Risks under the radar - Anticipating supply chain risks for the UK food and drink sector

12 April 2020

In the wake of the 2018 CO2 crisis, the Food and Drink Federation commissioned Global Counsel to examine the food and drink manufacturing sector to identify other key risks that, like CO2, that were liable to be underestimated.

This report - Risks Under the Radar – is the result of that study. It should be required reading for all those with responsibility for corporate risk. That includes not only risk managers and non-executive members of company risk committees, but also CEOs, CFOs and the whole leadership team. Investors and employees expect their corporate leaders to have a firm grasp of all the eventualities which their business might encounter. Not to have it is a reason to question management competence.

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For the food and drink industry, managing supply chains is an integral part of doing business. Risk assessment is an important and necessary tool for effective supply chain management. Last year’s CO2 crisis in the UK food and drink sector emphasised the ways in which even a highly sophisticated sector can find itself impacted by unpredicted shortages – risks that have developed ‘under the radar’.

The CO2 model for supply chain risk

For most businesses impacted by the CO2 shortage, CO2 was a commodity that was below the radar but was vital for their work. In analysing the CO2 shortage, the GC report, Falling Flat: lessons from the 2018 CO2 shortage identified five factors which made CO2 particularly vulnerable. These factors were (and are): a lack of easy substitutes, a disconnect between supply and demand, a small number of producers, and difficulty in either transport and storage.

In this report, we develop this risk analysis into a methodology that can be applied to assess products in the UK food and drink sector which may be at similar risk of disruption. This isolates a series of tests that can be applied to supply and demand dynamics, transport and storage logistics and product substitution.

The management of risk is a crucial index to judge a business and its management. In recent years food and drink supply chains have come under greater scrutiny. Changes to the trading environment have revealed deep complexities. For example, ingredients such as raw materials, part-finished goods and finished goods travel across frontiers many times before reaching the shopper or consumer. Or the differential shelf-life of ingredients, and the impact of the manufacturing process on shelf-life. Or the critical role of certain commodities and the fragile nature of their supply chains.

It may not be entirely surprising that these complexities - and their implications for public policy - come as news to policymakers and regulators, though their lack of knowledge and understanding is a source of concern. However, it is clear that a small number of food manufacturers were also very much in the dark about the ways in which their supply chains could be disrupted. Where true that could be a failure of management.

The 2018 shortage of CO2 was a wake-up call to our industry. The scale of reliance on CO2 was underestimated and the extreme fragility of the supply chain delivering CO2 into this market was revealed to be terrifying.

In the wake of the 2018 crisis, the Food and Drink Federation commissioned Global Counsel to examine the food and drink manufacturing sector to identify other key risks that, like CO2, that were liable to be underestimated.

This report - Risks Under the Radar – is the result of that study. It should be required reading for all those with responsibility for corporate risk. That includes not only risk managers and non-executive members of company risk committees, but also CEOs, CFOs and the whole leadership team. Investors and employees expect their corporate leaders to have a firm grasp of all the eventualities which their business might encounter. Not to have it is a reason to question management competence.

I would like to thank the many FDF members companies who contributed to this report and, of course, Global Counsel for shining such a bright light on this often overlooked aspect of business management.

Ian Wright CBE
Chief Executive
Food and Drink Federation (FDF)