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Article Excerpt
INTRODUCTION
After a 5-month investigation, on March 15, 2007, the U.S. Food & Drug Administration (FDA) announced that "contaminants (were found) in vegetable proteins imported into the United States from China and were used as ingredients in pet food" (USFDA 2007). Over the subsequent months, hundreds of pet food brands were recalled. These events were followed by an avalanche of reports in the popular press about problems with other Chinese-made products (Byron 2007; Story 2007; Welch, Woellert and Carey 2007). In fact, of the 152 consumer products recalled by the United States Product Safety Commission since January 2007, 104 were made in China. Chinese manufacturers have been associated with twice as many recalls in the United States in 2007 as organizations of any other country, including the U.S. (Farah 2007). Of the product categories experiencing significant recalls, food may hit closest to home for the greatest number of consumers. FDA reports of carcinogens, pesticides, bacteria, drugs and heavy metals in imported foods have served as a wake-up call to the American populace about the quality risks of global sourcing, especially from China.
These recent incidents have raised public awareness of the ubiquity of Chinese products in the global food supply and have caused concern about the business and supply management practices that have allowed tainted food to get so close to end customers. Consumer advocate groups and, more recently, food makers themselves are increasingly demanding regulations for food safety (Zhang 2007). Suppliers, manufacturers, distributors, wholesalers and retailers are piling on inspections. We believe these tactics alone will be neither sustainable nor effective in the long run. Instead, we turn to the familiar and fundamental principle of designing quality into processes, which requires a deep understanding of the root causes for process failures (Giffi, Roth and Seal 1990).
In this paper, we offer a framework for supply chain quality management that will provide a strategic focus to the tremendous energies that are now being brought to bear on this major problem. While our framework is applicable to any supply chain, it crisply acknowledges that best practices for managing global end-to-end supply processes for "hard" products have subtle but important differences from those for perishable consumables like food. Our framework proposes the "six Ts" of supply chain quality management: (1) traceability, (2) transparency, (3) testability, (4) time, (5) trust and (6) training. Traceability is the ability to track a product's flow or attributes throughout the production process and supply chain (Golan, Krissoff, Kuchler, Calvin, Nelson and Price 2004). Transparency is the lack of secrecy, or the systematic provision of product and processing information under informal and formal agreements (CDA 1992). Testability refers to the ability to detect an attribute of a product. Time refers to the duration of specific processes. Trust is the expectation that parties will make a good-faith effort to behave in accordance with any commitments, be honest in negotiations and not take advantage of the other even when an opportunity to do so is available (Hosmer 1995). Training is the systematic process of developing knowledge, skills and attitudes regarding international standards of quality, food safety and best practices. These six Ts are critical factors associated with product (food) quality (see Figure 1).
Our six Ts blueprint for quality improvement can be interpreted in terms of the familiar Define-Measure-Analyze-Improve-Control (DMAIC) approach of Six Sigma. For an organization trying to improve the quality of the products it sources and delivers through a global supply chain, the six Ts serve as both necessary inputs and desired outputs in each DMAIC phase. In the Define phase, the project team must be formed, the project deliverables defined and the team trained. Traceability, or being able to "map" the supply chain, is an input to this phase and training is an outcome of this phase. By training we mean ensuring both that the supply chain managers are trained on the practices required to ensure high-quality product and that the global suppliers are trained on those same expectations and standards.
In the Measure phase, the team identifies the key metrics relating to quality, implements plans to collect them, and obtains a baseline. In this phase, testability must be an outcome, as tests must be implemented to allow measurement at each necessary point in the supply chain.
In the Analyze phase, the team gathers data and attempts to determine the root causes of any gaps in performance. Transparency of procedures and norms is necessary to begin this process. By means of the root cause analysis, buyer-supplier trust can be improved throughout the supply chain.
The Improve phase may involve improvement in many metrics, including in the areas of traceability of inputs, testability of products and transparency of processes across the supply chain. One specific area of focus in the Improve phase should be "time." For food products, a reduction in time in the supply chain will reduce the risk of many types of quality failures, such as those related to perishability.
Finally, in the Control phase, any improvements made in time, testability, transparency and/or traceability can be shared system-wide through training. In this phase, continuous process improvement and discussion help to increase the trust level throughout the global supply chain. In the sections below, we examine a number of factors that have an impact on the application of the six Ts framework to global food supply chain issues.
The remainder of the paper is organized as follows. We begin by outlining the evolution of the supply chains that provide food to American consumers, and we subsequently detail China's increasing role in the global food industry. We then present recent FDA data regarding inspection of Chinese food exports and identify special complications for the six Ts that arise from Chinese food suppliers' cultural norms and business conditions. Following this, we develop a research agenda for food supply chain quality management that is organized around the six Ts. Finally, we conclude with a summary and discussion of the implications of the six Ts for the global food supply.
TRENDS IN MODERN FOOD SUPPLY CHAINS
The structure of today's typical food supply chain is shown in Figure 2. A farmer/grower starts with farm supplies--machinery, seeds, agro-chemicals and/or other inputs--and then sells either directly to a food processor or indirectly through storage and marketing via a cooperative group or consolidator. Growers do have the potential to reach down the chain to distributors, retailers and even consumers (e.g., farmers' markets and restaurants). Other players in the chain can also extend their reach. Large manufacturers typically have a direct channel to retailers. The exact supply chain path for a particular food product depends on the product characteristics, size and market power of the supply chain members (Maloni and Brown 2006). Traceability and transparency in food supply chains, however, are especially affected by three major forces: (1) globalization, (2) consolidation and (3) commoditization.
Globalization
Before the last several decades, the traditional U.S. food supply chain was predominantly regionally localized and consisted of mostly small-to-medium size independent and local businesses. These stores were supplied by regional producers and manufacturers of agricultural products. The farms that fed into these supply chains were a mix of medium-scale family farms with some specialization. The logistics system was relatively inefficient and fragmented, with primarily regional and local reach (Saltmarsh and Wakeland 2004).
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Pressures for cost reduction throughout the food supply chain, driven in part by the increasing competition in the retail grocery arena (Hayward and Nolan 1990), have contributed to the rise of what is now considered the mainstream food supply chain model. The model moved beyond regional to include global participation for importing (to reduce costs) and exporting (to generate revenues) in all levels of the chain. The typical buying organizations are large, vertically integrated multinationals with huge product diversity and a focus on low cost and efficiency. More than 80 percent of food sales are delivered via this model, and participating organizations consist of large publicly traded or privately held businesses with both national and global reach (Saltmarsh and Wakeman 2004).
Consolidation
With only small margins attainable in most links of the food supply chain, pressures to reduce cost and maximize profits have led to consolidation across many food categories and all levels of the food supply chain. The field is now dominated by a few large businesses, such as Wal-Mart, Carrefour, ConAgra, Archer Daniels Midland (ADM), Cargill and Unilever. The scale of some of these organizations is exemplified by Nestle, which employs over 253,000 people in more than 500 factories worldwide (Hamprecht, Corsten, Noll and Meier 2005). The large producers of basic foodstuffs (e.g., Cargill and ADM), which control much of the production and processing of grain and corn products, continue to expand downstream in the supply chain, while leading grocery retailers integrate vertically up the chain and horizontally across markets. The consolidation and resulting economies of scale have concentrated control of the markets in the hands of a few and have erected barriers against the entry of potential competitors.
Commoditization
Food products are either value added or commodities. Value-added foods are those for which the specific nature of the food is of central importance to customers. Vegetables, certain meats and seafood typically fall into this category, as do "credence attribute" foods. Credence attributes are content or process attributes that are difficult for the consumer to detect during or after food consumption (e.g., calcium-added, country-of-origin, organic or preferred processing techniques). For these types of products, value has traditionally been derived from close relationships with the supply chain members and the presence of trust, transparency and traceability (e.g., assurances of expected quality through close identification of producer, branding or certification). In most cases, these food items enjoy higher margins throughout the supply chain because consumers are willing to pay more to ensure certain quality, growing or production practices (Saltmarsh and Wakeman 2004).
In contrast, commodity foods are traded as undifferentiated goods, generally in large quantities. Food is aggregated from multiple global sources, standardized and traded on spot markets based largely on price alone. Transactions often take place over long distances; and standardization reduces the need for communication and knowledge about the specific product characteristics. This facilitates trade, but at the expense of traceability. Here, the main criteria for supply managers are high levels of standardization, high volumes and low prices.
Consolidation has led to commoditization of the food industry, including some of the traditional, value-added foodstuffs. This is due in part to the influence of the large-scale food processors and retailers that have stepped into this area in pursuit of the consumers who are willing to pay high premiums for products certified as organic, nongenetically modified organisms (GMO), fair trade, etc. (Howard 2007). Take, for example, Dean Foods, the largest U.S. commercial milk bottler. Since acquiring the Horizon organic milk business, Dean now controls 55 percent of U.S. organic milk production, and the transparency of the values-oriented practices has degraded (Kastel 2006). This shift from the value added to the commodity model can also be seen in Wal-Mart's strategy to grow organics in China (Gogoi 2007). Owing to these trends, the more localized food supply chains, which are generally more diverse and involve a far larger number of independent businesses, have been reduced to a niche, and their infrastructure has been eroding at high rates (Jarosz 2000).
Global Sourcing of Ingredients
Given the three forces--globalization, consolidation and commoditization--two of perhaps the most revealing findings for consumers arising from the food recalls are the depth of global sourcing...
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