Supply Chain Risk Management: A Matter of Life and Death

Sometimes, it takes a tragedy to drag the supply chain into the spotlight.

In spite of our best intentions, things go wrong. Occasionally, things go terribly wrong. Failure in the supply chain can be a matter of life and death.

It is up to supply chain practitioners to prevent such tragedies by building secure and responsive operations. When failures occur, SCM needs to quickly understand the causes and fix the problem. This is an enormous load to bear, and it is vital in the food and beverage industry.

On May 26, 2012, Jensen Farms filed for bankruptcy.

Not familiar with Jensen Farms? You should be.

Writing for Food Safety News,  James Andrews called the Jensen Farms Listeria outbreak “one of the deadliest foodborne illness outbreaks in the history of the United States.”

Jensen Farms, the Colorado cantaloupe grower responsible for last year’s Listeria cantaloupe outbreak, has filed for Chapter 11 bankruptcy.

The bankruptcy filings list a number of wrongful death and personal injury lawsuits filed against the farm that resulted from the outbreak that sickened 146 people and killed 36.

According to Jensen Farms’ bankruptcy lawyer, in an interview with the Denver Post, Jensen’s decision to file for bankruptcy will eventually free up millions of dollars in insurance money and other funds to pay victims.

Attorney and Food Safety News publisher Bill Marler represents 37 clients in the suit, including 12 of those who died.

Now, Marler said, they can move on to lawsuits against companies further down the supply chain: Frontera Produce, the cantaloupe distributor; retailers such as Walmart and Kroger; and Primus Labs, the third-party auditor whose subcontractor, Bio-Food Safety, gave Jensen Farms facilities a ‘superior’ inspection rating just six days before the outbreak began.

“Bankruptcy of Jensen Farms was a necessary prerequisite to allowing families of those who died and those who were injured to seek compensation against Frontera, Primus, suppliers and retailers,” Marler said.

The Jensen Farms Listeria outbreak was one of the deadliest foodborne illness outbreaks in the history of the United States.

Read the bankruptcy filings here.

Businesses in the food and beverage industry are well-advised to pay attention to this case.

Dr. David W.K. Acheson, former Assistant Commissioner for Food Protection with the United States’ FDA, is a partner at Leavitt Partners. His commentary, which appears in the June 10, 2012 edition of Food Safety News, is stunning, and is required reading. He issues a stark warning:

“If you sell adulterated food – or have some role in handling, distributing, or maybe even transporting anywhere along the food chain of that adulterated food, you would be liable to some extent – regardless of the cause or origination of the contamination.”

This, along with many similar cases, highlights the critical importance of employing the highest possible standards of professionalism, ethics, and total quality within the supply chain. The costs of failure are simply too high: sickness, death, bankruptcy, scandal, damage to brand and reputation, and crippling litigation are among those costs.

Dr. Acheson writes:

Last week, Jensen Farms, the grower of the cantaloupe implicated in the Listeria outbreak of 2011, filed for bankruptcy. Prominently listed in the filing were lawsuits associated with the outbreak, from which 146 people were sickened and 36 died. According to the Denver Post, Jensen’s attorney said the filing should free up millions of dollars in insurance and other funds.

Foodborne illness attorney Bill Marler has filed at least 11 lawsuits and is representing almost 40 families or persons said to have been sickened or killed because of the contaminated cantaloupe. According to an article in Marler-published Food Safety News, the bankruptcy filing means that his clients

“can move on to file lawsuits against companies further down the supply chain: Frontera Produce, the cantaloupe distributor; retailers such as Walmart and Kroger; and Primus Labs, the third-party auditor whose subcontractor, Bio-Food Safety, gave Jensen Farms facilities a ‘superior’ inspection rating just six days before the outbreak began.”

“Bankruptcy of Jensen Farms was a necessary prerequisite to allowing families of those who died and those who were injured to seek compensation against Frontera, Primus, suppliers and retailers,” Marler said.
If Mr. Marler is successful in bringing and winning these cases, it is telling us that someone as distant from the farm as the retailer is highly vulnerable to being sued if a farmer’s product makes someone sick and that farm then declares bankruptcy. If you sell adulterated food – or have some role in handling, distributing, or maybe even transporting anywhere along the food chain of that adulterated food, you would be liable to some extent – regardless of the cause or origination of the contamination.

What does this mean to you and the industry?

We are back to that old issue of controlling risk in the supply chain. It is becoming increasingly important  that you spend time assessing and addressing risk across your product line supply chains. As we’ve seen in recent outbreaks, it is not enough to focus on historical incidents – cantaloupe was not known to carry Listeria; raw egg has long been a factor in Salmonella outbreaks, but it was likely the cookie dough flour that caused that 2011E.coli O157:H7 outbreak.

Risk assessment is not only critical for consumer and brand protection, it is a key aspect of the preventive provisions of FSMA. In fact, the pending rule, Hazard Analysis and Risk-Based Preventive Controls (Section 103) focuses directly on this area. As we stated in a previous newsletter, preventive controls should be tied to preventing foodborne illness, not just decreasing product contamination.

(Read more…)

Canadians and Americans are painfully aware of highly-publicized incidents of adulterated products, where the supply chain was unavoidably implicated.

On Aug. 23, 2008 a Maple Leaf Foods plant located in Toronto, Ontario, Canada was confirmed as being involved in the outbreak of the food-borne illness, caused by the bacterium Listeria monocytogenes. A product recall, estimated at the time to cost at least $20 million, was undertaken immediately. From a public relations perspective, the problem was handled extremely well, with CEO Michael McCain stepping up to the plate to manage communications and mitigate the toxic publicity.

Maple Leaf Foods survived, but the further costs incurred to recover lost sales and image were enormous.

North Americans will also remember three other prominent examples of tragic outcomes of supply chain failure, as reviewed in 2008 by CBC News:

1. Johnson & Johnson’s response to the case of tampered Tylenol is widely cited as the gold standard response to a crisis. In 1982 in Chicago, seven people died after taking extra-strength Tylenol that had been laced with cyanide. The company yanked the product off the shelves across the U.S. It would ultimately introduce three-way, tamper-proof pill bottles. Within a year, Tylenol had regained its market share.

2. U.S.-based toy giant Mattel issued an extraordinary apology to China in September 2007 over the recall of millions of Chinese-made toys, taking the blame for design flaws and saying it had recalled more lead-tainted toys than justified. Mattel ordered three high-profile recalls in the summer of 2007 involving more than 21 million Chinese-made toys, including Barbie doll accessories and toy cars due to concerns about lead paint and tiny magnets that could be swallowed.

3. In March 2007, the president of Canadian pet food company Menu Foods apologized to pet owners amid a recall of products found to contain Chinese-supplied wheat gluten laced with poisonous melamine. Company shares dropped following dog and cat deaths. Executives were asked to take pay cuts and the company downsized its workforce after millions of packages of pet food were recalled and dozens of lawsuits were launched. The recall cost Menu Foods an estimated $55 million.

On May 12, 2012, Investipedia.com compiled a list of the “5 Largest Food Recalls in History”. It’s a compelling read. About Menu Foods, in particular, they wrote:

Food destined for pets can also contain adulterants, and that was the case in 2007 when Menu Foods Inc. recalled several brands of dog and cat food that were produced onsite. The issue was the wheat gluten included in these foods that came from a Chinese company. It was eventually determined that the gluten contained melamine, an industrial chemical used in the making of plastics. The identification of the problem took much longer than most human cases of illness because there is no unified reporting system for animal deaths and illnesses. As reports of kidney failure in dogs and cats started to be gathered by veterinary organizations, the FDA stepped in to investigate, ultimately tracing the food to the Menu plant in Canada. Reported animal deaths vary drastically, but the FDA received over 10,000 complaints, and were alerted of at least 14 deaths. In the end, two Chinese companies and their owners were indicted in U.S. federal court over the incident, as well as a U.S.-based wholesaler. Menu Foods Inc. was purchased by Simmons Pet Food in 2010.

(Read more…)

These are lessons to business leaders everywhere. Take all reasonable steps necessary to secure and protect your supply chain. The cost can be forfeiture of your business.

And hire the right people to do the job. Sometimes, unreasonable effort will be required.

Your comments and feedback are welcome.

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