Analysis: Avoiding supply chain scandals a year on from Horsegate

The horse meat crisis of early 2013 cost retailers millions of pounds and, perhaps more damaging in the long term, dented consumer confidence in the safety of some food products in UK stores. The scandal also shone a spotlight on procurement fraud - once a low-profile crime that is now acknowledged to be costing UK businesses billions.

Hard to detect and with the potential to create huge damage, some view procurement fraud as the price being paid for increasingly long and complicated modern supply chains. But the issue is now so high profile that it cannot be ignored.

“This is about more than horse meat. Horse meat in a way was simply a trigger to reawaken something that has been around for years,” says David Young, a partner at law firm Eversheds.

Young says while procurement fraud can pose a risk in any sector that features a high demand commodity, it is most common in the food sector. “Adulteration for financial gain has been the root cause of the problem,” he says.

Beyond adulteration, or the passing off of one product as another, issues such as the changing of best before dates or unentitled use of quality marks also need to be considered, adds Young.

It is an international problem. In 2008 there were deaths and widespread illness in China as a result of milk contaminated with the chemical melamine, and a variety of scandals big and small have been reported around the globe. They range from eggs claimed to be free range when they were not, to rabbit and mink flesh being sold as mutton.

Government support

Public concern in the UK after the horse meat scandal was such that the Government appointed Professor Chris Elliott to lead a review into the integrity of food supply networks. An interim announcement from the Elliott Review was published in December last year, highlighting that food crime is central to problems in the supply chain.

The report calls for significant changes in the food supply chain, with consumer safety and confidence its key objectives.

Elliott suggests that a zero tolerance approach be taken to even minor infringements of the rules, along with a tighter and more organised approach to intelligence gathering, better laboratory services to allow more efficient checking of products and greater Government support for the food industry.

In particular, Elliott says a dedicated Food Crime Unit should be established within the Food Standards Agency to lead the effort. “Our focus urgently needs to turn to tackling food crime. Because of very limited intelligence it is hard to gauge the scale of this in our food supply chains,” he adds.

Young, and fellow Eversheds partner Richard Matthews, agree that it is hard to work out the scale of the problem. They employ a general rule of thumb that the cases detected are probably only a third of those that are actually taking place. Like an iceberg, two thirds of the problem may be invisible.

The British Retail Consortium (BRC) welcomed the interim announcement from the Elliott Review. “We’re pleased Professor Elliott makes it clear the UK supply chains are among the safest in the world and that he is addressing the specific issue of food crime, an issue that warrants serious attention,” says BRC director-general Helen Dickinson.

This is about more than horse meat. Horse meat was a trigger to reawaken something that has been around for years

David Young, Eversheds

She adds retailers have worked hard to address the issues. “Retailers have reviewed and revised their supply chains, improved the way they audit suppliers, targeted testing and worked with the BRC and industry partners to improve the exchange of intelligence,” she says.

Sainsbury’s was one retailer that escaped direct involvement in the horse meat scandal, but it too has increased its focus on food safety since the incident came to light.

“While none of our products were implicated in the horse meat issue, and we already have one of the most extensive quality control programmes in the industry, we’re not complacent and continue to invest in our testing programmes,” says a company spokeswoman.

“We were one of the first companies to introduce DNA testing over a decade ago and for more than 20 years we’ve been using isotope testing to confirm country of origin. In addition to the millions we have already invested in checking our products we have expanded our company food testing laboratory and enhanced our system of supplier checks and controls.”

The retailer also carries out regular announced and unannounced audits of its suppliers and has a separate programme of analysis conducted through independent accredited laboratories. They visit stores daily to buy products as customers then analyse them to ensure they meet quality and safety standards.

Upping the game

It seems likely that many retailers will follow a similar path to ensure customer confidence in their products. “It is increased due diligence, it is cutting down the number of suppliers, it is requiring additional information from their suppliers as to the origin of different ingredients and a focus on greater transparency and traceability of ingredients throughout the supply chain,” says Matthews.

The days when any organisation could believe procurement fraud could never happen to it are long gone, says Paul Guile, procurement fraud advisor for the Chartered Institute of Purchasing and Supply (CIPS). While expense, international collaboration and Government support will all have an impact on the shape of the future supply chain, retailers will ultimately need to police their own chains more effectively than in the past.

Guile says: “Now is the perfect time to build on the momentum of change and consider other procurement fraud risks that exist.” But if any good is to come from recent scandals, it needs to happen quickly.