Risk Management in Halal Supply Chains

Risk Management in Halal Supply Chains

Feature Article by Dr. Marco Tieman, Chief Executive Officer at LBB International

Background

According to the 2022 State of The Global Islamic Economy Report, the global Islamic economy is an estimated USD 2 trillion industry consisting of the following key industries: halal food, modest fashion, media & recreation, travel, pharma, and cosmetics. As a result, the Islamic economy, supported by its young and increasing Muslim population is difficult to ignore by the industry.

Evidence supports that halal requirements are moving away from a Muslim owned company (based on direct trust between buyer and seller), to a product approach (the product or outlet is halal certified by an independent halal certification body), towards a halal supply chain (halal is addressed from source up to point of consumer purchase) augmented with a value chain approach (halal is addressed throughout the entire business value chain and its network). This trend is also better known as the evolution of halal or when applied to an organisation: the corporate halal maturity.
Halal market alignment is a new paradigm for brand owners serving Muslim markets as shown in figure 1. As halal is not static but dynamic, it is important to have your corporate halal maturity aligned with the Muslim consumers needs and wants. This is necessary to maximise your sales and protect your corporate halal reputation in Muslim majority markets.

Muslim consumer needs are moving from a somewhat rudimentary model of simple halal consumption to a halal lifestyle and halal ecosystem. Muslim consumer wants are moving from halal trust, halal logo, halal traceability, towards a complete and comprehensive halal brand. The answers to these Muslim consumer needs and wants are in the alignment of the corporate halal maturity with these halal market trends and embracing more advanced halal standards by brand owners. Enterprises need to urgently shift their ambition level from just halal certification, to corporate halal reputation and halal DNA.

 

Risks in halal supply chains

The halal integrity of a brand (and its products) is a function of its supply chain, where a breakage in halal integrity anywhere in a supply chain becomes a breakage of its halal integrity.

Halal risk management practices of most companies are passive, meaning it is limited to the compliance of suppliers and their own (manufacturing) operations based on the requirements of the halal certification body and their halal standard(s). On the other hand, halal risks in the entire supply chain are not on their radar screens. It is assumed that the halal assurance system and existing crisis management manual provide sufficient support to handle halal incidents. This is a dangerous strategy for halal risk and reputation management, which endangers sales and your corporate halal reputation.

From my experience in assessing halal supply chains for food and cosmetics companies, there are ten common gaps in halal risk management:

    1. Halal training is often limited to the production plant and not extended to the head office, missing key functions such as: procurement, supply chain management, corporate communication, risk management, and sales and marketing
    2. The halal status is not communicated on freight documents, cargo labels, and in IT systems, resulting in mixing halal with non-halal in transportation and storage
    3. The halal status is not a consolidation criterion in stuffing of trucks, sea containers, unit load devices, and air cargo pallets. This results in mixing of halal with non-halal products in transport
    4. The halal status is not a storage criterion in warehousing; resulting in a mixing of halal with non-halal products in storage
    5. Halal standard operating procedures are not defined outside the factory operations, in functions such as purchasing, marketing and sales, and logistics by the organsation and supply chain partners. This affects the sustainability of the halal assurance system
    6. Halal requirements are not covered in contracts with supply chain partners, other than with suppliers of halal certified ingredients
    7. No effective halal risk mitigation and risk recovery documentation and practices by enterprises and supply chain partners
    8. No halal section in the crisis manual and treating halal issues as a pure contamination issue. This results in incorrect actions and communication
    9. The service industry, like logistics service providers, distributors and retailers are not well prepared for halal issue and crisis management, endangering the effectiveness of halal risk mitigation measures by the brand owner.
    10. Lack of vertical collaboration within brand owner supply chains and horizontal collaboration between other supply chains, making risk management less effective by the brand owner.

 

Halal risk management practices by brand owners and their supply chain is found to have serious gaps, resulting in defective halal assurance system and halal risk management. This exposes brand owners high impact integrity violations and damages to sales and corporate reputation.

 

Best practices in halal risk management

There is an urgent need to professionalise halal risk management by brand owners, to create a more sustainable halal management system contributing to building corporate reputation capital and at the same time protecting its sales and licence to operate in key Muslim markets.

Halal risk management is essential for trust in halal certified brands. Although the halal assurance system is important it requires additional building blocks in order to address halal risk management effectively. Firstly, it needs solid risk prevention measures in place to reduce vulnerabilities in creating a robust halal supply chain. In practice this requires a supply chain risk vulnerability assessment and identification of halal control points throughout the supply chain. Secondly, it needs effective response management to isolate a halal issue and minimise the severity of the issue. This is operationalised through a risk mitigation and communication plan and is executed with a halal issue. Third, it needs recovery management process to restore corporate halal reputation, in particular halal trust, Islamic values, and network of a brand. The basis of recovery management is founded in a risk recovery and communication plan and is executed with a halal crisis. Halal supply chain prevention, mitigation and recovery provide proactive and reactive strategies for effective halal risk management control that ensure both robust and resilient halal supply chains. Next to a solid design of those blueprints, it requires practise and repetition by the company and its supply chain partners.

As halal is moving towards a supply chain and value chain approach, organising halal becomes more complex for brand owners to organise. Hence, there is a need for halal ecosystems to simplify halal for brand owners. Halal ecosystems, through geographical clustering of halal industries together, could create synergy advantages for brand owners. An example of an advanced halal ecosystem is Modern Halal Valley in Banten, Indonesia. This is a 500 hectare dedicated halal industrial cluster, which is connected through a network with other halal clusters locally, regionally, and globally. Also Malaysia has dedicated halal parks, 22 in total, supported by halal park guidelines and incentives.

 

Halal risk performance measurement

CEO’s and Board members need to understand the complexity and sophistication of current business risks in order to respond intelligently. You cannot rely solely on a general management risk reports but also need to develop a specific view of risks, such as halal risks. A halal risk report could provide essential halal risk and market intelligence for brand owners serving Muslim markets.

A halal risk report has two key components: a halal risk assessment and the halal risk and reputation performance measurement. The halal risk assessment identifies halal integrity and reputation risks in a halal supply chain and classifies these risks according to the likelihood and regulatory and financial impact. The halal risk assessment is based on an analysis of an extensive information request, in-depth interviews with various divisions, and physical supply chain audits.

The halal risk and reputation performance measures halal key performance indicators such as: halal maturity of your organisation, trust of your brand, your corporate halal reputation, your licence to operate, and corporate halal rating. The halal maturity key performance indicator provides the halal maturity score of the organisation on halal products, halal supply chain, and halal value chain. This assessment will reveal the organisation’s main position and performance achieved in each area. The halal trust of a brand is measured through a consumer survey, analysing the consumer perception of the halal logo, excellence, transparency, halal authenticity, and intention. The halal trust assessment could be conducted for one brand, but can also be benchmarked with selected competing brands. The halal reputation index is based on an algorithm using four halal reputation drivers: halal authenticity; trustworthiness of halal certification body; messages by company and supply chain partners; and messages by external stakeholders. This index is measured through an internal audit and external assessment. The licence to operate rating is measured by assessing the emerging halal market requirements of your key Muslim market(s) and relating this to your halal reputation index drivers. Finally, a halal rating provides the organisation with an overall halal integrity risk profile of the company. This rates the organisation ability to protect the halal integrity and the likelihood of non-compliances.

 

Conclusion

Halal market alignment is essential to maximise sales and protect your corporate halal reputation in Muslim (majority) countries. Halal risks in the entire supply chain are not on the radar screen of many companies. Halal risk control requires additional building blocks in order to address risk management effectively in halal supply chains: HAS + Prevention + Mitigation + Recovery. Structured halal risk measurement is needed! A halal risk report provides this intelligence for halal certified brand owners.About the Author” heading_tag=”h5″ alignment=”left”]

Dr. Marco Tieman is the CEO of LBB International, a supply chain strategy consultancy and research firm, advising companies and governments on supply chain analysis, supply chain design, and market research. He has been advisor to companies and governments on halal supply chain design, halal ecosystem development, and halal risk management. He is also an Adjunct Professor with UTM Azman Hashim International Business School in Malaysia, conducting research on halal procurement strategy, halal supply chain management, and halal risk and reputation management. He is the author of ‘Halal business management: a guide to achieving halal excellence’.[vc_text_separator title=”MORE FROM THIS EDITION” border=”no”][vc_single_image image=”20247″ img_size=”medium” qode_css_animation=””][ult_layout layout_style=”4″ list_style=”6″ s_image=”0″ s_excerpt=”0″ s_categories=”0″ s_metas_o=”0″ s_metas_t=”0″ quick_view=”0″ taxonomies=”post_tag” price_font_weight=”” atcb_font_weight=”” title_font_weight=”normal” title_font_style=”normal” title_text_transform=”capitalize” metas_font_weight=”” excerpt_font_weight=”” filter_font_weight=”” tab_font_weight=”” pagination_font_weight=”” title_font=”Lato” title_font_size=”12pt” i_taxonomies=”362, 363″ d_i_filter=”362″]