Liability Insurance Contributing Columnist


Reducing Supply-Chain Risk Through Teamwork & Internal Communication

Jim Brunker,CPCU, CIC, AIC
Partner, Senior Account Executive Property & Casualty
M3 Insurance

November 10, 2017


Good internal communication is a hallmark of a successfully run company. How many dairy processors realize the role that good internal communications play in supply-chain management?

When adding or changing suppliers, does your company have a formal communication process for relaying information between the quality assurance team, procurement and upper management? If not, an out-of-spec product could be the result, leading to a costly corrective action, FDA 483 warning letter, a product recall or worse.
Food safety plans are required under FSMA and have always been vital, but internal communication, recordkeeping and teamwork are just as critical to consistently producing safe, quality products – they also reduce insurance risk

When advising a food processor on insurance options, a broker must emphasize the importance food safety plans play, not only in regulatory compliance but in the processor’s ability to obtain the best value from their insurance coverage. Insurance underwriters review food safety plans in hopes of insuring best-in-class processors while avoiding those with poor controls. Underwriters are particularly interested in reviewing food safety plans in order to gauge a processor’s ability to mitigate product liability and product recall issues related to suppliers.

In order for a food safety plan to be effective, strong internal communication must exist. A formal communication, approval and documentation process which incorporates the quality assurance, procurement and management teams is considered best practice in the industry. And, best case scenario, the food safety team conducts supplier verification activities before a new ingredient is used or new supplier is hired.

If a supplier scores as a “significant risk” by the Quality Assurance (QA) team, this information should be communicated to top management as well as your insurance broker. Doing so will enable your organization to financially control and mitigate risks by utilizing a wide range of insurance and non-insurance risk transfer methods.

Brokers may advise top management to require a significant risk supplier to do the following:
• Name your organization as a named insured on their insurance
• Purchase increased product liability limits or purchase product recall insurance
• Purchase manufacturers errors and omissions coverage, rejected government shipments coverage or temperature errors and omissions coverage
• Include high-risk suppliers, customers and service contractors in your mock recall exercises

Brokers specializing in food processing can even accompany their clients on external visits to the high-risk suppliers.
How can a food processor systematically and accurately identify the suppliers that pose ‘significant risk’? There are tools available that help.

I recently attended the Dairy Supplier Food Safety Management workshop held by the Innovation Center for US Dairy in Chicago. In my role as an advisor to my clients in the food and agribusiness industry, it is key that I maintain a solid understanding of the latest tools that can help them protect their business operations. Although I am already a PCQI trained individual, workshops such as this deepen my understanding of which supply chain risks are the most challenging for dairy processors.

At the workshop, we received hands-on training of DMI’s ready-to-use resources including their risk assessment calculator and food safety guidance document. Both of these tools are available in the Innovation Center for US Dairy’s Supply Chain Toolkit.

The purpose of the toolkit is straight-forward. According to Chad Galer, Director of Food Safety for the Innovation Center for US Dairy, the tools are designed “to help the industry identify, quantify, and mitigate risks from their supply chain.”

Risk Assessment Calculator

Using the Risk Assessment Calculator, we practiced how to assess supplier risk and develop a supply chain program that identified and closed food safety gaps. The calculator works well for as few as two suppliers or hundreds. During the exercises, we explored the myriad of risks posed to a dairy operation beyond those presented by ingredients entering a facility. The assessment exercises included reviewing the risks posed by suppliers such as:
• Service Contractors, including pest control, uniform services and welders
• Transportation Suppliers
• Storage & Warehouse locations
• Contract Manufacturers
• Customers

This Excel tool provides a documented system of scoring supplier risks against a “minimum” and “better practice” criteria. Being risk-based, the tool links to hazard analysis and who controls the hazard.

For example, a product that has potential to carry a pathogen which will receive a kill step once in your facility will receive a low risk rating. As will a customer downstream who provides written assurance that they control the hazard. Depending on the risk potential throughout the supply chain, a supplier is assessed a nominal, moderate or significant risk and scored accordingly.

Food Safety Guidance Document
The Food Safety Guidance Document covers 23 areas, from allergen management to traceability. This risk mitigation document goes well beyond basic compliance and includes a minimum to best practices spectrum of suggested actions that a processor could establish for a supplier.

If a processor utilizes the calculator tool and the guidance document, the result is a highly organized food safety document which captures, in writing, reasons why corrective actions may or may not be required to control the risks posed by a particular supplier. As an added benefit, these tools also can mitigate your product liability and recall insurance exposures of high-risk suppliers – if properly communicated to your broker.

Ultimately, it is up to the dairy processor to be on top of the food safety risks. By working together, your organization’s upper management, food safety teams and insurance broker can close the gaps caused by supply-chain risks, making your company better and your products safer. JB


1Reference Connect, IRMI Pollution Coverage Issues 11/01/16

For more information, call (800) 272-2443 or visit


Jim Brunker

James Brunker CPCU, CIC, is a Partner and Senior Account Executive at M3 Insurance. M3 Insurance offers insight, advice and strategies to help clients manage risk, purchase insurance and provide employee benefits.
For more information, call (800) 272-2443, jim.brunker@m3ins.comor visit

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