The emerging use of COIN (Community of Interest) networks to manage compliance

reporting within the supply chain

Nigel Dalton-Brown, iCiX Asia

Presented at the 17th Australian HACCP Conference and 5th SQF International ConferenceAugust 2010

Melbourne, Australia

4.3 Specification and Product Development

4.3.2 Raw Materials4.3.3 Packaging4.3.4 Contract Service Providers4.3.5 Contract Manufacturers4.3.6 Finished Product

4.4 Attaining Food Safety

4.4.5 Incoming Goods and Services4.4.6 Corrective and Preventative Action

4.6 Product Identification, Trace, Withdrawal and Recall

4.6.2 Product Trace4.6.3 Product Withdrawal and Recall

5.3 Water and Ice Supply

5.3.1 Water Supply5.3.3 Ice Supply

6.8 Monitoring Water Microbiology and Quality

6.8.3 Analysis

6.10 Supplier Approval6.10.1 Selecting Approved Suppliers6.10.2 Approved Supplier Program6.10.3 Monitoring Approved Suppliers6.10.4 Register6.10.5 Records

6.13 Allergen Control

6.13.2 Risk Assessment

The SQF Code requires Compliance Communication

Distribution

Supply

How does it work in practice?

1. Distribute Policies and Procedures

2. Collect Compliance Certificates

3. Certificates of Analysis and Audits

4. Corrective Actions

5. Product Withdrawals and Recalls

Buyer sets up relationships with suppliers

Now have multiple copies of policies and procedures across all suppliers

Now need to store and manage multiple certificates from multiple suppliers all with different expiry dates

Also need to collect Certificates of Analysis from Laboratories and testing houses

We also need to carry out mock recalls and Product Withdrawals

Buyer sends copies of policies and procedures to all suppliers

Corrective actions also need to be sent out and actioned

The duplication across the industry

Buyers 7 100 200 100

Policies 5 5 5 5

Suppliers 14 100 100 20

Documents 2 10 10 443

Actual documents 63 1,500 2,000 9,360

Copies generated 686 150,000 300,000 896,000

Waste 91.59% 99.01% 99.34% 98.79%

Across an industry, over 90% of all copies of compliance documents are waste.

What is the cost to an industry in terms of - Time wasted looking for information- Time wasted filing documents- Cost of storage- Missed information

iCiX Global Survey on Compliance Management

• As a knock on effect of drowning in paperwork, 64.2% of respondents said they were not aware or partially aware of all their self regulatory and regulatory responsibilities for managing supplier compliance.

iCiX/IPcubed Global Survey into the perceived importance of compliance management – May 2010

Some open responses from our global survey

A number of respondents expressed concern that Supplier Compliance Management was not getting the attention it deserved.....

• Supplier Compliance is an issue that is at times neglected when minor issue are ignored. However it is the minor issue that eventually contribute to major fallout's

• Totally ignored till it is too late.

• As part of the contract commencement, we request the required docs/certs before the contract is signed. Where we are not so good, is managing the document expiry during the life of the contract.

• My company does not have a central repository for tracking contracts let alone compliance. Each department is allowed to manage or not manage as they deem appropriate

• A real time system would be very helpful but cost is a constant constraint

iCiX/IPcubed Global Survey into the perceived importance of compliance management – May 2010

Approx how many compliance documents do you believe your organisation needs to manage?• 60.4% of organisations are trying to manage over 1,000 compliance documents each with different

expiry dates.

Some research results

What type of system do you use to manage your suppliers compliance?

• 79.6% of organisation have no system or a manual system for managing thousands of compliance documents

As a result, almost 50% of companies responded that they did not remove suppliers for non-compliance because they could not track it well enough.

These organisations are definitely at risk!

28.9% of companies are dealing with over 10,000 documents44.0% of companies are dealing with over 5,000 documents60.4% of companies are dealing with over 1,000 documents

iCiX/IPcubed Global Survey into the perceived importance of compliance management – May 2010

Old way

Number of Suppliers 100 suppliers

Number of Documents 5,000 documents (Certificates, Policies, Insurance, COA, specs)

Effectively hourly cost $43.27

Time Spent

- chasing contact details 25 hrsAssumes 15 mins per supplier

- chasing expired documents

833 hrsAssumes 10 mins per document

- chasing missing docs 375hrsAssumes 30% are missing and 15 mins to chase each doc.

- entering data and filing 250 hoursAssumes 3min per doc

- producing reports 12 hrsAssumes 1 hr per month

Total cost $64,7021,495 hours out of a total of 1,928 standard hours in a year.

It’s expensive

And it’s expensive

In 2003 Food Standards ANZ reported example recall costs

• Major retailer conducting national recall of 17,680 cartons of frozen processed chicken: – press advertisements $51,521– stock costs $75,709– cost of recovery $119,425– labour costs $4,000– other associated costs $7,217 – Total cost of recall $257,872

• FSANZ did not account for consequential loss such as– Loss of revenue– Damage to brand

Data from Food Standards ANZ, 2003

• 64.2% lack coherent standards of what documents actually required

• 79.6% use a manual, labour intensive, paper based system (excel or a database)

• 44% deal with over 1,000 documents

• 50% do not remove suppliers for non-compliance because they could not track it well enough.

• Staff waste hours chasing– missing documents– out of date documents

• Generally– inaccurate– costly– lower quality due to lack of tracking of COPQ– exposes the organisation to risk

The current way of tracking compliance

Distribution

Supply

A day in the life of....“It’s a mind numbing, soul destroying, never ending task”

The four stages of Compliance Management

The UninformedAre we supposed to be tracking supplier compliance?• Why?• Isn’t that the responsibility of our

suppliers?• What should we track anyway?

The Grudgingly CompliantWe track supplier compliance but• it’s very expensive • It’s time consuming

The Risk TakersWe know we should track it but we don’t. • It’s too expensive• It’s too time consuming• We’re not sure what we need to

track• We keep our fingers crossed nothing

goes wrong• We hope the auditor doesn’t notice

all the missing supplier information

The SortedWe are COINing it.• It’s inexpensive• It takes very little time.

The top three reasons for inaction

• Insufficient time

• Inadequate budget

• Insufficient administrative resources

Source: Building an ethical supply chain. Michael Levin, 2008 Integrity Interactive Survey, 2008

To counter the “no time”, 86% of respondents have decided that someone else (i.e. suppliers themselves or an independent third party) should take on the actual day to day grind of driving supplier participation in the purchasers ethics and compliance initiatives

To circumvent the “no budget”, 75% of respondents have decided that suppliers should share or bear the cost of participating in the purchasers ethics and compliance initiatives

The emerging solution has a great deal to do with collaboration

COINING ITCommunity of Interest (COIN) networks

The COIN Approach

The COIN network exists to provide many-to-many connections between trading partners

Each organisation, buyers and suppliers, joins and creates their own secure site

Buyers post all their policies and procedures to their secure site. May also post technical specifications for suppliers to reference.

Only ONE copy is posted on the COIN network. This single copy is then made available to relevant suppliers

In the same way, suppliers post ONE copy of each relevant compliance certificate, PLUS key metadata, e.g. Type, expiry date, alergens/nutritional data, product specifications...

Documents are no longer stored and collected. The key metadata is used to generate reminders and reports in real time.

The COIN – COA’s and AuditsAuditing and certification companies and laboratories are also part of the COIN.Buyers can request audits with the results posted onto the suppliers sites for viewing by the buyer.

The COIN - RecallCustomers also join iCiX.

This allows for recalls, CAR’s, smartforms, etc

Buyers

Third Party AuditorsCertification bodiesLaboratories

Suppliers and subcontractors

CustomersCOINA many to many

Community of Interest

Key Characteristics• Each organisation has it’s own site

• The responsibility changes from

– “Buyer collects” to

– “Supplier publishes and shares”

• Communication paths created with third parties: Auditors, Laboratories, Customers and Regulators

• Documents are loaded only once

• Costs are shared across the industry

Follow on benefits of COIN networks

• Real time reports with high confidence

• Broadcast messages to suppliers

• Product Recall/Withdrawl in hours not days or months

• Corrective action requests with COPQ claims

• PDF online forms for compliance related work

Old way COIN way

Number of Suppliers 100 100

Number of Documents 5,000 5,000

Effectively hourly cost $43.27 $43.27

Time Spent

- chasing contact details 25 hrsAssumes 15 mins per supplier

3 hrsAssume 15 mins per month for new

suppliers with 10% churn

- chasing expired documents

833 hrsAssumes 10 mins per document

12 hrsAssumes 1hr per month

- chasing missing docs 375hrsAssumes 30% are missing and 15

mins to chase each doc.

48 hrsAssume 4 hrs per month. There are

always some who need a phone call

- entering data and filing 250 hoursAssumes 3min per doc

N/A

- producing reports 12 hrsAssumes 1 hr per month

1 hrAssume 5 min per month

Total cost $64,702 $2,748Saving of 95.8%

Cost Savings

The top three reasons for inaction• Insufficient time

• Inadequate budget

• Insufficient administrative resources

Source: Building an ethical supply chain. Michael Levin, 2008 Integrity Interactive Survey, 2008

To counter the “no time”, 86% of respondents have decided that someone else (i.e. suppliers themselves or an independent third party) should take on the actual day to day grind of driving supplier participation in the purchasers ethics and compliance initiatives

To circumvent the “no budget”, 75% of respondents have decided that suppliers should share or bear the cost of participating in the purchasers ethics and compliance initiatives

The emerging solution has a great deal to do with collaboration

With COIN, suppliers carry out the day to day grind of publish documents. COIN also reduces unnecessary copies by approx 99%

Under COIN systems, everyone pays and so the costs are spread.

COIN networks are by definition collaborative

ANALYSIS

Recalls, Withdrawals and CAR’s on iCiX

Recalls and Withdrawals

• 1,426 recalls covering over 111,000 products with over 540,000 items pulled

off shelves

Corrective Action Requests (CARs)

• 22,950 CAR’s from 12 October, 2005

– IV-Critical 748

– III-Major 11,922

– II-Minor 9,920

• Urgent Class 1 recall

• Urgent Class 2 Recall

• Urgent Class 3 Recall

• Market Withdrawal

• Mock recall

• Quality Withdrawal

• Pull-and-Hold

• Voluntary Recall

• Stock Check Recall

• Quality Check Recall

How does recall work on iCiX COIN

• Company enters recall information on the iCiX system.

• User chooses group of customers who need to receive the recall notice.

• User issues a recall by phone, fax and/or e-mail.

– Within a few minutes, the iCiX system calls everyone’s phone with details of the recall and asks them to log onto the iCiX system.

• Users log onto iCiX, check the details and remove items from shelves and storage. Users also confirm the actions taken, the number of items removed and electronically sign their recall action notice.

• Original user tracks progress hourly.

• When response rate drops off, generally after 3 hours, the user sends out a follow up phone call to all recipients who have yet to respond.

• Recall is generally 90% completed within 2.52 hours

Product recalls/withdrawals using iCiX

Start <1hr <2hrs <3hrs <4hrs >4hrs0%

10%

20%

30%

40%

50%

60%

70%

First 500 Second 500 Since then

The “less than 1hr” average response rate has grown from 30.7% to 45.1% and is now 59.2%

Product recalls/withdrawals using iCiX

Start <1hr <2hrs <3hrs <4hrs >4hrs0%

20%

40%

60%

80%

100%

First 500 Second 500 Since then Client A

We have an average completion rate of 77.1% within 2 hrsClient A is achieving 82.1% within 2hrs across 133

recipients

Incorrectly labelled product96.8% recall within 2hrs

Client A recall August 9th, 2010

CAR using iCiX

0 100 200 300 400 500 600 -

50

100

150

200

250

300

350

Critical

Major

Minor

Number of days to complete

Nu

mb

er o

f C

AR

’s

Data taken from iCiX database from 12/10/2005 to 17/08/2010

Severity Number As % Mode 80% complete within

IV-Critical 748 3.3% 7 93 days

III-Major 11,922 52.8% 1 78 days

II-Minor 9,920 43.9% 6 88 days

Total 22,590

CAR using iCiX

Data taken from iCiX database from 12/10/2005 to 17/08/2010

0 10 20 30 40 50 60 70 80 90 -

50

100

150

200

250

300

350

CriticalLogarithmic (Critical)Linear (Crit-ical)MajorExponential (Major)Minor

Number of days to complete

Nu

mb

er o

f C

AR

’s

Severity Completion rate within 30 days

Mode

IV-Critical 41% 7

III-Major 51% 1

II-Minor 50% 6

Key differencesOld Way COINing it

Effort HighOnus is on buyer to collect and manage all compliance information

Low Onus is on supplier to upload compliance information and metadata

Staff Task is laborious. Can be equivalent to at least1xFTE at $90,000 pa

LowSimple to use broadcastsReports in under 3 secs

Challenges No BudgetNo TimeNo resourcesReports out of date

Moves adds and Changes

Costs Staff costs can be $90k paCosts borne by PurchaserTime to generate reportsTime wasted by internal audit

Relatively negligibleOverall costs are shared across the industry

Benefits None Average compliance >95%Less than 5% missing docsLower exposure to risk

Janet, I need a Risk

Management Assessment on

our suppliers

Risk

Management

Assessment.....

The assessment

showed that there was

a high risk of no

management

Framework Software (UK)

It can be differentEfficient

• No more faxed certificates and product specifications

• No more postal based recall system

Accurate• It is real time

• Certificates and reports uploaded by the certification bodies

Measurable• Track recalls by the hour

• Electronically signed compliance reports

Reduces cost• Reduces the administrative workload as suppliers update and

upload their own information, not your staff

• Everyone contributes to the cost of the solution

Increases Quality

• Suppliers on the receiving end of Incident or Corrective Actions realise they have to increase their quality

Protects the Brand

• Pre-delivery barriers are stronger and internal product recalls are faster.

Reduces risk exposure

• You can be sure of having an accurate, up to date supplier compliance reporting solution

Distribution

Supply

Thank YouNigel Dalton-Brown, iCiX Asia

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