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Pundit’s Mailbag — Aligned Supply Chains And Statistical Quirks

Jim Prevor’s Perishable Pundit, December 12, 2006

There are few people we enjoy hearing more from than Alan Siger of Consumers Produce Co. of Pittsburgh. Alan kicked off our coverage of the spinach/E. coli crisis with his letter pointing out the food safety challenges of fresh-cuts. He contributed to our conversation again, when Alan pointed out that the Centers for Disease Control and Prevention had come to the same conclusion about fresh-cuts, and we pointed this out in a piece we entitled CDC’s Aha! Moment.

Now that E. coli 0157:H7 is back upon us in the form of Taco Bell mess, Alan is back as well. This time responding to our piece Pundit’s Mailbag — Trapping Stations And Food Safety Costs and, more generally to the Pundit’s position that a more closely aligned supply chain is the most likely route to better food safety:

I hate to throw a fly in your ointment, but it looks as though even your “Utopian” perfectly aligned supply chain scenario has holes in it. Although we do not know officially what caused the recent E coli out break involving Taco Bell, preliminary findings point to green onions that were grown, processed and packed for Taco Bell. Both the grower and the processor, among industry leaders in their respective fields, have stated that the green onions from planting through processing were produced specifically for Taco Bell. That is about as perfectly aligned a supply chain as you can get, and still there are problems.

We keep hearing how one weak link, one fly-by-night operator, can damage an entire segment of the industry’s reputation by cutting corners. But that’s not what’s happening. In both the spinach and it now it appears the Taco Bell green onion outbreaks, the firms involved have impeccable reputations and what was thought to be state-of-the-art food safety programs.

I am not a food safety expert, and I know that it is not possible to have a 100% safe product, but we have to do a better job insuring that the product we sell does not harm our Customers.

Alan’s letter makes three points:

1) That whatever the statistics may show in regard to how safe produce is per million servings produced, we simply won’t have an industry if we are constantly in the news for hospitalizing or killing our customers. So we have to do better.

2) That the problem is not actually the “weak links” of rogue producers and processors that don’t follow proper standards. It is highly respected operators that have been implicated in the recent outbreaks.

3) That the aligned supply chain, spoken of eloquently by letter-writers to the Pundit here and here, seems no guarantee of food safety either.

We once had published a letter arguing that the population could become inured by constant recalls. This is an arguable position, but it only makes sense if you have recall after recall and nobody gets sick!

People getting sick, or worse, is going to destroy the industry. We don’t know how widely or if bad press on certain products will wind up affecting consumer perception of all produce, but constant outbreaks in which people get ill must be stopped, both for ethical reasons and also because this is the only way to proceed if we are to have a successful industry.

The issue of where the food safety problem lies is a tricky one. It is indeed, as Alan states, the case that in both the spinach and the green onion situations, it was large, reputable firms that we know to be involved. This contrasts with both concern often expressed at industry meetings that small “chop houses” around the country might be a food safety problem and the constant reiteration by our association leadership that the industry must raise the level of its lowest performers.

As Tom Stenzel, President and CEO of United Fresh Produce Association, has said: “Our entire industry is dependent upon our weakest link — our lowest common denominator.” Although Tom’s point is correct, these two situations seem to indicate that we have to raise the performance of our best performers.

Also, the constant repetition that foodservice does a better job of food safety than retail and that an aligned supply chain can produce better results starts to seem questionable when you have a large foodservice chain with an aligned supply chain involved with such a problem.

THE TYRANNY OF LARGE NUMBERS

Yet we shouldn’t jump to conclusions. We may be experiencing nothing more than the tyranny of large numbers.

To start with, assuming the green onion/Taco Bell connection is confirmed, the tying together of an outbreak of this type with a large chain restaurant is more likely than tying it to a single store operator.

Why? The way the source of the outbreak is identified is through consumer questionnaires. They survey the general consumer population and find out that, say, 5% of the population has eaten at a Taco Bell within the last 72 hours. Then they survey the sick people and find that 90% remember eating at a Taco Bell within the past 72 hours. That is the only way they know to go look at Taco Bell.

Now, imagine the exact same problem with scallions but with a distributor that sold to a random sampling of foodservice operators. Or more specifically, a processor that sold to wholesalers, who sold to purveyors, who sold to a large variety of independent restaurants.

Now people start coming in sick. You give them the survey. At best you might get is a slightly disproportionate number showing that people ate out at restaurants. But there is no statistically useful data that would lead investigators to go to, say, Joe’s Diner, just because one sick person reported eating there within the past three days.

So, somewhat ironically, we can expect large chains to both have the best food safety programs and report a disproportionately large share of outbreaks. Both because large chains account for large shares of the business and because of a statistical quirk that means we will disproportionately find foodservice outbreaks among large chains.

The aligned supply chain will sometimes be a victim of this same statistical quirk. It is large players who tend to have an aligned supply chain. Large players are the ones the surveys can find and so they are the ones who get caught. Therefore companies with aligned supply chains are both likely to have safer product and more likely to get caught up in foodborne illness outbreaks.

Finally, an aligned supply chain only works to further food safety if that value is what is in alignment on the chain.

In the letter that motivated Alan to write, Jack Vessey of Vessey & Company clearly detailed the kinds of extra costs that tough food safety practices can entail.

Retailers generally carry everything, but in foodservice there is a real risk that items will be removed from a menu. Considering the enormous drive at Taco Bell to offer cheap food, it seems unlikely that vendors feel 100% comfortable suggesting that the cause of safe food would be served by, say, to use Jack Vessey’s example, putting in rodent traps every 50 feet and charging 15 cents a case more.

Maybe the buyers would go to someone else who doesn’t think that is necessary or, maybe, they would drop the item from the menu altogether if it can’t be procured at a price that lets the chain meet its retail price goals.

An aligned supply chain is very difficult to achieve because the key alignment is not simply knowing where things are grown and under what conditions. The key alignment is that, like in a strong marriage, divorce is not an option. Because only then can growers and processors really speak frankly about what will make things safer.

Truly aligned supply chains are easy to talk about and quite rare.

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