FDA FSMA: Providing value beyond compliance

The supply chain plays a pivotal role in delivering goods and services to both businesses and consumers, serving as the connective thread between industries, nations, communities and all components of the value chain. Our dependence on supply chains is most pronounced in ensuring food supply. However, over the decades, the supply chain has grown longer and increasingly intricate, which means consumers may find themselves more distant from the origin of the products they consume.

Supply chains comprise multiple tiers and it is crucial for all stakeholders — including distributors and retailers — to make consumer safety a top priority. The FDA’s Food Modernization Safety Act (FSMA) has sparked a significant amount of discussion, and rightly so. Though the rule doesn’t go into effect until January 2026, companies must proactively and strategically prepare their supply chain now, as this complex regulation will require companies to collect and maintain detailed information about the ingredients, processing and distribution of certain products. This process entails gathering new data, identifying existing challenges, and taking the necessary steps to ensure compliance. As a result, regulatory compliance is closer than it may initially appear.

This new rule is a part of a worldwide effort and call for increased traceability and transparency. Similar acts — such as the Safe Food for Canadians Act, the German Supply Chain Due Diligence Act, the Uyghur Forced Labor Prevention Act (link resides outside ibm.com) and Drug Supply Chain Security Act (link resides outside ibm.com) — call for greater safety for consumers, laborers and the environment. Companies can strategically take steps to achieve compliance, thereby unlocking added value. By capturing new data, they can harness this information not only to fulfill FSMA requirements but also to offer stakeholders and the public greater transparency.

FDA FSMA will have significant global implications (link resides outside ibm.com) for traceability. For the first time, the rule establishes additional recordkeeping requirements for any US-based entity that manufactures, processes, packs or holds foods on the Food Traceability List (link resides outside ibm.com). This list includes 16 wide categories, such as all soft cheeses, nut butters, crustaceans, leafy greens and fresh-cut fruits.

Depending on the role a company plays in the value chain, they’ll be required to provide their partners with specific information, known as key data elements (KDEs) (link resides outside ibm.com), for certain critical tracking events (CTEs) in the food’s supply chain. This data will then be used to create a “traceability chain,” which can be used to quickly identify and remove contaminated food from the market. We saw this happen between Dole and Walmart in 2022 when a particular brand of lettuce—Ocean Mist Farms brand Romaine Hearts—had to be recalled. Being able to trace contaminated food from a grocery store to farmer and from that farmer to grocery stores, allows grocers to specify pulling from less shelves.

To achieve that outcome, the FDA FSMA comes with a bundle of new policies, procedures and penalties. For example, companies must maintain records for two years from the date created or obtained, and they must be ready to provide information to the FDA within 24 hours upon request. Failure to comply triggers a range of penalties, including court actions (such as seizure or injunction) and administrative actions (such as detention to gain control of adulterated or misbranded products, mandatory recall of violative food, or suspension of a facility’s food registration to prevent the shipment of food). However, it’s essential to recognize that fines aren’t the sole negative consequence of non-compliance.

Companies that intentionally and holistically incorporate FDA FSMA into their digitization efforts will get an edge over competitors who view the FDA FSMA as an isolated rule. With greater tracking and traceability, for example, comes real-time demand insight. When a customer is in the process of checking out at a grocery store, it provides real-time insights into the current demand for specific items. If the store can embed that data point back into its inventory management system, it will be able to better align supply and demand for individual items. Furthermore, companies that are doing ongoing product hierarchy work, like streamlining SKUs across their business, would be wise to think about how they could include this data traceability work at the same time, as doing the work in tandem could reduce costs significantly.

Regardless of your position within the food supply chain, there are three compelling reasons — aside from potential fines — that make intentional compliance a smart choice for your business:

1. Cost avoidance: Prevent seizure of goods, mitigate fines and fees from product recalls and grievances; avoid any financial penalties from regulations; avoid revenue loss from sustainability-focused scandals; and reduce the risk of a supply chain collapse or losing the license to operate.
2. Cost reduction: Reduce food waste from recalls by having full visibility and traceability for food items and lots; reduce inefficiencies and cost throughout the entire value chain with improved data management, tracking and reporting, including costs from energy use in owned and operated facilities, distribution costs via better predictability (hence less inventory and D2C), and empty miles and inefficient distribution routes.
3. Brand credibility: Increase market share with existing customers due to sustainable products; gain new customers from sustainable product branding; increase interest from ESG-conscious investors (62% of personal investors say their portfolios take environmental sustainability into account, up from 48% in 2021); and reduce talent lost due to lagging sustainability practices and branding.

The objective of the FDA FSMA is to safeguard consumers, enforce accountability within the private sector, establish uniformity across the value chain and promote collaboration. The global food supply chain is an interconnected and complex network that doesn’t always follow a linear path: while some companies are responsible for providing their data requirements, they may also rely on upstream parties for previous historical visibility. The more value chain parties can collaborate, the more power there might be in standards and acts such as FSMA.

The FDA FSMA will require companies to think deeply about their entire digitalization efforts. While 2026 may appear distant, when you consider S4 upgrades, evaluating a new ERP or data capture system, and the steps involved in integrating any new technology into the supply chain process, the sense of urgency becomes evident. Digitalization is not one-size-fits-all.

1. Gain a clear understanding of preparedness: Identify your current data capabilities and alignment requirements.
2. Create a compliance roadmap: Outline the necessary activities for compliance encompassing data, systems, processes and supplier collaboration.
3. Execute and set up reporting: Implement the system with the capability to monitor and measure through automated reporting (including tracking missing data and data health, as well as origin traceability).

Companies that approach this process intentionally will not only achieve compliance but also unlock additional value. They will be able to:

1. Utilize reporting to identify trends and risks within the product supply chain for mitigation and improvement.
2. Collaborate with supply chain partners to share sustainability and ESG metrics, leading to enhanced supplier performance and decarbonization.
3. Access analytics for product lifecycles for inventory management, distribution, freshness and cold chain.

As the world takes note of more sustainable business operations and practices, how are you planning to prepare? How can this preparation become a part of your other transformation activities? How can you be intentional with your solutions? How can you leverage your existing resources today to gather data for tomorrow?

Collaborate with IBM Consulting to support your organization in preparing for this transformation in traceability. We assist businesses in taking a holistic approach, considering both the customer and supply chain aspects within the solution while examining the entire data landscape. We aid in addressing data gaps in a cost-effective manner, ensuring compliance with regulatory requirements. Our approach is more than just another end-to-end task; it’s about creating a comprehensive solution.

Although FSMA won’t come into effect until 2026, the right time to integrate compliance into your ongoing digitalization efforts is now.