The complexity of today’s global supply chains has pushed more organizations to provide traceability of their products throughout the supply chain. And the continuous announcements of recalls reminds us just how critical traceability is in food and beverage supply chains. While some supply chain leaders may view traceability only as a means to complying with government regulations or to maintaining a strong brand image and mitigating quality and safety risks, traceability is actually a great opportunity to create a competitive edge through a wealth of new data points.
What is traceability?
Ask 10 supply chain industry professionals what traceability means to them, and you may receive 10 different responses. The most important component of traceability is establishing a chain of custody for a product by means of both data exchange and physical identification application methods (barcodes, RFID tags, etc.) as it moves through the supply chain.
The chain of custody only works if all parties that have a role in the production or movement of goods can verify how the product flowed through the nodes of the supply chain. This is accomplished by defining critical tracking events (CTE), which occur when a product is transformed, updated, shipped or received. It is important to capture each of these events to establish true end-to-end traceability.
Unique, universal identifiers, such as SKUs or distribution center location IDs, are fixed, key data elements, consistent throughout all transactions in the network and enable the validation of CTEs. Key data elements may also be product or transaction-specific, such as the lot number corresponding to a manufacturer’s supply run. Combined, universal identifiers and transactional data points provide the complete picture needed for a universally verifiable chain of custody.
Adopting GS1 standards will enable an organization to adhere to the unique identifiers of all partners in the supply chain, regardless of the system or internal naming conventions. Essentially, it allows all partners in a supply chain to speak the same language and provides a set of guidelines for defining track and trace best practices.
The 3 pillars of traceability
With universal identifiers enabling CTEs and a series of CTEs establishing a chain of custody, an organization is positioned to adhere to the three pillars of traceability.
o Identify physical things like trade items (GTINs), physical locations (GLNs), assets and logistic units as well as logical items such as corporations or a service relationship between distributor and operator.
o Capture the standardized identification in a common approach such as barcodes and/or EPC-enabled RFID tags.
o Share in a standardized format, ensuring data completeness and accuracy.
Why leverage traceability?
The risks. A product recall can have a catastrophic impact on a food or pharma organization. For example,
· There were a total of 270 food and beverage recalls reported by the FDA and USDA in 2021.
· A study performed by the Food Marketing Institute and Grocery Manufacturers Association indicates the average direct cost to a company per recall to be $10 million.
One example of the risk associated with lacking traceability is found in the story of a fast-casual food chain, which in 2015 experienced an E. Coli outbreak. The company lost $200 million in sales, incurred $25 million in regulatory fines and saw a 3% decrease in long-term sales as it struggled to regain its brand image and customer trust.
The opportunities. Outside of the standard regulatory compliance and quality and safety risk mitigation, there are countless opportunities afforded by the ‘big data’ of traceability. The biggest opportunity is the potential for business insights. Data, at the granular level required for traceability, can help identify sub-standard partner operations and processes, add clarity and accuracy to existing Key Performance Indicators (KPIs) and add accountability to supply chain partners. All nodes in the distribution network can reap the lesser-known benefits of quality traceability data.
Traceability can ultimately replace instinct-driven decisions with firm, data driven decisions, contributing to everything from a new sales strategy, an inventory positioning change, carrier negotiations and supporting actuals for freight audit and pay activities.
When done properly, traceability can be a true differentiator, setting your business apart from the competition. Companies in the food and pharma industries have established full visibility brought on by the trove of data made available through traceability. As consumers in other industries begin to broaden their purchasing decisions to include complex data points, such as responsible sourcing and real-time shipping visibility, traceability capabilities will be more common across all industries. Companies that are just now dipping a toe into the traceability waters can learn from more advanced industries to establish traceability initiatives in a cost effective, timely manner. It is the individuals themselves within these organizations that must seize the opportunity, and capture the benefits of traceability sooner rather than later.