April 30, 2010

1. A Risk-Based Systems Approach to Food Safety April 30, 2010 Jerry Norris, President/CEO

2. “It is no use saying ‘We are doing our best.’ You have got to succeed in doing what is necessary.”—Churchill

3. Agenda • Current Environment • Overview of Risk-based System • Real-Life Example • Next Steps

4. Current Environment

5. “I’m not happy unless I’m uncomfortable.”—Jay Chiat

6. Current Environment: Industry • 57% of US consumers have stopped eating a particular food, temporarily or permanently, as a result of a recent recall • 93% say food manufacturers, growers or suppliers should be held legally responsible for fatalities due to tainted product • 61% of U.S. adults feel U.S. food recall process only fair or poor • Recent recalls costing millions upon millions & food-borne illness costs estimated at $157 billion annually • Purchase patterns impacted regardless of brand or involvement – limited recalls impact the whole market • Must demonstrate ability to identify and address food safety threats

7. Simple Exercise • Read the paragraph and count the “f”s

8. Finished files are the result of years of scientific study combined with the experience of many years of experts www.jadian.com

9. Simple Exercise • How many did you get?

10. Finished files are the result of years of scientific study combined with the experience of many years of experts www.jadian.com

11. Current Environment: Government • Food Safety Systems (FDA/USDA) are under tremendous scrutiny from the general public and Congress • Strong consideration for single Government oversight body – even being supported by Industry • Result: Push for 3rd party certification

12. “If it works, it’s obsolete.”—Marshall McLuhan

13. Why Continual Improvement? Competitive Disadvantage Expectations Competitive Advantage Performance Commitments Competition Performance Quality is exceeding expectations Expectations are formed by Commitments, Performance, and Competition – they tend to rise Therefore current performance must rise with expectations

14. Current Environment: Compliance • Multiple food safety schemes / standards • Tug-of-war among large food companies and industry associations • Questions regarding the validity / value of 3rd party audits • U.S. government (and some industry) movement toward risk-based inspections • FDA Food Safety Modernization Act of 2009 (S. 510) requires “allocation of food inspection resources according to the risk profile of the facility and other important criteria”

15. The Evolution of Accredited Certifications* Adoption of Internationally-recognized Standard *Very unlikely to occur without intense regulatory and/or industry pressure

16. “Typically in a mortgage company or financial services company, ‘risk management’ is an overhead, not a revenue center. We’ve become more than that.We pay for ourselves, and we actually make money for the company.”—Frank Eichorn, Director of Credit Risk Data Management Group, Wells Fargo Home Mortgage (Source: sas.com)

17. Compliance & Risk Management Spending The goal cannot be to eliminate the cost of compliance, but to optimize it • Compliance & risk management spending tends to fall into one of three categories:

18. Evolving Approach: Risk Based • Product Performance Standards based on risk categories • Risk based on: Product type, Micro, Chemical & Physical Risk, and Suppliers • Manage supply chain by risk and performance levels • Natural next step: auditing for system elements/design  auditing for system application/effectiveness • Management System assesses the design and ensures the correct mechanisms are in place for reactive and proactive measures • Inspections, sampling and testing, complaint management and recall management assesses the effectiveness of the implementation of the management system • Risk based approach allows for proper prioritization of resources Emerging Food Safety Issues* Top Risks Anticipated in 2020 Bacterial Risks / Microbiological Safety Supply Chain Contaminants / Physical & Chemical *JohnsonDiversy survey of top executives

19. Overview of Risk-Based System

20. Supply Chain Risk Management Objectives • Identify, assess, and quantifypotential supply chain risk… • … in order to minimize risk exposure and reduce negative impact of supplier failures Across Product Categories Across Risk Categories Across Supply Chains

21. “If things seem under control, you’re just not going fast enough.”Mario Andretti

22. Simple View of Risk Calculation • Risk = Impact of Failure x Probability of Failure Occurring • Risk algorithm incorporates any desired inputs, weighted by importance • Collapses any number of inputs down to a single dimension that can be managed e.g. High, Medium, Low risk suppliers or A, B, C, D level suppliers • Based on company’s tolerance for risk / risk thresholds Impact/Consequence: Capacity to Cause Problems Supplier Risk -Extremely High -High -Medium -Low Negligible Catastrophic Configurable Algorithm Probability: Likelihood Problem will Occur Unlikely Frequent

23. Multiple Data Points • Management systems help to assure the integrity of the data • Central system for a holistic view helps to assure all factors are considered • In most cases this data will be collected in multiple systems • The calculations must be flexible so that they can be changed as knowledge is gained

24. “There’s no use trying,” said Alice. “One can’t believe impossible things.” “I daresay you haven’t had much practice,” said the Queen. “When I was your age, I always did it for half an hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”Lewis Carroll

25. Leverage Data From Established Systems • Automatically pull required inputs from multiple, existing solutions via integrations • Risk updates dynamically as inputs are processed - to provide current, fluid assessment • Audits & Nonconformances • Samples & Test Results • SPC data • Complaints • Escalated Risk Alerts • Online Dashboards • Performance Scorecards • Reports Quality Executives Central System Consolidate & Analyze • Physical Security • Environmental/Emissions • Safety Assessments • Social Responsibility • Automated Risk Alerts • Corrective Actions • Risk Mitigation Plans EH&S Suppliers/Staff • Security • Financial • ERP System data • Health inspections • Best-in-Breed Analytics • More detailed analysis • Further reporting Other Analytics

26. Risk Management Tools To Help Reduce Overall Costs To start to reduce the cost of compliance, the company must begin investing more in prevention. Compliance cost increases in the short-term because the failures are still occurring while prevention and appraisal efforts increase. The risk model enables companies to direct resources to the most likely failure points. After the system becomes effective and compliance failures, the appraisal and preventive measures can be reduced. They should never be eliminated because an effective system requires a constant injection of prevention, energy, and performance evaluation.

27. Overall View of Supply Chain Risk • Suppliers can be plotted to view relative risk across the entire supply chain. The bubbles represent the relative number of suppliers within each risk category • Alerts and online dashboards can identify suppliers moving into higher risk categories • Companies can focus their audit dollars where they count the most Probability of Occurrence Severity of Problem

28. Risk Drives Proper Actions • Actions driven based on compliance level or risk factor … overall and/or by category • For example, quality mitigation actions might include additional audits, more extensive sampling and testing procedures, executive meetings and training Probability of Occurrence Frequent Unlikely • Extremely High Risk • Frequent review meetings • 30 day Audit Frequency • Pull 25 Samples / test extensively • Consider supplier probation • High Risk • 90 day Audit Frequency • Pull 10 Samples • Test samples extensively • Medium Risk • 180 day Audit Frequency • Pull 5 Samples • Less extensive sample testing Impact / Consequence of Problem Catastrophic • High Risk • 60 day Audit Frequency • Pull 15 Samples • Test samples extensively • Medium Risk • 45 day Audit Frequency • Pull 5 Samples • Test samples extensively • Low Risk • Mitigation plan • Annual Audits • Medium Risk • 90 day Audit Frequency • Pull 10 Samples • Test samples extensively • Low Risk • Mitigation plan • Annual Audits • Low Risk • Accept 2nd or 3rd party audits • Accept certifications Negligible

29. Creating a Risk Based Approach • Put a management system in place as part of the process, not complete but evolving at least • Create the risk model that is right for you • Collect the right data and get it into a centralized system • Generate activities based on the risk levels • Save money and become more effective

30. Real Life Example

31. “The problem is never how to get new, innovative thoughts into your mind, but how to get the old ones out.”Dee Hock

32. Commitment Model Building commitment is a process, we must all under go 11/19/2014 www.jadian.com 32

33. International Food Safety Agency Example Imagine this example… • Supply chain is being monitored as defined previously • In this example 180K food items, 240K premises, $4 Billion worth of food

34. Food Safety System Elements Supply Chain Mgt -Risk Assessments - Audit Results - Noncompliances -Corrective Actions • Knowledge Management • Reporting / KPIs • Benchmarking • Training • Consulting • Operational • -Sites/Suppliers • -Applications • -Programs/Schemes • -Audit Scheduling and Assignments • - Sampling / Test Results • Certificates • Complaints Communication -Web Portal -Automated Alerts -Online Dashboards -Integrations with External Systems -Approved Supplier Lists • Field Audits • Downloadable assignments, checklists, addendums • Supports multiple types of handhelds • Any type of scheme or checklist • Data synchronization Assure the integrity of the system - Audit Reviews, Internal Audits and Quality Assurance

35. Summary

36. “If you don’t like change, you’re going to like irrelevance even less.”—General Eric Shinseki, Chief of Staff, U. S. Army

37. Summary • To create an effective food safety system, limited resources must be optimized • Risk bases approach • Preventive measures • Supported with effective management systems • Investment in the right technologies to make sure the system is transparent and effective