People and Halal Supply Chains

People and Halal Supply Chains

Developments

The halal industry is a fast-growing industry. According to the State of the Global Islamic Economy Report 2020-2021 a USD 2.4 trillion industry by 2024, consisting of not only food, but also cosmetics, pharmaceuticals, modest fashion, media & creation, and Muslim friendly travel.

Halal is not static, but is going through an evolution from a (1) Muslim company (purely based on the trust between buyer and seller); (2) halal product (ingredients are compliant and production process is certified by an independent halal certification body); (3) halal supply chain (halal requirements are addressed throughout the entire supply chain); to a (4) halal value chain (halal requirements are addressed throughout the business value chain).

Muslim (majority) countries in Asia (such as Brunei, Indonesia, and Malaysia) and several countries in the Middle East are moving to stage 3: the halal supply chain. This is changing halal eco-systems for brand owners serving Muslim markets in Asia and the Middle East, requiring brand owners taking a supply chain approach to halal, similar to a maybe more familiar supply chain approach to food/product safety or cool chains.

In fact, today several leading halal production standards (like the Indonesian and Malaysian halal standards) are already requiring a segregation between halal and non-halal in transport and storage for halal certified manufacturers. This has implications for raw materials, ingredients, primary packaging, intermediate goods as well as end-product goods flows. In other words, halal requires an organisation of the supply chain instead of just the factory: from source all the way up to point of consumer purchase. This trend is supported by a new international halal supply chain management system standard: OIC/SMIIC 17:2020, which was launched in November 2020 by SMIIC: The Standards and Metrology Institute for Islamic Countries based in Turkey. This new standard has three modules: transportation, warehousing, and retailing.

The halal value chain is still future music for many companies, but some multinational companies are already exploring various components of the halal value chain, such as Islamic finance and halal branding & marketing. A halal value chain approach to halal is about the halal DNA of a company, which includes human resource management (HRM). HRM in the halal value chain considers halal skill training within the brand owner company as well as its managed process links:  links in the brand owner supply chain that the brand owner finds important to integrate and manage. These are first and possibly even second tier customers (e.g.: distributor, retailer) and suppliers (e.g.: ingredient supplier, slaughter house).

 

Current practices

Halal today is organized in silos. The brand owner has its plant halal certified and is buying its ingredients from suppliers with the right halal certificates. Some distributors and logistics might be halal certified; most are not. The halal knowledge of logistics service providers and distributors can be very minimal, as training on halal logistics is often not offered by the organisation and brand owner. However, I already have come across some multinational companies that do conduct halal training for their distributors and logistics service providers.

Supermarkets have not yet been halal certified, other than just the butchery, bakery, or restaurant inside the supermarket in some big hypermarkets in Indonesia and Malaysia. The reason is that for the non-food categories in a supermarket halal certification is still very new. Only over the past 5-10 years cosmetics and home care brands are getting halal certified. Three halal retailing business models can be differentiated: 1. halal-exclusive retailers (offering halal products only); 2. halal-segregated retailers (offering halal and non-halal products, but are clearly identified and segregated by zones, shelves, and/or displays); and 3. halal-mixed retailers (offering both halal and non-halal products, but are not clearly identified and segregated). Due to regulatory restrictions prohibiting pork and alcoholic beverages, Brunei is the only ASEAN country with halal-exclusive retailers only. Both Malaysia and Indonesia have halal-exclusive, halal-segregated, and halal-mixed retailers. However, these countries have been strengthening the regulations regarding sales of alcoholic beverages in the country, hereby eliminating the halal-mixed retailer business model soon. In the Middle East you have halal-exclusive (like the Kingdom of Saudi Arabia) and a combination of halal-exclusive and halal-segregated retailers (like the United Arab Emirates). Halal-segregated retailers are complex and require proper halal standard operating procedures and staff training in order to effectively segregate halal from non-halal at retail outlet and its supply channels.

The result is that brand owner supply chains have different halal practices. At the end the halal integrity of a supply chain is a function of the halal integrity at each link in the supply chain. In other words, the halal supply chain integrity is a good as its weakest link. The different practices in a halal supply are increasingly a problem for a brand owner, as halal breakages in the supply chain increases their halal supply chain integrity and reputation risks.

The main problem is that halal is organized in silos by companies in a supply chain and when dealing with different countries, can be differently interpreted. This problem is still not very well understood by many brand owners. Secondly, halal training is often focused on the training of people in production, whereas people in procurement, sales, marketing, and logistics/supply chain have often received little, if any at all, training on halal. If halal training is received, this is often just a basic understanding of halal, and not specific to their function. As procurement, sales, and the logistics/supply chain divisions are dealing the external links in the supply chain, the result is that there is no consistent knowledge of operators in the supply chain and practices. But halal is more complex, as halal requirements are different for each Muslim (majority) country. Halal requirements are namely based on the Islamic school of thought, religious rulings, and local customs. This results in even differences between halal market requirements between neighbouring countries Brunei, Indonesia, and Malaysia. An alignment of these halal requirements is needed throughout the supply chain. Halal supply chain management is hereby difficult to organise without supporting IT systems and proper training of personnel in the brand owner supply chain.

 

 

The way forward

Muslim (majority) countries in particular in Asia and the Middle East are further strengthening their halal ecosystems through regulations in the coming years. Brand owners need to close their supply chain gaps urgently. I would certainly recommend before the year 2024. This requires a halal supply chain roadmap with clear priorities in closing their gaps. Start with the easy ones with high impact first, followed by the easy ones with lower impact, and finally the more difficult and costlier ones. Closing gaps in halal supply chains requires time in order not to disrupt the brand owner supply chain. Therefore, as halal ecosystems are being strengthened in Muslim markets, it is critical to start this process as soon as possible in order to protect your licence to operate in these important halal markets.

There is a need for specialised and practical halal skill training on halal purchasing, halal production, halal logistics, halal sales & marketing, and halal risk & reputation management for brand owners, instead of a general introduction to halal during the onboarding and annual refreshment training. Second, the brand owner needs to take responsibility of spreading halal knowledge through halal skill trainings to its supply chain partners that are part of the managed process links: both first/second tier customers and suppliers.

There is a need for a halal module in supply chain IT systems to better monitor and control halal supply chains for brand owners. Next to consistency of halal practices in supply chains, alignment with halal market requirement is required. This allows to automate halal supply chain specifications and communicate halal requirements effectively in the brand owner supply chain.

 

Logistics service providers play a key role in supporting management and optimisation of halal supply chains. The logistics service providers can play a far bigger role in organising brand owner halal supply chains than currently performed, including the materials management at production plants. Fourth party logistics service providers, logistics service providers without warehouse and transportation assets, could be perfect halal supply chain orchestrators for brand owner halal supply chains.

Finally, universities and business schools in Muslim (majority) countries need to introduce halal business management subjects in diploma, bachelor and master educations to better groom the next generation of supply chain managers on these important topics. Some universities in Indonesia and Malaysia have already started with offering halal topics in their university curricula.

In summary, halal supply chain management = halal excellence of supply chain processes. Halal leaders are those able to develop specialised and practical halal skill trainings not only for their organisation but also push these trainings to their supply chain partners and effectively support their supply chain systems with a halal module.

 

Professor Dr. Marco Tieman, CEO at LBB International

Prof. Dr. Marco Tieman is the CEO of LBB International, a supply chain strategy consultancy and research firm. He is a professor with Help University and a research fellow with the Universiti Malaya Halal Research Centre in Malaysia, conducting research in halal supply chain management and reputation management.

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