Business Insurance, Product Recall

What’s in Your Supply Chain?

supply chain exposures

Authored by industry experts:

Joel Berrian, CPCU, ARM, AIC
Jberrian@big-ins.com
Joe Bermudez, Esq
Jbermudez@big-ins.com

It is a simple question and critical to your success. How would you respond if a customer asked you today, “what’s in your product and is it safe?” If you are unsure about what’s in your supply chain, can you properly answer the question? And, from an advertising and labeling perspective, how do you know if your representations are true? Supply chain exposures are critical to brand and balance sheet.

Supply Chain Exposures Lead to Brand and Balance Sheet Damage

Supply chains have recently devastated multiple brands across the auto, food, and consumer goods industries:

  • Several ice cream brands were damaged when a reliable co-packer delivered Listeria along with the private label products.
  • Ingredient-driven recalls, involving commonly-trusted products such as flour, sunflower seeds, and frozen vegetables, devastated hundreds of national, regional, and local brands and private labels.
  • Eight million holiday cooks were “Scrooged” when their dependable food processors were found to be supplied with defective cutting blades.
  • Smartphone and laptop batteries furnished by trusted supply chain partners caused bodily injuries, property damage, and bad publicity.
  • Outside vendors supplying common parts throughout multiple supply chains harmed the reputation of brands and nameplates as the auto industry suffered another record-setting year of recalls.
  • Malware installed through affected supply chains disclosed secret Santa lists and a lot of other confidential information.

Supply Chain Failures Lead to Mislabeling Events Resulting in Regulatory Scrutiny and Litigation

Last week, Labdoor released a study in which it tested 20 popular protein bars and found that many failed to meet their nutritional label claims and contained undisclosed heavy metals. Certain bars were found to contain less than half of the nutrients claimed, such as protein, calcium, and iron. Other nutrients, such as Vitamin A, were found to be present in much higher percentages than the label listed. And, in regards to heavy metals, one popular bar was found to have exceeded California Prop 65’s daily lead intake for a single serving. If Labdoor’s results are accurate, the affected brands will likely face regulatory scrutiny, potential recalls, and possible Prop 65, class actions, or other advertising liability litigation because of the alleged mislabeling issues. Each of the subject brands must quickly determine if their products meet the representations listed on their respective labels and whether supply chain deficiencies lead to manufacturing, ingredient stock, or other supply chain errors.

The Impact of Your Supply Chain’s Bad Day

As many brands learned last year, supply chain exposures can be costly. When a link in your supply chain suffers a bad day, the entire supply chain, including your brand, customer base, and bottom line, is affected. The lack of traceability and transparency in your supply chain may allow another company’s bad day to lead to regulatory action, a recall, litigation, or worse – the loss of your business.

The failure to know what’s in your supply chain can also have dire consequences. Overheating batteries, defective cutting blades, exploding auto components, and frozen strawberries contaminated with Hepatitis A resulted in numerous injuries and claims, which fueled brand and balance sheet damages, regulatory action, and litigation. Moreover, if you are part of an affected supply chain, whether or not the cause of the error is identified, every company can be held liable for the resulting downstream losses. And, the further back a company sits on any affected supply chain, the larger the tidal wave of incoming claims for associated losses, costs, and lost profits.

The operational and production struggles involved with a supply chain error can be overwhelming. The company surprised and unprepared for a supply chain loss event must immediately divert already marginalized operational, production, management, and financial resources to the event response. Suddenly, your teams are under pressure to perform three jobs: their everyday effort, respond to the loss event, and prepare and collect documents and materials to support the loss claim. Policies and procedures, efficiencies, and team performance are stretched while the company struggles to survive an incident caused by another link in the supply chain.

Finally, the loss of customer and consumer trust is devastating. Customers want to trust you and your product. They want and need to know that the product they use, consume, or sell is safe. It’s why they are your customer. They trust you! Blaming others in your supply chain for a product defect or error will not keep their trust. They expect you to know what’s in your supply chain and to keep them safe. Otherwise, they will find a company that will.

Supply Chain Transparency, Traceability, and Accountability

Borrowing a famous 80’s movie quote, “Learn it. Know it. Live it.” Supply chain transparency, traceability, and accountability will become more than buzz words. These terms will be the foundation of proper supply chain policies and procedures that customers and consumers will require of their trusted companies. The capabilities, technologies, software, and experts are available to ensure your efforts and keep your customers’ trust.

Berrian Collaborates with Clients to Identify Supply Chain Exposures and Provide Solutions

Berrian collaborates with our clients to identify supply chain exposures. Utilizing our gap analysis procedures, we are able to assist our clients with identification of supply chain, operational, contractual, and financial risks in order to recommend effective and efficient solutions. Berrian’s Strategic Partner Network can further assist your efforts to execute solutions in order to protect brand and balance sheet. Utilizing our Strategic Partner Network, which includes, ReposiTrak, insurers, crisis consultants, sanitation experts, banks and private equity, forensic accountants, and law firms, Berrian can provide comprehensive solutions and results. Berrian is the national program manager for a $3 billion premium insurance brokerage firm. Berrian is authorized to bind and issue policies with up to $50 million limits per company and access limits of several hundred million above our facility. Berrian can protect your brand and balance sheet when your supply chain suffers a bad day.

CA License #OE22557

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Joe Bermudez is the Executive Vice President of Berrian Insurance Group. Through his unique experience and background, Joe has first-hand knowledge of the catastrophic effects of product contamination and product recall crisis events. He collaborates closely with our clients to create, develop, and properly structure fiscally-minded solutions. His work ensures that our clients are prepared to respond, survive, and succeed after a product contamination or product recall crisis event.

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