Beyond Peter Pan: How ConAgra’s Pot Pie Recall Bakes In Hard Lessons for Supply Chain Management

At lunchtime one day last January, Jill Hein, an Iowa mother of eight, took a jar of Peter Pan peanut butter—the kind with Peter, in his feathered cap, on the label—out of her pantry. She opened the lid. Everything seemed fine. No funny odor. No odd color.

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Hein fed the Peter Pan to one son and one daughter. Within hours, they were cramping and vomiting. Hein’s 3-year-old boy, Bowen, had to be taken to the emergency room the next day. Hein ate some herself two weeks later and was hospitalized for dehydration. And renal failure.

Alone or with jelly, peanut butter is as classic as Elvis, who preferred his on white bread, mashed with bananas and fried. Americans eat 700 million pounds of crunchy and creamy each year—enough, the Peanut Advisory Board says, to coat the floor of the Grand Canyon.

Hein never expected a simple peanut butter sandwich to go so wrong.

Neither did ConAgra Foods, the $12 billion conglomerate that makes Peter Pan.

One of ConAgra’s oldest and best-known brands, Peter Pan brought in $109 million in sales last year, says Information Resources, which tracks retail spending. ConAgra also supplies some of Wal-Mart’s Great Value house brand and sells peanut butter toppings to companies like Carvel and Sonic, bringing total peanut butter sales to $147 million last year. But when an outbreak of a rare salmonella strain was traced to ConAgra peanut butter, the company would have to try to get it all back.

The Peter Pan recall eventually involved 326 million pounds of its own and Wal-Mart’s peanut butter, plus 99,953 cases of toppings. So far, ConAgra has spent more than $78 million dealing with an estimated $1 billion worth of potentially infected product. Its peanut butter sales were down 63 percent in fiscal 2007, the company says.

No one knows how much ConAgra will need to spend to re-establish trust in its product. Hiring Tinker Bell to ask people to clap if they believe in Peter Pan won’t fix this.

Why Recalls Depend on the Supply Chain

Peanut butter isn’t ConAgra’s only recall trouble, either. The company has had to call back hundreds of pounds of ground beef in the past few years, and this month ConAgra’s Banquet pot pies were recalled when at least 211 people in the U.S. got salmonella poisoning, which the Centers for Disease Control and Prevention links to the pot pies. That recall is ongoing.

But it’s not just ConAgra. Recalls are blooming like flowers in spring: Dole’s e.coli bagged salads; Metz Fresh’s salmonella spinach; REI’s faulty children’s bikes; Mattel’s lead-painted and choking-hazard toys, just to name a few. Federal records show at least 628 recalls so far this year, and another 941 in 2006. (For more, check our History of Famous Recalls.) Globalization accounts for some of this surge. Many U.S. companies depend on overseas production, where quality controls are difficult to monitor. And it’s not just hard goods like toys from China. Food, too, arrives by container ship from other countries, and sometimes it’s contaminated. So far this year, for example, more than 8,660 cartons of cantaloupe from Costa Rica have been recalled for salmonella risks, according to U.S. Food and Drug Administration (FDA) records.

But mainly, things go wrong. That’s business. That’s life.

“One risk every company faces is a recall,” says Jane Barrett, an analyst at AMR Research in Boston. So if recalls are inevitable, a CIO must help create a supply chain ready to cope with them, she says, by quickly providing the relevant data to facilitate the process. And a recall conducted under pressure from federal regulators, an angry public and plaintiff’s lawyers tests every supply chain management decision a CIO makes.

Best practice calls for companies to be able to track and trace the pedigree and whereabouts of the raw materials used to make their products all the way through the manufacturing process and out to end-point customers, says Steve David, former CIO of Procter & Gamble. But many companies, for many reasons, don’t have supply chains that can do that, and that becomes evident in clumsy recalls that go on too long, cost too much, and have the potential to damage corporate and product reputations.

“The ugliness of bad data management really hits you when you have a product recall,” David says.

As soon as the decision is made to recall a product, companies should release consistent, correct information to minimize brand damage, says Joe Barkai, a practice director at Manufacturing Insights, a consulting firm that is a sister company to CIO’s publisher. “But,” he says, “now [traceability] is mainly a manual procedure. Companies don’t have it automated.”

And that’s a problem. ConAgra, for example, had to revise its recall twice as it learned more about how much infected product it could have manufactured and where it might have gone, according to FDA records. The original Valentine’s Day 2007 announcement recalled peanut butter made after May 2006. In early March, ConAgra expanded the scope to December 2005 and added toppings made in its Humboldt, Tenn., plant using peanut butter from its Sylvester, Ga., plant, where the original contamination had occurred. A week later, ConAgra pushed the date back to October 2004—22 months before the first reported illness.

ConAgra declined to comment on the recall. Talking about how its IT and supply chain managers perform recalls, a spokeswoman says, “doesn’t align with our priorities.” But it’s clear the experience revealed problems at ConAgra. Paul Hall, vice president of global food safety, gave a talk at the Food Marketing Institute in April, after the recall was under way. The peanut butter recall taught ConAgra lessons other food manufacturers can use, he noted, including knowing where all of your product is going, such as toppings, and assessing ahead of time overall recall and traceability processes across your supply chain.

Hall himself is at ConAgra as a result of the recall. The company created a global food safety group after the recall and hired him to lead it.

Lead Paint and Other Horror Stories

When your boss sweats through hostile questions from Wall Street or is sworn in to testify before Congress, as were both ConAgra Senior Vice President of Operations David Colo and Mattel CEO Bob Eckert, he doesn’t tap on a keyboard looking for answers from the company’s factory floor software. He’s got a piece of paper in his hands and a trusted adviser whispering in his ear. He’s not working with data; he needs information. IT leaders have to provide it, turning numbers into ideas.

For example, in his testimony, Eckert outlined the history of Mattel’s early August recall of those Chinese-made toys containing lead paint.

When product samples failed lead tests performed for a Mattel trading partner in France, Eckert said, Mattel product integrity employees in China then inspected the manufacturing records the company requires its Chinese contractors to keep, showing data such as pigment tests that can be matched to specific containers of paint in use on the factory floor. The containers get stickers with batch number, test number and other information. That data must be kept available for periodic audits.

By assessing data the factory handed over, as well as data it couldn’t—such as authorization to use paint from a source not approved by Mattel—Mattel tracked the lead to yellow pigment in paint used on some parts of certain Dora the Explorer and Sesame Street toddler toys.

“Based on what I saw within the first week of this hitting them, they had a pretty solid contingency plan in place,” says John Quelch, a business administration professor at Harvard Business School. (Mattel declined a request for an interview.)

CIOs who want to mitigate risk during a recall must move information to where it needs to be: to the FDA or U.S. Department of Agriculture or Consumer Product Safety Commission, for example. Or to factory employees and to the public, says Rick Blasgen, former senior vice president of integrated logistics at ConAgra.

Blasgen, who left ConAgra in 2005 to become president and CEO of the Council of Supply Chain Management Professionals, declined to talk specifically about ConAgra. But during his three years there and his five years leading Nabisco’s supply chain operations before that, he was part of several recalls. “Particularly if there’s product that can hurt someone, you stop what you’re doing and focus on that,” he says. “You want to be as accurate as possible.”

Who Wants Yesterday’s Data? (You Do)

Accuracy, unfortunately, is not an absolute. Manufacturing systems commonly fail to feed production-line information into corporate data warehouses, where it could be kept to trace bad products or bad ingredients down the road, says Fernando Gonzalez, CIO of Byer California, a $300 million clothing company. Gonzalez has managed IT at aerospace, medical device and chemical companies before coming to Byer, and has been involved in several recalls, including one of railroad car room deodorizers contaminated by bacteria.

“If you can’t tell it was this production line on this shift on these days,” Gonzalez says, “then you’re stuck with an estimate and doing an expansive recall just to be safe.”

Manufacturing execution systems, such as packages from Atos Origin or Manugistics, keep that kind of data. SmartOps offers a supply chain dashboard that managers inside and outside the factory can use to watch manufacturing activity and be alerted to problems, such as failures in quality control. (For more on manufacturing execution systems, see “Software for Hard Times.”)

On the deodorizer recall, Gonzalez’s company could trace the offending ingredient back to a supplier in the U.K. But that supplier didn’t keep records to show whether the raw materials had come in contact with other ingredients. “All we could do was assume that everything from the U.K. supplier was contaminated,” he says, adding that the recall cost “several million dollars.”

Sometimes data isn’t stored long enough or outside companies hired to manage your warehouses or ship your products don’t retain their data as long as you do. Barkai, at Manufacturing Insights, remembers wanting to study one year of supply chain activities at a U.S. auto maker. “I was told I would not be able to receive [the data] because they had limited server space, so they purged it,” he says. “Someone decided six months was good enough.”

When deciding how long to hold data, factor in the product’s life span, as well as any local health department requirements, federal antiterrorism legislation and the potential for litigation if something goes wrong, recommends a data security manager at ConAgra, who asked not to be named. He said data collection during a recall is “an arduous task” at the company, but “not a scramble.” (For more tips, check out “5 Recall Best Practices.”)

How to Manage a Recall

As Blasgen explains, the central goal in a recall is to figure out how much of the bad product was manufactured and where it went.

To do that, he recommends starting by querying your manufacturing execution system, which keeps data on production lines, product batches, ingredients and conditions inside the factory when products were made. ConAgra, according to its website and other corporate communications, uses a mix of Manugistics and SAP software in its factories to schedule and monitor manufacturing runs.

Next, Blasgen says, IT managers should pull shipping records from their transportation management systems. (Kewill Ship and HighJump Software are typical systems.) Search for date, lot or batch codes to figure out which distribution centers or customers were sent the suspected bad product, Blasgen says. Then match that information against data in the distribution centers’ and customers’ receiving systems.

Those are the steps Blasgen recommends. But most supply chains are not configured to allow a CIO to follow them. “Do you see what’s happening?” Blasgen asks. “Multiple systems with their own ways of querying a nd no magic ‘recall button’ to press for any of this.”

Fixing a Hole Where the Rain Leaked In

ConAgra had streamlined its supply chain with its $300 million “Project Nucleus” started in 2003 and mostly led by Blasgen. The company closed factories, consolidated distribution centers and standardized on SAP enterprise resource planning software. Blasgen says that any company that reworks its supply chain to be more efficient will make and move products faster. That’s good when the products are good and bad when they’re not.

Steve David, the former Procter & Gamble CIO, notes the irony. “You take the bad with the good,” he says.

In recent financial statements filed with the Securities and Exchange Commission, ConAgra claims savings of $275 million so far from its supply chain revamp. That pot has helped offset the $78 million ConAgra reportedly has spent to date on the recall—costs that include customer notifications, installing and staffing a toll-free hotline, consumer refunds, and collecting and disposing of bad peanut butter.

Another $15 million to $20 million went to overhauling the Sylvester factory. ConAgra bought a new peanut roaster, upgraded finished-product testing procedures, built new factory walls and designed other ways to keep peanut dust and raw peanuts away from already roasted peanuts (heating to 165 degrees kills salmonella). It also put up a new roof and installed a new sprinkler system. Why?

Because the company has a theory as to how salmonella got into Peter Pan in the first place. For an undetermined period of time, broken sprinkler heads dripped inside the Sylvester plant while rainwater seeped through the factory’s leaky roof.

The moisture from those sources may have awakened dormant salmonella bacteria in peanut dust or in stocks of raw peanuts. That what ConAgra’s Colo told Congress in April. ConAgra’s finished-product tests missed the contamination, Colo testified. The company then trucked jars to distribution centers and from there to Wal-Mart, Dollar General, Kroger and other supermarkets, warehouse clubs, food distributors and restaurants across the U.S.

At last count, the Centers for Disease Control and Prevention reports that 628 people in 47 states got sick.

“When we asked people who were sick, ‘Can you take out your jar and tell us the brand and lot code?’ says Anandi Sheth, a CDC doctor who investigated the outbreak, “we repeatedly saw Peter Pan and Great Value and lot code 2111.”

That’s the data string ConAgra’s uses to identify products made in Sylvester. For example, one bad batch was coded “21115055 00 1037A.” After the 2111, the 5 indicated 2005, the year made; 055 was Julian date, for the 55th day of the year; 1037 was military time; and A showed which production line within the factory.

How Recalls (and Peanut Butter) Stick

While Peter Pan returned to stores in time for back-to-school shopping in late August, and a new “Miss Georgia Peanut Festival” was crowned on schedule last month at the annual event ConAgra sponsors, the company predicts sales won’t return to pre-salmonella heights anytime soon.

ConAgra CFO André Hawaux told financial analysts in June that peanut butter “will be a lower profit contributor” next year, even compared with this troubled year’s figure. That’s “due to relaunch investments and lower [sales] volume planned,” he said.

Lawsuits abound. Parents are suing on behalf of their children; a prisoner in upstate New York serving 12 years for manslaughter got sick and he’s suing, too. In another suit, a man says his wife, after eating Peter Pan, had to have her gallbladder removed, which meant he subsequently “suffered the loss of spousal and other services commonly provided by his wife.”

Sixty-seven cases, including that of Hein, the Iowa mom, were consolidated in Julyin U.S. District Court in Atlanta, accusing the company of, among other charges, negligence and liability for product defects. ConAgra has denied all charges.

Hein and her children have recovered, but they no longer eat Peter Pan.