Supply chain traceability – the next revolution?

November 2022  |  FEATURE | BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

November 2022 Issue

Supply chains have been beset by challenges in recent years, with uncertainty caused by the coronavirus (COVID-19) pandemic a key inflection point. The crisis caused lockdowns in China – a vital manufacturing hub and source of materials – and led to a global shortage of high-demand goods. It also fuelled a radical change in consumer habits.

In the decades leading up to the COVID-19 crisis, many western companies routinely outsourced elements of production to suppliers in lower-cost economies around the world. But during the pandemic, many came under pressure to look at onshoring their supply chains, or at least use suppliers nearer to home, to minimise similar disruption when the next global crisis hits. Research by McKinsey in November 2021 found that, with pandemic-related problems continuing to disrupt global supply chains, 90 percent of firms planed to pull at least some of these processes closer to where the resulting goods were being sold.

Ultimately, companies are taking steps to understand their supply chains in more detail. Fundamental to this goal is digitalisation and the insights to be leveraged from new technology solutions.

According to a Gartner survey of supply chain leaders, over 61 percent of respondents believe technology to be a source of competitive advantage and see emerging technologies as a critical area for investment. Digital transformation can assist in achieving simplicity, reliability and resilience in supply chains.

One rising aspect of digitalisation in the supply chain is traceability.

The ability to trace goods can improve the integrity of a supply chain. It allows companies to track products from source of origin to consumer. It provides greater insights on manufacturing processes used by suppliers. Companies have more information at hand to accurately forecast lead times and manage stock. Brands can also use traceability information to highlight their ethical sourcing practices to customers.

From a risk perspective, traceability can also reduce the risk of mislabelling, facilitate more detailed audits, and enable rapid traceability analysis in the event of a product recall. Further, it can help to identify and respond to disruption in the supply chain, reveal strategic opportunities, and react more quickly to fluctuations in demand.

Arguably, there are three primary reasons why companies are adopting supply chain transparency and product traceability. First, consumers increasingly want to know who made their products and where. Second, regulators across numerous jurisdictions are taking steps to strengthen food supplies, to make the chain more resilient and safer for consumers. Lastly, there have been advancements in the quality and availability of technology solutions designed to improve transparency and traceability, with improvements in processing capacity, tagging technologies and validation technologies, for example.

Sustainability and transparency are of growing importance to consumers, investors and regulators. Supply chains that reduce or reuse materials, create less waste, remanufacture or recycle products, and reduce cost will improve a company’s environmental, social and governance (ESG) profile. Implementing traceability improves customer trust and gives businesses the ability to certify sustainability across their supply chain.

According to Climate Impact Partners, 25 percent of Fortune 500 companies have set targets for net-zero and carbon neutrality by 2030. There is great potential to reduce emissions by first understanding exactly where they originate. According to McKinsey, for a typical consumer company, over 80 percent of carbon greenhouse gas emissions originate and are deeply buried in the supply chain.

For certain companies, traceability may be mandated by regulations for specific industries or types of products. In the US, for example, targeted rules apply to pharmaceuticals, children’s products, produce, packaged foods, aircraft parts and minerals.

In July 2020, the US Food and Drug Administration (FDA) published its blueprint for the New Era for Smarter Food Safety, which highlights the critical role that technology will play in advancing traceability efforts in the industry. The blueprint aims to encourage and incentivise adoption and promote digital transformation initiatives toward more visible information and greater agility in emergencies. In addition, the Proposed Rule for Food Traceability establishes the ‘food traceability list’, a set of foods that pose an elevated level of risk, as well as the ‘key data elements’ that must be captured at various ‘critical tracking events’ along the supply chain.

In the European Union, the General Food Law Regulation, established by the European Food Safety Authority, sets out traceability requirements for food and beverage operators active in the bloc.

But before investing in traceability-enhancing systems, businesses need to understand what is required.

Achieving complete traceability can be challenging. The more complex and geographically dispersed a supply chain, the harder it can be to integrate traceability solutions into existing infrastructure.

Particularly in the ‘first mile’, there may be a lack of visibility into remote operations, the true source of raw materials, or working and environmental conditions. Companies may also have trouble collaborating with their suppliers or gaining their full cooperation. Stakeholders throughout the entire supply chain need to be involved in the process.

The pandemic and ongoing geopolitical instability continue to impact global supply chains. In response, traceability will be an important tool for companies seeking to improve their resilience, reliability and sustainability.

© Financier Worldwide

BY

Richard Summerfield