April 30, 2010

Presented By:Date:

jadian enterprises, inc

April 30, 2010

A Risk-Based Systems Approach to Food Safety

Jerry Norris, President/CEO

“It is no use saying ‘We are doing our best.’ You have got to

succeed in doing what is

necessary.” —Churchill


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Agenda

Current Environment

Overview of Risk-based System

Real-Life Example

Next Steps


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Current Environment

“I’m not happy unless

I’m uncomfortable.”

—Jay Chiat


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Current Environment: Industry

Recent recalls costing millions upon millions & food-borne illness costs estimated at $157 billion annually

Purchase patterns impacted regardless of brand or involvement – limited recalls impact the whole market

Must demonstrate ability to identify and address food safety threats

Menu Foods - $45 M Cadbury - $40 M

Maple Leaf Foods - $20 M

Castleberry - $38 M

Kraft (Peter Pan) - $66 M

PCA - $1 billion estimated

57% of US consumers have stopped eating a particular food, temporarily or permanently, as a result of a recent recall

93% say food manufacturers, growers or suppliers should be held legally responsible for fatalities due to tainted product

61% of U.S. adults feel U.S. food recall process only fair or poor


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Simple Exercise

Read the paragraph and count the “f”s

Finished files are the result of years of scientific study combined with the experience of many years of experts

04/19/23 www.jadian.com 8


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Simple Exercise

How many did you get?

Finished files are the result of years of scientific study combined with the experience of many years of experts



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Current Environment: Government

Food Safety Systems (FDA/USDA) are under tremendous scrutiny from the general public and Congress

Strong consideration for single Government oversight body – even being supported by Industry

Result: Push for 3rd party certification

“If it works, it’s

obsolete.”

—Marshall McLuhan


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Why Continual Improvement?

Quality is exceeding expectations

Expectations are formed by Commitments, Performance, and Competition – they tend to rise

Therefore current performance must rise with expectations

Performance

Expectations

Competitive Advantage

Competitive Disadvantage

Commitments Competition Performance


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Current Environment: Compliance

Multiple food safety schemes / standards– Tug-of-war among large food companies and industry

associations

Questions regarding the validity / value of 3rd party audits

U.S. government (and some industry) movement toward risk-based inspections

– FDA Food Safety Modernization Act of 2009 (S. 510) requires “allocation of food inspection resources according to the risk profile of the facility and other important criteria”


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The Evolution of Accredited Certifications*

Adoption of Internationally-recognized Standard

*Very unlikely to occur without intense regulatory and/or industry pressure

“Typically in a mortgage company or financial services company, ‘risk management’ is an overhead, not a

revenue center. We’ve become more than that.

We pay for ourselves, and we actually make money for the

company.”

—Frank Eichorn, Director of Credit Risk Data Management Group, Wells Fargo Home Mortgage (Source: sas.com)


Compliance & Risk Management Spending

Compliance & risk management spending tends to fall into one of three categories:


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Evolving Approach: Risk Based Product Performance Standards based on risk categories

– Risk based on: Product type, Micro, Chemical & Physical Risk, and Suppliers

– Manage supply chain by risk and performance levels

Natural next step: auditing for system elements/design auditing for system application/effectiveness

– Management System assesses the design and ensures the correct mechanisms are in place for reactive and proactive measures

– Inspections, sampling and testing, complaint management and recall management assesses the effectiveness of the implementation of the management system

– Risk based approach allows for proper prioritization of resources

Emerging Food Safety Issues*

Top Risks Anticipated in 2020

1.Bacterial Risks / Microbiological Safety

2.Supply Chain

3.Contaminants / Physical & Chemical

*JohnsonDiversy survey of top executives


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Overview of Risk-Based System


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Supply Chain Risk Management Objectives

Identify, assess, and quantify potential supply chain risk…

… in order to minimize risk exposure and reduce negative impact of supplier failures

Across Risk Categories Across Supply ChainsAcross Product Categories

“If things seem under control, you’re just not

going fast enough.”

Mario Andretti


Simple View of Risk Calculation

Risk = Impact of Failure x Probability of Failure Occurring Risk algorithm incorporates any desired inputs, weighted by importance Collapses any number of inputs down to a single dimension that can be

managed e.g. High, Medium, Low risk suppliers or A, B, C, D level suppliers Based on company’s tolerance for risk / risk thresholds

Supplier Risk-Extremely High

-High-Medium

-Low

Impact/Consequence: Capacity to Cause Problems

Negligible Catastrophic

Probability: Likelihood Problem will Occur

Unlikely Frequent

Configurable Algorithm


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Multiple Data Points

• Management systems help to assure the integrity of the data

• Central system for a holistic view helps to assure all factors are considered– In most cases this

data will be collected in multiple systems

• The calculations must be flexible so that they can be changed as knowledge is gained

“There’s no use trying,” said Alice. “One can’t believe impossible things.” “I

daresay you haven’t had much practice,” said the Queen. “When I was your age, I always did it for half an hour a day. Why, sometimes I’ve believed as many as six impossible

things before breakfast.”

Lewis Carroll


Leverage Data From Established Systems

QualityQuality

EH&SEH&S

OtherOther

ExecutivesExecutives

Suppliers/Staff

Suppliers/Staff

AnalyticsAnalytics

Central System

Consolidate & Analyze

• Escalated Risk Alerts• Online Dashboards• Performance Scorecards• Reports

• Automated Risk Alerts• Corrective Actions• Risk Mitigation Plans

• Best-in-Breed Analytics• More detailed analysis• Further reporting

• Audits & Nonconformances• Samples & Test Results• SPC data• Complaints

• Physical Security• Environmental/Emissions• Safety Assessments• Social Responsibility

• Security• Financial• ERP System data• Health inspections

Automatically pull required inputs from multiple, existing solutions via integrations

Risk updates dynamically as inputs are processed - to provide current, fluid assessment


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Risk Management Tools To Help Reduce Overall Costs

To start to reduce the cost of compliance, the company must begin investing more in prevention.

Compliance cost increases in the short-term because the failures are still occurring while prevention and appraisal efforts increase.

The risk model enables companies to direct resources to the most likely failure points.

After the system becomes effective and compliance failures, the appraisal and preventive measures can be reduced.

They should never be eliminated because an effective system requires a constant injection of prevention, energy, and performance evaluation.


Overall View of Supply Chain Risk Suppliers can be plotted to view relative risk across the entire supply chain. The bubbles

represent the relative number of suppliers within each risk category Alerts and online dashboards can identify suppliers moving into higher risk categories Companies can focus their audit dollars where they count the most

Extremely High Risk

High Risk

Medium Risk

Low Risk

Probability of Occurrence


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Risk Drives Proper Actions

Extremely High Risk

Frequent review meetings30 day Audit Frequency

Pull 25 Samples / test extensivelyConsider supplier probation

High Risk

90 day Audit FrequencyPull 10 Samples

Test samples extensively

Medium Risk


Less extensive sample testing

High Risk



Medium Risk



Low Risk

Mitigation planAnnual Audits

Medium Risk



Low Risk

Mitigation planAnnual Audits

Low Risk

Accept 2nd or 3rd party auditsAccept certifications

Probability of Occurrence UnlikelyFrequent

Cata

stro

phic

Neg

ligib

le

Actions driven based on compliance level or risk factor … overall and/or by category For example, quality mitigation actions might include additional audits, more extensive sampling

and testing procedures, executive meetings and training


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Creating a Risk Based Approach

Put a management system in place as part of the process, not complete but evolving at least

Create the risk model that is right for you

Collect the right data and get it into a centralized system

Generate activities based on the risk levels

Save money and become more effective


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Real Life Example

“The problem is never how to get new, innovative thoughts into your mind, but how to

get the old ones out.”Dee Hock



Commitment Model

Start

Hear about it

Understand it

Observe it

Support it

Practice it

Natural Behavior

Building commitment is a process, we must all under go


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International Food Safety Agency Example

Imagine this example… Supply chain is being monitored as defined previously In this example 180K food items, 240K premises, $4 Billion worth of food


Operational-Sites/Suppliers-Applications

-Programs/Schemes

-Audit Scheduling and Assignments

- Sampling / Test Results

-Certificates-Complaints

Field Audits-Downloadable

assignments, checklists, addendums

-Supports multiple types of handhelds

-Any type of scheme or checklist

-Data synchronization

Supply Chain Mgt-Risk Assessments

- Audit Results- Noncompliances-Corrective Actions

Communication-Web Portal

-Automated Alerts-Online Dashboards-Integrations with External Systems

-Approved Supplier Lists

Knowledge Management

-Reporting / KPIs-Benchmarking

-Training-Consulting

Food Safety System Elements

Assure the integrity of the system - Audit Reviews, Internal Audits and Quality Assurance


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Summary

“If you don’t like change, you’re

going to like irrelevance even

less.” —General Eric Shinseki, Chief of Staff, U. S. Army


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Summary

To create an effective food safety system, limited resources must be optimized

– Risk bases approach– Preventive measures

• Supported with effective management systems

• Investment in the right technologies to make sure the system is transparent and effective

Documents

April 30, 2010