Supply chain traceability is gaining in importance as companies respond to the rigors of setting and meeting corporate social responsibility goals. But the technology that underpins improved traceability is fragmented and often lacks a clear return on investment. How can companies choose solutions that are right for their businesses?
The ability to track and trace products that move through supply chains, especially in consumer-facing industries such as food, is critically important in the CSR realm. Recent scandals such as the controversy over fraudulently labelled fish products and the use of slave labor in manufacturing, have increased the pressure on companies to police their supply chains.
In addition to causing considerable reputational damage, transgressions can incur substantial financial penalties. For example, this October lumber company Lumber Liquidators agreed to pay a fine of more than $13 million after being convicted of manufacturing flooring made in China from timber that was illegally logged.
Adopting effective track and trace technology is one way to avoid such pitfalls, but this can be challenging.
There are many types of solutions that deploy various technologies including alphanumerical codes, bar codes, RFID tags, and GIS. Each variation has pros and cons. The blockchain computing system – a technology that creates an encrypted record of transactions which is transmitted to nodes in a network – is a new option that offers much promise for the future.
In addition to the market’s complexity, traceability solutions are not necessarily applied effectively. A common flaw is that information collected at each point is not translated across the supply chain between trading partners. This leads to silo-based data management and a fragmented view of the supply chain. Sometimes the problem is not a lack of data, but that data has become stranded in internal systems.
A number of fixes have been developed, for instance hybrid systems that improve certain aspects of traceability. And there is ground-breaking work going in a number of industries.
Some of the emerging solutions were discussed earlier this month at a round table organized by the MIT Responsible Supply Chain Lab titled The Race to Trace: Integrating Profits, Planet, and Precaution. Examples include a project in the coffee industry to develop an automated system that traces and audits suppliers internationally, and a pilot of a platform that enables companies to share proprietary data on recruiters in an effort to combat the trafficking of labor.
Meanwhile, companies still face the uncertainty of selecting traceability solutions that meet their CSR and operational goals. The pointers listed below were compiled by The MIT Responsible Supply Chain Lab to help clarify the selection process for enterprises.
- Changes in the demand for traceability require different approaches to evaluating the technology. Consider the value as well as the cost of systems. Try to quantify the benefits in key areas such as inventory management, operational efficiencies, business intelligence, and brand protection.
- Having estimated the value, don’t be deterred by assumptions that the cost will outstrip the ROI of these investments. Consider the long view rather than focusing exclusively on short-term costs.
- Avoid action paralysis. Incorporate traceability into your risk management strategy, and your strategies for brand protection and quality control. Include all relevant departments in the formulation of the business plan.
- Leverage the company’s existing resources. Often, there is a wealth of unused data that can provide a solid starting point for improving traceability.
- Look to supply chain partners to build relationships for data sharing and assessing complementary tools that enhance visibility.
- Don’t get hung up on finding the perfect solution that gives 100% traceability – there isn’t one (yet). And don’t be afraid of being an innovator. First movers are often the biggest winners and others will follow suit, bringing economies of scale.
- Pay particular attention to data collection. Find the gaps, identify tools to close the gaps. Achieving better information will bring early wins. However, even the best technology and tools need strategic human intervention in the implementation phase.
- Efforts to advance traceability will fail without collaboration with trading partners and other entities including competitors and industry associations. Create win-wins by identifying common challenges.
It also helps to recognize that investments in traceability yield important benefits aside from meeting CSR requirements. For example, more transparent supply chains tend to be more efficient because managers have better information on performance.
For more information on the traceability challenge see the article by Alexis H. Bateman, Director of the MIT Responsible Supply Chain Lab, titled “Tracking the Value of Traceability” in the November 2015 issue of Supply Chain Management Review.