Development of Local Suppliers for International Businesses Peter Bracher – Managing Director NSF-CMi Asia Pacific February 2011 Overcoming the Challenges.

Development of Local Suppliers for International Businesses

Peter Bracher – Managing Director NSF-CMi Asia Pacific

February 2011

Overcoming the Challenges of Local Sourcing

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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

Survival

Profit

Growth

Brand Image

Food Safety

EthicsBrand equity tipping point

Failed SME Path

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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.S.A

India

U.K

China

Thailand

Middle East

Sta

ndard

s

Our auditors have found suppliers with comparable standards to UK and US in all countries within Asia - but the range and the average varies

UAE

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Peanut Butter Supplier – South Asia

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Drinks company – South Asia

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 Asia:

1. 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 CCP’s 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 …..

Some comments from buyers and suppliers ….

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Intensive "paperwork" requirements pull company resources off of the production

floor and into the office

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 marketsWe are in the process of implementing

SQF and the requirements are difficult due to the size of our operation and our vendor

options

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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 ….

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Example of BRC Certification numbers; 1,170 to 1,438 from ‘09 to ‘10

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Supplier Development Roadmap

Customer’s Sales

Programme Costs

Benefits

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Thank you …….