Why is Supply Chain Traceability Important for Sustainability?

Organisations across sectors are under increasing pressure to bring visibility into their multi-tier supply chains and share more information with their partners, customers, and stakeholders. The issue of supply chain traceability is constantly being talked about. Let’s understand why supply chain traceability is important for sustainability and how it can be implemented.

 

What Is a Supply Chain?


Gartner defines a supply chain as a group of functions and processes focused on optimising the flow of products, services, and related information from sources of supply to customers or points of demand.

In simpler words, a supply chain can be understood as a network of all individuals, organisations, resources, activities, and technology involved in the creation and sale of a product or service. A supply chain stretches across different tiers—from the delivery of the source materials from the supplier to the manufacturer to the eventual delivery to the end-user.

An effective supply chain improves the financial position of an organisation, saves operational costs, and contributes significantly to customer satisfaction.

 

What Does Supply Chain Traceability Mean?


Supply chain traceability is the process of mapping the entire journey of raw materials and/or finished goods. It is paramount to industries such as food products and pharmaceuticals, where safety and quality are top concerns. But it can be applied to all industries and can, on a more wholesome scale, contribute to sustainability—in all the senses of the word: economic, social, and environmental.

 

Supply Chain Sustainability


The Supply Chain Sustainability process refers to efforts made by an organisation to consider the environmental and human impact of the journey of their products throughout the supply chain—from sourcing raw materials to production, storage, transportation, and delivery.

The fundamental goal of supply chain sustainability is to minimize environmental harm from factors such as water consumption, energy usage, and waste production.

Conventional supply chain management prioritises cost, speed, and reliability of operations. Sustainable supply chain management adds the goals of upholding societal and environmental value to this. It places on the organization a responsibility to address global issues such as water scarcity, climate change, deforestation, fair labour practices, corruption, human rights, etc.

 

The Process


Traceability of supply chains gives organisations the ability to:

  1. follow goods and/or products as they move along the value chain
  2. collect information such as the origin of inputs, sourcing practices of the suppliers, conversion processes, etc.

Having access to this data gives companies the ability to make predictions, run scenarios, and accordingly optimize operations. Teams can identify unnecessary resource consumption and respond faster to changes in demand thereby fulfilling orders with more efficiency and serving the customers in a better way. Furthermore, leadership teams can identify strategic value chain opportunities, innovate faster, reduce the impact of internal and external disruptions, and certify sustainable products and processes.

Together, these benefits will manifest in the forms of lower costs, higher revenue growth, better ROI, increased market share, and overall improved stakeholder returns.

 

But How Will It Contribute to Sustainability?


Traceability can help in achieving sustainability at three levels.

Economic Sustainability

Traceability in the supply chain can contribute to economic sustainability across the following categories:

  • Cost-saving

The famous case of the food company ConAgra serves as an excellent example of the decline in revenue and/or profit a firm is most likely to face if it fails to implement traceability.

The company had to make recalls for pasta and meatballs relating to ingredient contamination. Because they failed to trace the origin of the ingredients, several hundred thousand of products were recalled.

Traceability in this case would enable withdrawal from a specific production line instead of a massive recall, thus significantly saving costs.

  • Increasing revenue

Traceability can be used to ensure product quality and thereby retain customer trust. A 2007 survey about how different types of traceability can ensure customers’ confidence in meat quality revealed consumers are willing to pay more if the product can authenticate the certifications it advertises.

A 2005 experimental sale of sandwiches with different characteristics of traceability on meat fillings showed that traceability contributes to a 35-40% increase in sandwich price. If a producer can maintain the cost of traceability below the incremental price, this process can increase profits.

With traceability in operation, organisations can also become more responsive to changes in customers’ requirements and adapt to the new requirements in a shorter time frame, leading to an overall improvement in customer satisfaction thereby increasing profit.

If suppliers or distributors can view retailers’ inventories, they would be able to better predict demand on the retailers’ side or share information about consumers’ orders for better sales. Controlling the inventory level of retailers will also allow for better product replenishment by monitoring items on shelves thereby increasing the total sale of replenished items.

  • Protection against sales reduction

An organisation’s inability to prove the safety and quality of its products may cause it to lose customers. Massive recall can cause reputation loss which can easily last for as many as a generation of people, highly affecting the sales of the organisation.

 

Social Sustainability


The aim of applying traceability to social sustainability is to increase social welfare.

  • Consumer & Public Protection

Traceability in the whole supply chain allows an organisation to monitor its suppliers to control the quality of their design and manufacturing. Not only does this reduce the cost of the supply chain but it also increases the consumers’ welfare by providing products that are of higher quality and comply with set standards.

The most common application of traceability for consumer protection is found in the food and drug (medicine) industries.

Traceability can control food hazards by tracking various information from a farm gate to a consumer plate. In the case of genetically-modified organism (GMO) products, for instance, consumers have the right to be able to trace back a product to its producers and verify whether or not the product they’re going to buy is GMO.

When it comes to drugs (medicines), traceability can make it easy to identify cases of counterfeiting. Traceability can be used as an electronic pedigree to confirm movements, transactions, regulatory requirements, and authenticity of drugs. This application will also extend to the cases of stolen, mislabelled, adulterated, and illegally-obtained drugs as well.

  • Local Business & Competition Protection

Global sourcing often affects domestic businesses. Traceability can throw light on this, allowing the society to decide if they want to preserve socio-economic assets. Tracing the supply chain will also help in maintaining fair competition in the market. Hiding information about low-cost global suppliers can prevent other companies from accessing the same sources, hampering competition and leading to a monopolistic environment.

  • Animal Protection

Animal treatment is increasingly becoming a selective factor for consumers. They are actively looking for options that treat animals in a fair, non-cruel way. Monitoring labour activities in food processing plants can put an end to animal abuse by exposing improper nurture and/or labour practices.

The Butler’s Choice certification scheme in the Netherlands, for instance, ensures ethically-sourced, quality food. The implementation of such a scheme traces each operation in food processing to ensure that food producers follow certain rules that increase animal welfare.

  • Labour Protection

Consumers can refuse to buy a product if they have reasons to believe that an organisation employs child labour to produce it. Traceability can prevent children from being in the labour force before reaching the legal age.

Environmental Sustainability

Traceability can contribute to environmental welfare that may directly or indirectly underwrite sustainability.

  • Preventing Illegal Fishing

Mislabelling and sale of some fish species as others because of prohibitions on catching is a common practice. The application of traceability to this issue can help:

  1. force fishery firms to identify the fish origin or fish type, and
  2. apply a certification scheme to ensure legal practice.

This by extension applies to all areas where any form of malpractice is prevalent.

  • Improving Environmental Resources

Tracking raw materials will help companies streamline manufacturing processes thereby reducing idling time for machines, which in turn will reduce wasted energy and materials. An extended application of this principle can help support zero-waste manufacturing and a circular economy.

Applying traceability to protect environmental resources can also become a primary tool for corporate social responsibility (CSR). A 2011 case study exemplifies this by showing how lumber firms implemented CSR to ensure the woods they procured from their suppliers are not coming from preserved forests of illegally cut logs.

  • Preventing Pollution

A particularly interesting application of traceability is found in the management of e-waste. Recycling or reusing electronic waste without proper handling would pollute the environment. Removing valuable metals from acid-based circuit boards creates highly toxic wastewater which, when running off directly from a river, pollutes soil and air as well.

In the food industry, standard traceability practices can prevent chemicals in manufacturing processes from being released into the environment.

 

Technologies That Can Streamline Supply Chain Traceability


Implementing traceability from concept into action requires up-and-running traceability systems that continuously track information such as product routes. The more information (such as batch number, production time, production conditions, etc.) a traceability system can record and provide, the more targeted and efficient the product recall, and therefore monetary and reputation loss, can be.

The most commonly used identification and localisation technologies today include:

  • Alphanumeric codes

Alphanumeric codes refer to a sequence of letters and numbers of varying sizes that are attached to products or their packaging. While the design and principle of alphanumeric codes are simple, a huge drawback is that they require quantitative human resources to operate and manage both code writing and reading.

This unautomated process results in large labour costs and errors in the data. Moreover, alphanumeric codes are typically generated by an organisation itself. There is no set standard which often makes it difficult to share the data among different parties.

  • Bar codes

A barcode is an optical representation of data that when read through a machine shows the data of the object it is attached to. Bar codes are a quick, accurate, and low-cost method of encoding information which can easily be accessed by economical electronic readers.

Implementation of bar codes allows the data to be read automatically, eliminating the potential of errors from manual data input. Bar codes are a useful tool for collecting, processing, recording, transmitting, and managing business data and can be applied across manufacturing, warehousing, distribution, and retail industries.

  • RFID

Radio Frequency Identification (RFID) uses radio waves to automatically identify objects. This technology is considered the next stage in the barcode evolution. This technology contains a wireless microchip attached to an antenna in the tag. The antenna enables the microchip to transmit the information to a reader in the form of radio waves. The reader then converts these waves into digital information.

RFID tags are generally hard to counterfeit and exhibit high data integrity and can function well under rigorous operating conditions such as snow, corrosion, dust, vibration, etc.

RFID tags can be read without manually scanning the object, saving significant labour costs.

  • GIS

Geographic Information System (GIS) is a computer-based tool that can organise, analyse, manipulate, and manage spatial information and provide the user with accurate visual information.

GIS can provide general configuration and features of the earth’s surface as well as implantation of agricultural products. If we divide and code the cultivated areas on the basis of the information GIS obtains, each area can have a unique code which will connect to product information such as fertiliser management, feeding stuff, pesticides, ambient water quality, etc.

This is beneficial in two ways—it visualises the provenance of each element in the supply chain and gives the administration the opportunity to use the data to estimate environment capacity and thus control the amount of planting.

  • GPS

Global Positioning System (GPS) is a satellite-based radio-positioning system based on a constellation of 24 satellites continuously orbiting the earth. GPS can provide real-time, 3-d positioning and navigation throughout the year and all over the world.

This technology can be used as a tool for traceability in the fishing process to collect data relating to fishing grounds and catching and landing times. This allows fishing grounds to be identified. This will help in 1) maintaining the quality of the raw material and 2) avoiding over-fishing.

  • Blockchain

Blockchain technology can not only strengthen traceability but also add a dimension of immutable transparency to the supply chain. A blockchain’s shared IT infrastructure can streamline workflow for all parties irrespective of the size of the business network. All system participants have access to the supply chain which helps establish trust between them.

A blockchain also allows accurate product tracking which can help the teams predict internal and external risks and accordingly take action to mitigate the same.

Correct implementation of the blockchain can also help reduce errors, avoid product delays, eradicate fraudulent activities, and increase customer/supplier trust.

Walmart actively uses blockchain technology for monitoring meat sales in China. The system shows where the meat comes from, the process of each step of its journey to the customer, and records everything in the supply chain up to the date of sale. The company can access information about who sold and bought the meat, which can be helpful in many scenarios.

Challenges


Taking on new technology brings some level of risk and challenges. Some of the most common challenges associated with the implementation of a new software include:

  1. suppliers and partners unwilling to compromise
  2. staff struggling to adjust to new processes and tools
  3. lack of training and practice before implementation
  4. implementation and management costs
  5. lack of a genuine commitment to contribute to organisational, social, and environmental welfare.

 

Way Forward


The entire exercise of implementing traceability comes from having a genuine commitment to bettering the experience for all parties involved. Without that, every effort is futile. However, if and when that realisation has been achieved, an organisation can start to streamline the process with the help of three basic steps.

  • Locate issues across the supply chain

Organisations can truly understand the impact of making products only when they determine how natural and human resources are being used at every step of the production process.

In addition to this, paying close attention to environmental, social, and economic issues is important as well. For instance, LCD manufacturing leads to the emission of fluorinated greenhouse gases into the environment, and coffee plantations often hire underage workers to cultivate and harvest coffee beans.

The Way World Wildlife Fund (WWF) has applied over 50 indicators for measuring the nature, probability, and severity of supply-chain risks in the production of different commodities serves as a good example.

  • Connect supply chain sustainability to global sustainability

Once the issues have been identified, organisations can focus on lessening the impact of these issues. Ideally, this would refer to basing their goals on recommendations provided by scientists to bring various types of sustainability impacts under thresholds in order to improve or maintain human well-being.

For example, the Intergovernmental Panel on Climate Change has defined global targets for reducing the emission of greenhouse gases. Based on these recommendations, WWF and CDP have estimated the consumer-staple and consumer-discretionary sectors in the US should cut their GHG emissions by 16-17% and 34-35% respectively. Achieving these targets would allow the respective sectors to save $15 billion and $38 billion in costs.

  • Assist suppliers with managing impact

Because of good purchasing power, consumer brands hold significant power over their suppliers’ business practices. This influence can be used to assist suppliers in reducing sustainability impact.

For instance, between 2010 and 2015, the membership in CDP’s supply-chain program rose to 30%, with the number of suppliers reporting through the program increasing by 4x. This supply-chain collaboration led to a reduction of more than 3.5 million tons of carbon emissions, saving the suppliers an average of $1.3 million per emission-reduction initiative.

How Can the Cannabis Industry Benefit From Supply Chain Traceability?


With the booming growth of the cannabis industry, implementing supply chain traceability is imperative. Cannabis legalization is rolling out around the world. With this comes regulatory compliances, which if compromised at even a single step can harm the entire industry.

Gaining public trust has always been a challenge for cannabis companies and the challenges lie all along the supply chain–how are products sourced, manufactured, distributed, tracked for quality, etc.

A crucial key to producing safe and high-quality cannabis products is detailed traceability. Cannabis is vulnerable to the same kinds of hazards as most food products. Therefore, it is important to control public health hazards such as toxic chemical contamination, mould growth, pathogenic contamination, etc.

Applying traceability technology can help the cannabis industry mitigate these problems by notifying teams about inconsistencies in inventory, certification expirations, etc. Traceability for cannabis must also be capable of handling complexities of procedures such as terpene and/or cannabinoid extraction. It should track not just cannabis plants and their related derivatives but also every other ingredient, material, and packaging used during production.

Supply chain traceability can also assist the cannabis industry in:

  • Product Expansion: the increasing acceptance and consumption of cannabis-based products has led to the development of a myriad of products–from edibles to personal care to textiles. Though this creates more opportunities for cannabis companies to turn a profit, it also increases the complexity of managing different product specifications and handling requirements.

Using supply chain traceability can help monitor every product at each step of the process. Things like labelling, packaging, shelf-life, distribution, marketing etc. can all be accounted for while maintaining effective costs.

  • Seed-to-Sale Traceability: seed-to-sale traceability is crucial to improving operations, staying compliant with regulations, responding to errors, and maintaining customer trust. The implementation of traceability technology allows the organisations to adhere to the set regulations and gives the customers confidence in products.

The Bottom Line


Traceability, transparency, and mapping in the supply chain can help organisations better understand and respond to the most crucial risks and opportunities in their multi-tier supply chains. The rewards of getting it right are substantial. Companies that build and implement vigorous traceability processes will not only gain trust and confidence from customers but will also be able to meet the stakeholders’ sustainability and regulatory demands. In the long run, this strategy will allow companies to deliver strong growth and profits, enable new business models, and contribute to social and environmental good.

Apurva Sheel
Apurva Sheel
Apurva Sheel is a communications consultant with 3 years of experience in the Indian cannabis industry. Her thoughts and opinions find expression in writing.

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