Operating Risk Lessons From “Horsemeatgate”
Europe is currently experiencing an issue involving horse DNA and/or meat being present in food products labelled as “beef”. The result has been embarrassment for supermarkets, suppliers and governments.
Eating horsemeat is not harmful to humans (there are
countries where it is considered a delicacy).
The problem stems more from two issues:
1. The
fact that products that state that they are “beef” on the packaging should
reasonably be expected to contain beef AND:
2. That
horsemeat may contain traces of medication that could potentially be harmful to
humans if ingested in large quantities.
From a risk point of view, there’s always the possibility
that a product or service can become “contaminated” with substandard parts,
ingredients or poorly-conceived processes, etc.
The question that I’ve been asking is, what can we learn from the horse
meat episode?
Basel II defined a great framework against which to assess
Operating Risk. There are 7 elements:
1. Internal
Fraud
2. External
Fraud
3. Employment
Practices & Workplace Safety
4. Clients,
Products & Business Practices
5. Execution,
Delivery & Process Management
6. Business
Disruption & System Failure
7. Damage
to Physical Assets
In this case, suppliers and retailers are subject to similar
as well as different risks, and without a full investigation in each case, we
can only guess at what might have happened.
Suppliers would most likely be at risk from:
·
Internal Fraud: someone at the supplier’s
warehouse (and/or slaughterhouse) may be deliberately adding cheaper horsemeat
to beef to increase margins.
·
Employment Practices & Workplace Safety: that
such a fraudulent individual can work in that business may be due to poor
recruitment screening.
·
Clients, Products & Business Practices: the
individual(s) in question may not be properly supervised, or the business owner
may be out for a quick profit.
·
Execution, Delivery & Process Management: results
in a “contaminated” product being delivered for sale.
In turn, the supermarkets buying
the contaminated meat are at risk from:
·
External Fraud: they are purchasing product that
is not what it is claimed to be. If
someone inside the buyer’s offices is also colluding with the supplier, then
the buyer is also at risk from internal
fraud.
·
Clients, Products & Business Practices: they
have inadequate screening processes to ensure that they get what they pay for.
·
Business Disruption &System Failure: stock
must be removed from shelves, supply chains must be investigated. The supermarket will lose money from mot
being able to sell that product.
Other readers may spot other risks. Reputational risk, for example (whilst not
considered operational risk) will be the result of a supermarket being found to
be selling products containing horsemeat.
This could lead to customers going elsewhere and bank credit facilities
being withdrawn, as well as regulatory and legal penalties.
What can be done?
Several responses present themselves (no doubt suppliers and
supermarkets will have looked into them).
·
Thorough screening of employees. Easier said than done in some
cases, especially suppliers located in “high risk” areas where the importance
of compliance with global standards may not necessarily be understood or taken
seriously as long as they “get away with it”.
·
Thorough Due Diligence (investigation) of
suppliers. Checks to include
hiring practices, supervision and spot-checking/inspection protocols.
·
Clearly defined inspection points to ensure that
the integrity of the food and supply chains is preserved. Supermarkets may have to spot check products
more rigorously.
·
Contracts that clearly state the requirements
for the product to be purchased so that there can be no doubt as to the
standards required.
·
Buyers to accept that they may have to pay more
to ensure that their meat supplies are “trustworthy”. As the saying goes, “You get what you pay
for”. In a bid to lower costs, people
may have inadvertently increased other risks.
I have spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy to offer solutions for improving performance, productivity and risk management. I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services. For strategic questions that you should be asking yourself, follow me at @wkm610.
Labels: Crisis Management, Customer Care, Productivity, Risk
posted by William Martin @ 16:33
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