The food and beverage space is arguably the industry most touched by consumers worldwide. From changes in consumer taste to diet trends and so much more, there’s no doubt that the food and beverage landscape is ever-changing, with consumers and health regulators being ever more discerning. This presents a unique challenge for industry professionals. Unlike some other industries, there’s zero tolerance for mistakes. Varying dietary restrictions, allergens and rigid FDA guidelines are just a few of the many reasons a robust risk management system is necessary to put consumer safety at the forefront.
In addition to the protection of the end user, the food and beverage industry works off of especially thin margins, meaning there is little room for error, yet solutions must be simultaneously efficient and cost effective. With inflationary prices eating away at brands’ bottom line, a risk management strategy is key to cutting out human error and minimizing product waste during the production phase.
The risk management process identifies, analyzes and controls risk to protect company initiatives, ensure customer safety and satisfaction, and protect the investment of stakeholders and shareholders. With a comprehensive risk management tool in place, your company can deliver value while protecting its reputation, operational infrastructure, earnings and other vital factors for success.
The 3 Biggest Problems the Food and Beverage Industry Faces
The Risk Level is Exceptionally High
A great amount of pressure is put on producers, manufacturers, distributors, logistics professionals and other key stakeholders to produce products quickly and efficiently without sacrificing quality. However, mistakes are inevitable. With millions of consumers dealing with life-threatening food allergens and other food-related health concerns, protecting customers’ wellbeing is arguably the most critical obstacle that the food and beverage industry faces. Companies must ensure that each stage of production, from hygienic practices to transportation, meets compliance standards and FDA regulations, including any involvement with outside suppliers.
But it doesn’t stop there. Once food and beverage products are ready to go to market, shipped and put on the floor, understanding the unique shelf life of each product and knowing when it’s no longer able to be sold is vital to avoid food poisoning and other potential safety-related risks. Building out technology-backed systems to filter out human error and categorize the varying levels of risk is imperative for key players in the non-perishable space.
The Industry Demands More Sustainable Practices
In recent years, sustainability has been a large part of the conversation across a multitude of industries. The food and beverage industry in particular is responsible for 36% of global emissions alone. Consumers are now demanding that brands incorporate an ESG framework into their best practices, and a solid risk management framework is crucial to do so.
Improving sustainability will require ever more complex IT systems to track the source of all ingredients in the product supply chain, to ensure it comes from certified sources. These IT systems themselves will require significant testing and can introduce further risks if not fully understood or poorly implemented. Using a risk management framework to validate and test these systems is important to ensure that a manufacturer is truly sustainable.
On a larger scale, enterprise risk management assesses any and all risks facing the company as a whole over the next several years and taps into that same approach to identify threats and opportunities that may impact a transition toward more sustainable practices. Risks are often thought of as a purely negative phenomenon, but positive risks are considered opportunities and will allow brands to improve differentiation and potentially increase margins by offering a more sustainable product than their competitors.
Rules and Regulations Are Constantly Changing
Food and beverage products impact the consumer directly, which explains why the level of compliance in the space is exceptionally high and constantly changing. Businesses must be aware of each step of the product development process to ensure it meets varying national and regional statutory regulations. Sanitary practices, labeling, packaging and transportation are just a few places businesses need to ensure compliance.
Failure to pay attention to industry regulations is often the reason for product recalls, shortened product lifespan and overall detriments to brand reputation. This is why it’s vital for food and beverage industry brands to implement an all-encompassing risk management tool to identify new or varying rules and regulations in real time and assess the level of risk associated with each one.
Implementing a Risk Management Strategy in 3 Steps
1. Utilize risk management software to find blind spots
Risk management software helps you identify risks and quantify them in terms of their probability and impact. Software can then use this to calculate the risk exposure and provide reports and dashboards to easily spot “lurking” risks that may be easily overlooked otherwise. For food and beverage industry brands, a risk management tool can also allow you to define mitigations and action items that will reduce the exposure of risk (by reducing the probability and/or impact). The software can then track these action items and mitigations to make sure they are followed up on, with reminders, alerts and notifications.
A good risk management tool will have customizable workflows to support different risk methodologies ability to capture risks and categorize them by type, status, probability, impact and exposure. For the food and beverage industry in particular, it is important to tie in Failure Mode Effect Analysis (FMEA) as well, where you consider the detectability of risks as well as the probability and impact. If something is hard to visually detect, such as a plant-based meat alternative versus actual beef, it makes it even more important to be managed since it could be easily missed.
Risk management can also be applied to the discipline of software engineering and software testing to improve food and beverage production outcomes. In the case of software testing, this is called “risk-based testing” and focuses on using risk analysis techniques to prioritize which tests should be executed to reduce the overall level of risk. There is never enough time to test everything completely, especially in a fast-paced industry like food and beverage, so this technique lets testers focus their efforts where they will have a lasting impact.
2. Identify key stakeholders
After selecting the right risk management tool, it’s vital to understand who should be involved in the process, meaning whom your company holds accountable for food safety, quality assurance and compliance. In reality, anyone who plays even a small part in the manufacturing process shares some responsibility, from your operations team to maintenance crew. Identifying these stakeholders plays a critical role in addressing areas of high risk and communicating them to the right people. This often includes educating company executives and leaders, prioritizing risks that need immediate attention, and more.
3. Prioritize and assess the highest risks
When it comes to implementing a refined risk management strategy, it’s crucial to start with your front-line personnel. Often, software will unveil that the most critical risks are associated with everyday situations like equipment handling, ingredient labeling, health codes and employee hygiene. Confirm that employees are fully trained on safety protocols, health standards and equipment procedures to ensure the proper preparation of your product.
Many risk management tools also identify areas of non-compliance to help brands seamlessly meet industry standards and requirements. It’s vital for food and beverage companies to immediately address any gaps with the help of technology, to avoid larger-scale issues. Not only is risk management technology critical for identifying issues, it’s an excellent way to discover opportunities and be ahead of industry trends by tapping into historical risk data.
When producing products in a fast-paced environment, mistakes are bound to happen. In a constantly evolving industry like food and beverage that deals with life-or-death dietary restrictions and strict FDA regulations, one mistake is too many. To stay compliant, food and beverage companies must employ systems and processes to eliminate, not reduce, the chance of risk.