Many companies are striving to improve supply chain traceability in response to increasing demand from customers and government regulators for more information on product flows. The ability to accurately track the movement of products also helps companies to raise the efficiency of supply chains. Researchers at the Malaysia Institute for Supply Chain Innovation (MISI), Shah Alam, Malaysia, evaluated alternative traceability systems for a maker of car lead acid batteries. The research can benefit the company in several areas including warranty management and the tracking of battery life cycles.
The researchers, Sadaf Zaidi and Sekar Pratiwi, undertook the research for their MIT-Malaysia Master of Science in Supply Chain Management program thesis. The thesis was supervised by MISI faculty member Dr. Albert Tan, and won first prize at the 2016 Global SCALE Network Supply Chain Student Research Expo held at the Massachusetts Institute of Technology.
A six-step business process reengineering methodology – select a process, data collection and analysis, map current process, identify opportunities, map “to be” process, and recommendations – was used to explore possible traceability solutions. Barcode, RFID, and hybrid systems were evaluated by the researchers.
The analysis looked at two key performance criteria:
- The granularity of the information about items (SKU level / individual item level) monitored by the traceability system.
- The degree of automation (manual, semi-automatic, automatic) of the item identification and data collection process.
Based on average sales computed from three years of sales data over the 2013-2015 period, the researchers also estimated approximate operational expenses for each scenario.
All three traceability options can deliver the improvements that the company is looking for, however, each one has certain limitations. For example, the barcode and hybrid options allow the company to stack 120 batteries per pallet. But the RFID system requires palletized loads to be configured in a way that reduces the number of units per pallet. Also, the degree of automation depends on which traceability method is adopted.
Assuming no additional labor cost and a reduction in warranty claims of 0.2% of sales, the researchers concluded that the 100% barcode option is the most favorable choice for the company. This system minimizes both the operational costs and the payback period (seven months). In contrast, deploying a 100% RFID system yielded the highest operational costs owing to the price of RFID tags, which are significantly more expensive than barcodes.
Still, the final choice could change in line with the company’s business strategy. If the enterprise wants to make its operations less labor intensive and is prepared to increase capital expenditures, the hybrid system could be the superior option. Another important factor is labor costs. Currently, the company taps into sources of low-cost labor, but if this changes and these costs increase, a hybrid system would again be the best choice because this is less labor-intensive than a barcode solution.
The research underlines the implications of choosing traceability technology, or switching from one system to another. There are significant consequences for capital expenditures, as well as for related policies such as warehouse design and employee training. In addition, improving battery traceability by implementing the recommended solution will enable the company to manage warranty claims more efficiently, determine battery life with a higher level of accuracy, and improve the reporting of manufacturing faults. Other benefits include gains in productivity, and improved visibility of inventory status throughout the supply chain.
This article was written by Dr. Albert Tan, Sadaf Zaidi and Sekar Pratiwi. For more information on this research project and the MIT-Malaysia Master of Science in Supply Chain Management program, please contact Dr Albert Tan at firstname.lastname@example.org. MISI is a member of the MIT Global SCALE Network.