Risk Rap

Rapping About a World at Risk

Kashi’s Kismet

salmonella

salmonella

Last night as I was researching the Peanut Corporation of America’s (PCA) peanut paste recall, my wife received an urgent telephone call from our local supermarket. The caller informed us that the Kashi products we purchased were subject to recall. I was a bit astonished by the call for several reasons. The first being notified of the unhappy news that a premium brand product that I so enjoy has the potential to kill me or make me very ill due to Salmonella bacteria. It goes without saying that it was a most bracing experience. I was also a bit bemused about the ability of my local supermarket to track me down to inform me that my favorite breakfast cereal might endanger me. At the very least letting me know that this is no breakfast for champions.

Though this is a positive example of how consumer product data mining and customer tracking business intelligence is employed; the realization that your breakfast eating habits are tucked away in some giant relational database remains a bit unnerving. But that is a different subject for another day.

After checking with the Kashi website the cereal products I purchased were not listed on the recall list. Kashi website lists granola bars and cookies as its only products that are subject to recall. As a committed consumer of the brand I remember when I purchased the cereal a free granola bar was included in the package for product promotional purposes. When I returned home I eagerly consumed the free granola bars. I am happy to report that I have not fallen ill. I’ll have to go back to the supermarket and ask if the non contaminated cereal I still have in my cupboard remains subject to the recall. An interesting product bundling dilemma.

The mechanics and execution of the product recall seems to be effective. The sophisticated use of data mining technologies and the ability of the manufacturer to contact a retail consumer through a digital trail that includes customer loyalty cards, credit card, and product bar codes is pretty impressive.

What is of concern about Kashi and other processed food manufacturers that are dependent on an expanded and complex supply chain is their failure to uncover the risk associated with the supplier. In this case PCA. It is alleged that PCA had a leaky roof that played a role in contaminating the peanut paste. A simple walk through of the facility may have uncovered this risk factor. Certainly if a company fails to perform the most basic facilities maintenance functions (like a leaky roof) odds are that the company has other issues and businesses functions that it is not addressing. This is the cockroach theory. Where you see one there are usually many others. A simple walk through may have revealed that all was not kosher at PCA.

Supply chain risk is becoming more prominent as manufacturers and service providers aggregate components and ingredients from numerous providers to deliver a finished product or service to end user consumers. The implementation of a sound practice program that addresses risk associated with supply chains is a key ingredient for a sustainable business enterprise.

The Profit|Optimizer devotes a section to supply chain risk. All process manufacturers must require suppliers to conduct a thorough risk assessment of processes and functions as outlined in the Profit|Optimizer. The Profit|Optimizer also includes a section on facilities risk. The risk assessment tools offered by the Profit|Optimizer would have uncovered the dangerous risk factors at PCA and may have prevented the fatal and costly release of contaminated products.

The kismet of commercial enterprises like Kashi will continue to be bright so long as the mantra of sound risk management is practiced with more vigilance. In doing so the health and well being of its loyal customers will flower as will the value of its product brands and the sustainability of the business.

You Tube Video: Vince Guaraldi, The Peanuts Theme

Risk: reputation, brand, product liability

February 4, 2009 Posted by | manufacturing, product liability, reputation, risk management, supply chain | , , , , , , , , , , | Leave a comment

Peanut Corporation of America

A salmonella breakout that has been traced to peanut products marketed by the Peanut Corporation of America (PCA) is an unfortunate and severe example of a company with poor risk management, weak corporate governance controls and questionable ethical business practices. In most instances poor risk management and corporate governance violations primarily victimizes the company that fails to institute them. In the case of the PCA, unsound business practices has unleashed a deadly viral bacteria into a vast consumer market. Since its outbreak in October the salmonella infection is believed to have claimed the lives of 8 people and has sickened over 500. PCA violations will also cast a long shadow on the vibrant US peanut growers and processing industry.

A brief examination of some of the public disclosures that have come to light concerning the PCA speaks of a telling breakdown in sound risk management practices. These disclosures also hints at potential instances of fraud to cover up lax controls and compliance violations cited by FDA and State of Georgia food safety examiners.

The PCA had been cited for violations and lax operational controls during past inspections by regulatory agencies. Inspectors found evidence of roach infestation and mold in the production and storage facilities. Inspections also revealed that product quality had been compromised due to a degraded manufacturing process and improper maintenance of the operating facility. After bringing this to the attention of company management PCA executives sought out food testing companies that would provide results to indicate that product quality met federal safety standards and were safe to ship.

Utilizing industry standard risk analysis tools like the Profit|Optimizer would have revealed several breaches in sound risk management practices at PCA. Lax operational controls, poor facilities and the evasion of corporate governance practices will likely put PCA out of business due to the damage its actions have done to company product brands and reputation.

Problems and risks associated with process manufacturers like PCA add layers of complexity to determine product risk due to its role as a supplier in an intricate and expanded supply chain for processed consumer food products. The melamine contamination of Chinese milk products and the mortgage backed securities market crisis provide examples of how product liability and consumer risk is leveraged due supply chain complexity. The pervasiveness of products that use the peanut paste manufactured by PCA is very similar in many respects. Cookies, ice cream, crackers and other products are subject to recall. Some of the companies affected by PCA’s contaminated products include premium consumer product and brand marketing companies like Kellogg, General Mills, Jenny Craig, Nuti-System and Trader Joes.

Severe product liability events like this unfortunately also cast aspersions on an entire industry. Associations like the American Peanut Council are most concerned that the poor manufacturing practices and product quality standards exhibited by PCA will reflect on how consumers view the industry as a whole. It is a valid concern for the industry association and it must demonstrate to the regulators and consumers that its membership is committed to sound manufacturing practices, product quality and corporate governance excellence. This is not a PR problem. Nor is it a problem born from an industries anathema to regulatory control or a problem unleashed by some renegade industry member. Industries and their representative associations must also help address sound risk management and corporate governance excellence as a cultural issue that is endemic to its membership. Then industry excellence becomes synonymous with product quality and consumer satisfaction.

In all the FDA uncovered 10 violations and has published its report and carries a full listing of recalled products and other resources on the FDA website.

You Tube Video: Dizzy Gillespie’s Big Band, Salt Peanuts

Risk: product, operations, regulatory, reputation

January 29, 2009 Posted by | associations, manufacturing, operations, Peanut Corporation of America, product liability, regulatory, reputation, risk management, supply chain | , , , , , , , , , , , , | Leave a comment

Credit Redi Blog

Credit Redi is a company sponsored blog of Sum2. The purpose of Credit Redi is to help small and mid-size enterprises (SMEs) protect and improve their ability to access credit and equity financing from banks , shareholders and other funding sources.

Sum2 is dedicated to the commercial application of sound practices. Our sound practices program and products address:

  • corporate governance
  • risk management
  • stakeholder communications
  • regulatory compliance

Sum2 believes that all enterprises enhance their equity value by implementing a sound practice program. Sound practices are principal value drivers for corporate and product brands. Practitioners are awarded with healthy profit margins, attraction of high end clientele, enterprise risk mitigation and premium equity valuation.

Sum2 looks forward to helping you address the pressing challenges of the current business cycle.

You Tube Video: Herb Alpert and the Tijuana Brass, Work Song

Risk: abundance

January 28, 2009 Posted by | banking, credit, risk management, SME, Sum2 | , , , , , , , , , , | Leave a comment

Macroeconomic Risk Impacts SMEs

Small and mid-size enterprises (SME) are acutely susceptible to the negative impact of macroeconomic risk factors. Macroeconomic risk factors such as inflation, interest rates, market cycles, market regionalism, credit and labor availability, and fuel costs conspire to drain profitability and financial health of small and mid-size businesses.

Though issues of scale are principal culprits that enhance the negative impact of macroeconomic factors on SME’s, other factors such as risk concentration in product markets, clients, and supply chain; silo business functions and lack of specialized treasury functions to hedge risk and maximize capital allocation returns also contribute to enhanced macroeconomic risk profile of SME’s.

To help SME’s to better understand and manage the impact of macroeconomic risk factors on their business; Sum2 is providing the Profit|Optimizer Macroeconomic Test to small business owners and managers at no charge. The test is a module from the Profit|Optimizer product which provides a thorough risk assessment and opportunity discovery review of a small business enterprise.

The test can be accessed by clicking this Profit|Optimizer hyper link.

We hope to be of service. Take the test.

You Tube Video: Charley Brown

Risk: SME, Macroeconomic Risk, Inflation, CRG, Risk Management

May 31, 2008 Posted by | risk management, SME, Sum2 | , , , , , , , , | Leave a comment

Reinventing Community Banks

Community Banks have been profoundly affected by the current crisis in the credit markets. Many will need to reposition their market focus and adopt innovative growth strategies to build its capital base and sustain profitability if they wish to remain independent.

Community banks have confronted drastic market challenges in the not to distant past. During the 90’s community banks dominance of the small and mid-size enterprise (SME) market began to erode. The dynamics of the banking industry changed rapidly. Large money center and regional banks leveraged technology, operational and balance sheet scale to provide access to inexpensive credit products bundled with cash management tools. They were armed with huge marketing budgets and became adept at selling a growing array of transaction services that met the growing sophistication and business needs of the lucrative SME market. The current banking crisis forebodes yet another drastic alteration in the structure, regulatory and businesses practices of the industry. The current banking crisis will forever alter the face and scope of community banking sector.

The challenge for the community bank will to reinvent itself. Community banks must decide who its customers are and target the market with focused precision. Community banks need to recognize its strength by leveraging its natural geographic advantages and sell products into markets that transcend local limitations. Community banks need to offer products that help SMEs manage cash flow and liquidity, make informed decisions on capital allocation initiatives, decrease cost of capital and products that facilitates transactions and fosters new customer acquisition.

Community banks must also begin to farm new liquidity pools. Securing funding sources in a world of limited liquidity will be the greatest challenge for community banks. Overcoming regulatory hurdles notwithstanding, branding community banks as a consistent, trusted and efficient delivery channel of credit products is an important ingredient for its survival. The community bank must recognize how it adds value in a complex and expanding delivery chain. The failure to secure funding sources will only accelerate balance sheet erosion that results in merging with another institution or liquidation.

The community bank must assure its funding sources, equity holders and regulators that it truly knows and understands its customer’s market and growth potential. This KYC goes deeper then determining an acceptable FICO score, Federal ID verification and passing an OFAC screen. Employing risk management and opportunity discovery exercises with SME prospects and clients are principal business drivers that provide critical disclosure information to funding sources that address risk aversion concerns.

Funding sources and other stakeholders must be secure in the knowledge that the community banker understands the peculiar risk characteristics of the SME’s strategy, business model and governance and risk management acumen to provide investors and lenders exceptional returns on investment capital and lines of credit. The banker then becomes an effective risk manager whose vigilance and considered business judgment provides a fair return to funding sources, assures regulators that capital ratios remain strong and reward shareholders with appreciating equity valuations.

Community banks are just one of the many expanding choices an SME has to provide banking and financing services. Community banks must create a compelling brand identity and articulate a differentiated value proposition with focused product marketing to regain its market dominance with SMEs.

You Tube Video: The Beatles, Money

Risk: Credit, Market, Banking, Small Business, Recession, Marketing,

May 30, 2008 Posted by | banking, credit crisis, rock, SME | , , , , , , , , | Leave a comment

Rebuilding America’s Manufacturing with Better Process

Sum2 recently participated in a Podcast sponsored by Better Process Podcast. The subject of the podcast was GRC for SMEs.

Better Process Podcast discusses news and market events that address manufacturing issues. The topics range from US manufacturing, China competition, RFID, lean manufacturing, and manufacturing technology.

Better Process podcasts was founded by Ken Rayment. Ken is a Black Belt Six Sigma guy who has a passion for his work and is deeply commited to the development and revitalization of manufacturing in the United States.

Sum2 caught Ken’s attention through a press release we issued offering free access to the Profit|Optimizers macroeconomic risk module. Though Sum2’s market focus is small and midsize businesses we are heartened and honored to participate in the Bettter Process podcast series.

Sum2 takes its name from the Society for Establishing Useful Manufactures (S.U.M.), S.U.M. was founded by Alexander Hamilton in 1793. The purpose of S.U.M was to promote useful manufacturing by using the waterpower generated by the Great Falls. S.U.M was the first planned industrial city in North America and should rightly be considered the cradle of industrial capitalism in North America. The area of S.U.M.’s founding was later incorporated as the City of Paterson New Jersey, which would grow to become a major industrial center from the 1800’s through World War 2. Paterson was a key munitions, textile and locomotive manufacture center during the Civil War and thus played a pivotal role in helping preserve Alexander Hamilton’s conception of a Federalist Union of States.

Though the landscape of industrial capitalism has changed during the Information Age, Sum2 was founded to continue the useful and visionary work of the original S.U.M. Sum2 recognizes the strategic importance of manufacturing and will seek to build our business by creating proprietary content, ASP delivery capabilities and mission critical software to implement corporate sound practices for our clients as they seek to create value in the digital economy.

Podcast: Better Process, Sum2 GRC

Risk: Manufacturing, Capital Formation, Podcasting, Profit|Optimizer, Sum2, Six Sigma, SMB Risk Management

May 13, 2008 Posted by | commerce, manufacturing, SME, Sum2 | , , , , , , , , | Leave a comment