Risk Management – Food

Expert Profile

Section 1: Current Approach to Risk Management

1.1. How does your industry frame risk management?

In the past, it was driven more by the insurance companies and wasn’t taken very seriously. If the company had a bad experience in their portfolio, it was taken a little bit more seriously, but there was always the feeling this risk won’t impact us. And especially some of the mid-size to larger companies really got a little arrogant that, “Well, we have two factories. We could always ship it to the other factory” or “We have two suppliers so the supply chain should be fine.”

But the last couple of years, particularly COVID, risk management changed a lot. And it’s still obviously a work in process. We realized maybe we can’t get all of our employees at once. We have a high incidence of sickness and we thought the trucking companies always have plenty of drivers. Well, all that changed, and the supply chain portion is really under the microscope right now and it is getting serious attention.

Within the last 10 years insurance companies started saying business risk insurance is going to be more expensive because the appropriate precautions were not being taken. So, either you bear more of the responsibility or you’re going to bear more of the cost.

These costs are going up faster and for no apparent reason to the industry. Because we’ve had a good record so why are these costs going up at this rate? But, to me that was the driver for change.

1.1.1. How have you approached uncertainty in the last 3 years?

They’ve certainly realized uncertainty is more real and it can affect us. Whereas we thought it wouldn’t affect us long term, in the past. Whole factories have been shut down because of COVID. Certainly, smaller suppliers have been shut down because they couldn’t supply.

Now we’re seeing effects in transport. So, everybody’s out looking for drivers to carry loads. Some of the big companies are not honoring contracts because they can’t, they don’t have the drivers. And they’re trying to spread around what they have. They’re trying to not just honor the large customers and forget about the smaller ones.

1.2. How do you detect the internal and external risks to your company?

Certainly, one is, you reach the danger points in inventory. Supply chain people always want to keep inventories lean, but now they get to the point where they are going to be in danger of missing orders. And everybody’s been focusing on lean inventory so much the last few years, that there’s not as much fattening inventory. So, you hit a warning point, but you hit a danger point almost right after it. And all of a sudden, you’re having the discussions that two day lead time has now got to be two weeks.

COVID was obviously a game changer because it didn’t allow us time to react, the way things have in the past. You know, we always thought the big risk would be a union interruption, which might be short lived probably. We would handle that by having, some degree of redundancy in the plants.

But now multiple plants and multiple regions have been to taken off of supply capability on short notice. There wasn’t the vibrancy built into the supply chain and the manufacturing plan to really absorb this level of disruption. And that’s why lead times have just gone crazy. We have storage shelves empty in industries where you’d never expected to see an empty storage shelf.

1.3. What are the best practices for determining risk appetite?

We’re still using the old parameters. Lead time in terms of service, stock levels in terms of warehouse ability, online percentages in the warehouse. And obviously we’re finding our online percentages going down. Almost routinely, we’re finding the cause is one of two things, supply of raw materials or availability of labor.

We’re coming out of the first reason for availability of labor, that was people being sick from the pandemic. So that appears to mostly be passing now. But now for some reason which the sociologists are still trying to figure out, why are people not coming back to work in a lot of industries? Even in some industries where wages have been risen and people still aren’t coming back to work. And the questions haven’t been answered yet because we’re having a lot of problems getting people back to work, in jobs that we used to be able to fill even when employment was quite high.

1.4. What does your decision-making process for responding to risks look like?

Two years ago, risk was almost an asterisk in capital investments. You know, it’d be a nice think to say, and by adding this capacity, we’re also going to lower our risk. And generally it got some good nods.

Today, I’m finding it’s a major driver in capital investments. The question is now asked, to what degree is this investment going to help us reduce our risk? Because the question’s being asked, should we invest differently? Should we invest in a different part of manufacturing or supply chain? Some companies are going through analysis. Should we be buying our own trucks and training our own drivers so that we’re not dependent? And for local driving in particular, we’re seeing a lot of that.

Supply chain has an increased presence at these risk management discussions than before. Now they’re expected to go so far as to test suppliers and challenge them. What’s their risk management plan? And we’re seeing this even with suppliers we are highly comfortable with. We’re challenging them and saying, “We want to see your plan and we want to try and understand if you are challenged, where are we going to fit in your supply matrix?” And, of course the, the answer is typically, “Well, you’re a very important customer of ours. So you are at the top of the supply hierarchy.” But it gets to a point where there might not even be enough capacity for all of your top customers so how are is the supplier going to divide it?

Manufacturing used to be at the front of the line for risk management investment, but now the other divisions are gaining a voice. And there’s a challenge for capital money, and even operating funds, but capital money especially. Quality wants to buy more equipment for their laboratories. Supply chain wants to buy trucks and even build warehouse space because they’re not comfortable yet with their warehouse, some of their 3PLs in some cases.

Section 2: Building Blocks for Dynamic Risk Management

2.1. What are your ambitions for the future of risk management?

We have to discover the new normal and work through the new expectations. Right now, everybody’s in a panic boat and the expectation is to just get the products, material and other necessities. They’re not sitting and analyzing.

I think we’re seeing some hoarding by companies in the marketplace because of the uncertainty. And hoarding is a tough thing to figure out is. Is it real? Because the issue could go away in very short term. In the United States, people were hoarding paper towels and it went away, all of a sudden, Costco’s just had aisles full of toilet paper.

In the food industry, what are the things we really have to hold, in more supply? Remember, a lot of our raw materials have limited shelf lives. So what do we have to hold in short supply, we cannot just increase our stock of raw materials, so we’ve reduced our risk but now we’ve threatened our inventory because it expired.

So, everybody’s got to go back and do their part of the analysis over again. And some of the simple answers are coming right back, such as building more refrigerators to extend shelf life. So, we could chill the materials that will last six months at room temperature, but it’ll last a year refrigerators. However, right now you can’t get refrigerated panels because everybody’s building refrigerators because they want to hold raw materials longer.

So, it’s too easy an answer. So must get to the new norm and understand, maybe we do have to build those refrigerators, but I can’t believe we have to build as many as we can. What’s going to happen? Of course, the bubble’s going to burst. Some of these 3PLs are building a lot of refrigerated space. And six months; a year from now; two years from now, some of them are going to be good out of business because there’s just too much capacity.

2.2. How will technology play a role in contributing to your risk strategy?

I see a lot of potential for technology in the literature. It will give a better degree of inventory tracking, a better degree of shelf life tracking, overall doing the basics better which will undoubtedly help. But I think right now people are relying more on the old ways what they know. And they’re putting off looking into these options, and when things settle down then we can figure it out.

There are options for automation. The answer is certainly to make us more aware of risk sooner. But, usually by then you’re already on the downhill slide. But how could we know sooner to start at least reacting sooner, start having the discussions with customers and suppliers, prioritize. So, it’s speed of data.

The traditional warehouse barcode suppliers, even they’re seeing an upsurge in business because people need to have more of a live inventory than what they were used to. But now they’re starting to have that discussion. It’ll help you react a little bit better and certainly give you a notification days sooner than before. That’s going to really be the game changer in terms of automation.

2.3. Why is it important to transform your culture in creating dynamic risk management?

Part of it is now to get the employee buy-in about why risk management is important. That down to the level of employees, it was never understood. Risk management, in my experience, in the midsize companies and even in Kerry which was a big company. It was not talked about much outside the conference rooms.

Now, it’s part of the dynamic, I’m seeing this in several places that it’s talked about. It’s very basic to the shop floor because they’re experiencing the impact of poor risk management. They’ve lived through the toilet paper shortage. And it’s being used to discuss with them work patterns; work shifts. That’s been a big challenge in a tight labor market now, trying to access the good quality people, to do training of new hires if you want to spread out the workload a little bit. So, it’s becoming much more of a discussion point. HR is more in that discussion as a result of, how do we spread the experienced workforce to train the new workers which we’re finding in a lot of places is a different type of worker.

Change is already happening. Other executives, like me, are up there in age. And I’ve always been involved in risk management, but a lot of the more senior executives will say, “This too will pass.” I remember back to when we had to wait on gas lines in the 1970s, and when the market just straightened itself out, gas lines went away. Gas got more expensive but it went away. So this too shall pass. Senior executives at this stage of their careers are not ready for big changes like this. Nobody’s vocalizing things like that, but you could see the attitude. I think it is an opportunity for a lot of the younger workforce, which is a little bit more resilient, to come to the surface in some areas, and we’re seeing that already to explain the risk and really address the risk.

2.4. What are the barriers to rapid decision making in your industry?

It’s just the lead time to make some of those decisions on capital investments because we have to do it ourselves. And the boardroom is scratching their head as well in some cases, in the smaller companies as they have limited funding. We have to prioritize. We’ve always had to do this but now the timeframes of that decision making have been really compressed. So that’s certainly one. I think here in the United States, the small and medium sized companies are seeing the challenges the banks have gone through and seemingly are coming out of.

So, maybe capital is finally really going to ease up a little bit. I mean, interest rates have been low for years. But, because the banks have been forced to keep so much on their balance sheet, lending was still pretty tough. I think, very recently, we’re seeing that start to loosen up. But we do depend on government support. What can the government do for us? And it’s a tough one because the government is the one leading the lockdown discussions. And as soon as the worker gets sick, they shut down the entire office. And the government doesn’t have the capability, a year later still, to work remotely to the degree it does. So that’s been a big barrier.