Development of Local Suppliers for International Businesses

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Overcoming the Challenges of Local Sourcing

• Development of Local Suppliers for International
  Businesses
• Peter Bracher Managing Director NSF-CMi Asia
  Pacific
• February 2011

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Why are we sourcing more food from developing
countries?

• International retailers and branded restaurants
  moving into developing countries to provide
  growth
• Lower cost sourcing opportunities
• Human population growth 6.5 9 billion by 2050
• Food sourcing will increasingly move to less
  developed countries and smaller suppliers

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The Business Opportunity ..

• Rapid growth of retail brands international
  brands and investment combined with local
  knowledge from the regional franchisee results in
  fast growth
• KFC from one restaurant in Kuwait to 450 in 74
  cities throughout the Gulf and Middle East
• The franchisee - American Group - has over 1000
  restaurants in 15 countries
• Starbucks 300 restaurants in 8 countries in
  the region
• Alshaya 50 retail brands and over 20 million
  customers
• Costa Coffee 11 growth and the fastest growing
  Coffee shop chain
• Tesco 5 Y on Y growth
• Local suppliers into the rapidly expanding
• hypermarkets businesses can experience
• 1000 growth in the
• early years

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The Challenges for the Branded Retailers .

• Under-developed logistics, import controls, short
  life products, local taste preferences and
  regional legal requirements drive a need for
  local sourcing
• But
• Difficulty in finding local suppliers who can
  meet the required food safety standards
• Local suppliers may lack the capacity to supply
  major retailers
• New entrant businesses do not have the buyer
  power they experience in their home markets
• Local suppliers will have less investment in
  their brands than the international retailers

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Hierarchy of Business Needs

• Investment in safety and ethics becomes essential
  only when the investment in the brand justifies
  the costs

Brand equity tipping point
Ethics
Food Safety
Brand Image
Failed SME Path
Growth
Profit
Survival
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The Challenges for local suppliers.

• Supplying an international brand requires more
  investment and a higher risk than supplying the
  local retail marketplace
• The balance of power shifts to the retailer from
  the supplier
• Higher standards of design, construction, hygiene
  and documentation requires more investment
• Documentation and systems are critical
• Payment terms can be a challenge!

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Relative Standards

• Food Safety Standards by Country

U.K
Thailand
U.S.A
Standards
UAE
Middle East
China
India
Our auditors have found suppliers with comparable
standards to UK and US in all countries within
Asia - but the range and the average varies
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Peanut Butter Supplier South Asia
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Drinks company South Asia
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Street food SE Asia
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Manufacturing .
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Summary of Supplier Audit Finding in Developing
Markets

• Top 5 issues found during food safety audits of
  suppliers in Asia1. Traceability and recall
  systems2. Understanding of hazard analysis3.
  Pest control and proofing4. Water treatment
  system maintenance5. Staff hygiene facilities
• Lack of effective traceability will limit
  effective action when something goes wrong, lack
  of HACCP systems will hamper effective management

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Some solutions to the top problems .

• Smaller suppliers in developing markets should
  try to keep their systems simple and practical
• Traceability choose a large batch size day of
  production rather than each shift rather
• HACCP divide your products into groups that
  have similar characteristics and make sure the
  CCPs are really critical to keep the system
  practical
• Pest control concentrate on keeping them out
  rather than killing them once they are in
• Working towards a recognized international food
  safety certification system will help you to
  manage all of these issues effectively ..

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Some comments from buyers and suppliers .
GFSI is the right direction for food safety in
the international supply chain However, I feel
there is vast room for improvement in rapidly
developing markets like China and the Middle East
We do not buy ingredients out of China and are
hesitant from most of Asia
Most concerned about food safety in China, India,
Middle East
It most likely will come down to an independent
third party audit that can be trusted to ensure
quality and food safety from these foreign markets
We are in the process of implementing SQF and the
requirements are difficult due to the size of our
operation and our vendor options
Intensive "paperwork" requirements pull company
resources off of the production floor and into
the office
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GFSI Food Safety Certification Schemes
New GFSI Global Markets Standards for entry-level
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International Food Safety Certification

• BRC Strong in UK, Asia and US practical,
  comprehensive, comparatively simpler
  documentation
• SQF Strong in US and Australia, good for
  agricultural and primary suppliers, practical and
  comprehensive
• FSSC 22000 new so limited use so far, but good
  for businesses that already have ISO quality
  systems.
• IFS very comprehensive but complex
  documentation and limited availability due to
  auditor qualification process
• Dutch HACCP process based and practical but
  limited take up may be replaced by FSSC 22000
  in the future
• ISO 22000 - Not a GFSI standard. Only covers
  processes but a good entry level standard to lead
  onto full GFSI

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Growth of GFSI Certification in Asia .
Example of BRC Certification numbers 1,170 to
1,438 from 09 to 10
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Supplier Development Roadmap
GFSI Certification
GFSI Global Markets Standard Stage 2
GFSI Global Market Standard Stage 1
Gap Analysis Audit Action Plan
Supplier Development Workshop
Training Programmes
Customers Sales
HACCP Certification
Benefits
Programme Costs
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Thank you .