Food businesses, and all businesses for that matter, are taught to prepare for any risk to operations; but what happens when an unavoidable supply chain disturbance occurs? Whether a food organization is a chain or small restaurant, there are multiple suppliers, of which food companies are extremely reliant. Anything standing in the way of keeping the business moving forward can mean more than empty bellies—it can provide a major stigma to a brand. Attention towards risk management tactics by food industry players is a sure way to sustain the life of a business.

One major tactic to offset this risk of being so dependent on suppliers is to consider business interruption insurance. Whether a tomato supplier suffers a drought, or a distributor of bread has damage to a packaging plant due to a storm, it is important to take precaution for any situation. In the case of equipment failure or malfunction, equipment breakdown insurance can cover these mechanical errors and set a business back on track following an unexpected disaster.

Immediately following Hurricane Sandy in the Philadelphia area, widespread power outages made people lose much of their refrigerated food and as millions remained without electricity, families sought restaurants to finally escape their homes and enjoy a meal. In some instances, due to the high volume of people fleeing their hurricane shelters, there were two hour waiting times at diners and pizza shops. The businesses that realized few competitors would open their doors took full advantage of the situation and braced themselves for an onslaught of hungry customers. Along with preparing for risky scenarios through insurance, comes anticipation of these events and capitalizing on the potential to jump in where competition may be unable.

For restaurants unable to regain power in natural disasters, there is spoilage and contamination coverage to help fill the void of lost income and costly damages. According to Craig M. Kwitoski, Vice President and Food Industries Division Manager for SullivanCurtisMonroe, “Spoilage coverage with limits of at least $250,000 is recommended, with the ability to increase limits. Food is worth more at certain times of year than others, so your carrier should be willing to increase your limit during your peak season by about 25 percent.” Kwitoski’s article, “5 Risk Management Tips for the Food Industry” points out that there are about forty-eight million food borne illnesses in the U.S. each year, leading to major sickness and in some circumstances, even death. Since there are such major health complications associated with food safety and/or recalls, appropriate coverage is not an option.

Another area deserving attention is preparation for the risk of cybercrime. To prevent a large scale data breach like some of the instances in the news this past holiday season, computer and internet disruption protection can serve as a safety measure from viruses and financial data kept on file by restaurants digitally.

Protection can also be possible through a force majeure clause in supplier contracts. As mentioned in Source One Management Services’ all-you-need guide to procurement, Managing Indirect Spend, this clause provides an exemption from liability in the case of extraordinary events, such as war or natural disaster. During Hurricane Katrina, many suppliers were unable to get their goods to customers due to inaccessible facilities and declared force majeure to make known that they are unable to honor the terms of their contracts. This process involves clearly defining what an “act of god” entails; however including this portion can help prolong business relationships and fulfill contract arrangements.

Although every business is different, there are a great deal of scenarios where proper preparation can lead to cost efficiency and savings in unpredictable scenarios. Through prepping for the unexpected, food company profits can be secured and the public opinion of a brand can be protected.
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Heather Grossmuller

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