be trained in how to query each other's core applications, and how their respective data meshes to tell the story of how a product went bad, the scope of the problem and where it lives inside the supply chain.
2. Study up. Product Recalls Australia has a guide for suppliers on the recall of unsafe consumer products. Read the investigative procedures of federal (ACCC) and state agencies to understand what data inspectors will request during a recall. IT should work with plant managers to figure out how quickly and completely they can supply the data.
3. Practice. Do a mock recall. Along with disasters and terrorist attacks, recalls are one of the risks the IT group at Procter & Gamble practises handling, says Steve David, former P&G CIO. Choose a batch number for a real group of products, he advises. Then, using supplier, manufacturing, distribution and transportation systems, run reports to try to account for what was made, shipped and received. How accurate were those practice reports? Where and when did manual work, such as questioning the plant manager in person or calling the trucking company, become necessary? How long did it all take?
4. Study the masters. Pharmaceutical and aerospace companies can trace the pedigree of their finished products back to the component level. They even know what the temperature in the factory was when the widget or pill was made. They can do this because federal regulations require that level of detail for public safety. Evaluate whether practices and procedures they follow could work for you.
5. Reach out. Use the Web to communicate with consumers, taking some of that burden off the retailers. Mattel, for example, regularly freshens its site with information about ongoing recalls, plus images and video to answer consumer questions. This helps divert at least some consumers from bringing questions and old products to Mattel retailers. "The last thing Mattel wants is to have millions of products handed to retailers, causing a huge logistics problem," says Harvard Business School professor John Quelch. "It's vital for any manufacturer to minimize negative impact and inconvenience to retailers."
- K Nash
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Sidebar: Tainted Goods
If you and your company are part of the global economy, it's essential that you monitor the work product of your suppliers and business partners overseas - early, often and forever
Katherine Walsh
Recalls of tainted products manufactured in China were rife last year, with safety scares in everything from food and pharmaceuticals to the manufacturing of tyres and toothpaste
Warnings about tainted imports from China are ominous: poisonous chemicals found in toothpaste in July. Detained imports of farm-raised Chinese seafood and lead paint in Thomas the Tank Engine toy trains in June. Contaminated pet foods in May. Three product recalls in a month by toy manufacturer Mattel.
Experts say the emergence of these deficient goods highlights the risks associated with today's global supply chains. The far-flung networks of suppliers and transportation systems connecting them to their destinations present a new set of challenges.
Longer supply chains mean more participants, and with that, come bigger risks. "There are more people that companies need to watch and make sure they trust," says Yossi Sheffi, professor of engineering at MIT and an expert in risk analysis and supply chain management. Supplier visibility is a problem for many organizations, according to Mark Hillman, a research director at AMR Research, who says many companies operating globally don't know every player in their supply chain as well as they should. In addition, increased speed means decreased time for product checks. Goods rarely stagnate in warehouses, so there is less opportunity to conduct quality checks, says Sheffi.
Such threats to the supply chain increase the importance of security, which like any other type of risk management, can be a hard sell. Getting it in place can be costly, and ROI is hard to justify, unless, of course, something goes wrong. The key to selling security, experts say, is to emphasize the collateral benefits - the kind of ROI that will be realized regardless of disaster. A 2006 Stanford report, which studied the supply chain behaviours of 11 logistics companies that are considered innovators in supply chain security, outlines some of those benefits: improved efficiency, better customer satisfaction, better inventory management, and reduced cycle and shipping time.
Below are some of the most common supply chain risks according to Sheffi and Hillman, and ways you can manage them through security, resilience and vigilance.
1. Focus on visibility inside your supply chain. Sheffi says you should be able to answer the following question: "Where's my stuff, what ship or truck is it on, and what can I do to redirect it in case something goes wrong in order to get it to the customer who needs it?"
An information system should be able to provide the most up-to-date status of where everything (shipments, products, parts) is, says Sheffi. CIOs should also refuse to contract transportation companies (maritime, rail, trucking, air) that don't give continuous status reports. "They should be able to track something all the way, like a FedEx package," says Sheffi.
Companies also need to watch their products all the way to the shelf. In many cases, counterfeit goods are introduced into the supply chain somewhere along the way, after the manufacturing plant, says Sheffi. This applies particularly to pharmaceutical companies, which are audited and need to meet many compliance regulations. "You need to make sure you can account for every bottle and where it was," says Sheffi. Hillman says traceability systems that are used to track the movement of products through the supply chain should combine both human inspectors and sensor technologies like RFID.
2. Keep an eye out for problems. Your company should appoint a leader or hire a service provider who's responsible for constantly monitoring news feeds to keep abreast of what's going on at supplier companies around the world and the countries where they are located. Companies such as Control Risks Group and iJet are examples of companies that monitor economic and political conditions as well as natural disasters around the world, which risk managers use to keep tabs on working conditions for far-flung employees and business partners overseas.
More specifically: If a particular company in your supply chain starts to have a problem with a product in the same category as your products (food, drugs, manufactured goods), a team should be immediately dispatched to your suppliers overseas to make sure that you don't have the same problem, says Sheffi. "If you find out you do, you need to stop it before it gets to the press and the customer."
3. Know what you're getting into. Hillman says that suppliers typically put their best feet forward during the sourcing process, when buyers are evaluating them carefully. But once you sign the contract, it's hard to verify that your supplier is meeting the same standards every day that it sold you on. Regular visits to suppliers and constant monitoring is ideal, but Hillman says that many companies don't have the resources for surprise audits. Monitoring tools, such as Dun & Bradstreet's Open Ratings service, can help companies scour publicly available documents looking for patterns that might signal potential problems, such as changes to a supplier's quality score or payment terms. Open Ratings also has a feature that allows companies to rate suppliers, in much the same way that customers can rate sellers on eBay, says Hillman.
4. Collaborate with other companies. In some industries, such as the technology business, chances are good that your supplier is also your competitor's supplier. Work with others in your industry to audit certain suppliers and share the results, says Sheffi.
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By Katherine Walsh
Sidebar: When Disasters Strike
Supply chains are your first line of defence. They can also be your Waterloo
Recalls aren't the only events that put supply chains to the test. Disruptions of all sorts can provide insight into how robust and efficient your supply chain is.
Loose supply chains can hamper companies in interpreting information, says David Simchi-Levi, a professor in the civil and environmental engineering department at MIT. For example, lightning struck Philips Semiconductor's factory in New Mexico in 2000, sparking a fire that shut down production of its radio frequency chips, which both Nokia and Ericsson were then using in their mobile phones. Within three days, Nokia's supply chain systems detected a slowdown of incoming parts from Philips and alerted plant managers and then corporate managers, says Simchi-Levi, who studied how the companies managed this disruption.
Within two weeks, Nokia redesigned its phone to use other companies' chips and persuaded Philips to shift production of its chip to other factories.
Ericsson, on the other hand, didn't respond to the problem until four weeks after the fire; in part, says Simchi-Levi, because its manufacturing and supply chain systems weren't programmed to spot risks early enough. Nokia locked up alternate suppliers; Ericsson lost market share that it never regained. By the end of the year, it was out of the phone business.
Supply chain problems, Simchi-Levi concludes, "change markets".
- K Nash