Supply Chain Traceability is Important but Confidence is Lacking

Stephen DeAngelis

July 17, 2012

RedPrairie recently published the results of a survey drawn from interviews with “supply chain and operations executives from 130 consumer product goods, life sciences, and food and beverage companies to identify their confidence and capabilities in effectively tracking, tracing and recalling products up and down their global supply chains.” [“Executives Not Confident of Ability to Track and Recall Products, Study Finds,” SupplyChainBrain, 13 June 2012] Among the findings reported, “More than half of executives are concerned about their ability to isolate items with their own supply chain.” That is not good news for businesses or consumers. Other findings from the survey included:

“• Coordinating recall issues with suppliers and distributors is a real concern for almost 70 percent of executives surveyed.

“• Only 51 percent of organizations are able to execute a product recall within hours.

“• Less than 20 percent have deployed traceability technology solutions to help fully-automated trace and recall processes.

“• Forty-six percent say their companies are struggling to stay compliant with regulations.

“• Almost one-third of executives were most concerned that their ineffective ability to trace items would have a negative financial impact on their company. Almost 25 percent of them also cited negative brand reputation as a pressing concern.

‘• Eighty-six percent are worried about their financial liability if something goes wrong with a product recall process.”

RedPrairie points out that executives have every reason to be worried about their company’s financial liability when a recall is necessary. “Costing on average $10m, product recalls are understandably any company’s worst nightmare,” said Simon Ellis, practice director, Supply Chain Strategies for IDC Manufacturing Insights. “New legislation adds increasing complexity to the challenge of successfully executing traceability programs. Technology solutions that help to isolate products, proactively issue alerts and handle inventory reconciliation will be key to avoiding the negative outcomes of a poorly executed recall.”

Perhaps the two sectors that worry most about tainted products and recalls are agriculture and pharmaceuticals. Susan Zucker, supply chain director at Agri-Mark, told the editorial staff at SupplyChainBrain that technology solutions are certainly important; but, when Agri-Mark started looking at how they were going to assure compliance with new laws relating to milk distribution, the company discovered that processes were just as important as technology. “What we thought would mostly be an IT solution turned out to be more about our business processes,” Zucker told the SCB staff. “There certainly are some IT solutions we needed to consider, but we also needed to change how we manage some things.” Whenever change is required, people, processes, and technology must always be considered. Rarely does concentrating on just one of those factors generate the optimum solution to a challenge. On the technology side, Zucker indicated that data integration was critical.

“One long-term project that has tremendous potential for improving traceability is data synchronization, she says. ‘We see end-to-end traceability as the next level of data synchronization because it really is just adding location attributes to other attributes that an item collects from the time it is produced.’ Industry as a whole is still trying to figure out what all those attributes should be, how to store them and, most importantly, how to share them with partners, she says. ‘It is a very challenging problem, because you want to do more than be able to recall products from a particular plant. You need to be able to identify everywhere this material has been within the supply chain.’ The technology is available ‘and might be the easier part of this challenge,’ says Zucker. ‘The question is how do we apply the technology. We need to really think through the key pieces of data we want to collect, where we will collect them and how we will report off that data. Reporting is a big challenge because it has to be quick, accurate and across all plants. We don’t need to wait for a holistic system that gives us soup to nuts,’ she says. ‘We just need to pick a place to start and build on that.”

Tom Kozenski, Vice President of Product Marketing for RedPrairie, writes, “The complexity of our food supply chain has increased exponentially over the past decade as evidenced by the enactment of the Food Safety Modernization Act (FSMA) in early 2011 and a list of recent food recalls.” [“Is Your Traceability Solution Sophisticated Enough for Today’s Complex Food Supply Chains?” Logistics Viewpoints, 22 May 2012] He continues:

“As you know, a tremendous amount of the foods we eat are like sub-prime mortgages—they’ve been sliced, diced, mixed, processed and re-portioned with ingredients that come from multiple suppliers and countries of origin, each with varying levels of quality assurance and local regulations. So in a jar of spaghetti sauce, you may have tomatoes from two (or more) different sources, oil from somewhere else—and don’t even get started on the spices! What ties all this together is that the FSMA pushes the FDA to focus more on prevention rather than treatment and containment of food safety issues after the fact. And that change puts additional responsibility on food companies to be accountable for the 48 million people in the U.S. affected by foodborne illness each year.”

The only way to deal with that level of complexity, Kozenski insists, is to use sophisticated technology. He asks, “Is your company capable of adequately shouldering that responsibility?” His answer, “Unfortunately, it’s very likely that you aren’t.” He continues:

“To effectively ensure food safety in such a complex environment, you need to be able to track all ingredients from the moment they enter the supply chain until items reach consumers’ hands. But that’s just the beginning. A company’s traceability capabilities must cover transport and distribution in order to monitor key details such as temperature control for heat- and cold-sensitive items, and it must extend to and be accessible to suppliers and business partners. Otherwise, all you can track is what goes on within your own operation, and that’s not enough. In other words, if you can provide a real-time, end-to-end record of the chain of custody, that’s great, but it needs to go further than that. You also need to be able to connect to partners’ solutions to incorporate their data and provide 360-degree visibility to everyone in your network as you move forward, monitoring quality assurance, or backward in the event of a recall.”

Like other analysts Kozenski notes that “the consequences of falling short in your traceability capabilities are obvious … and the damage to your brand and overall reputation may be incalculable.” Although the challenge is immense, Kozenski believes that companies can rise to it. He concludes:

“Let’s close on a happier note. The FSMA puts more responsibility on food companies, and that should help push the great number of companies lacking adequate traceability to get state-of-the-art systems and procedures in place to protect both their businesses and their customers. And for one final positive example, consider seafood company John West. Based in the UK, its traceability begins on the high seas, recording the exact location and boat that catches its tuna. But the company goes beyond traceability as a safety and operational issue. It even offers a “Fish Finder” application to customers. By entering a code found on the lid of the can, consumers can tap into point-of-origin information to address concerns about sustainability and responsible sourcing of depleted tuna stocks. So this company shows how sophisticated traceability is not just good for business when it comes to food safety. From a public relations perspective, it can also be very, very good for business.”

John DiPalo, Chief Technology Officer for Acsis, Inc., notes, “We are in an age when consumers are too savvy to rely on brand loyalty anymore. People want more than just reassurances that their medicine and food products are safe. They want to know where their food originated and are demanding a safer drug supply chain. Companies who fail to answer this call will ultimately get left behind as consumers turn toward those can give them access to this precise type of data.” [“Without a trace: Lack of traceability makes product integrity — and profits — disappear,” Acsis, Inc. Press Release, Wall Street Journal MarketWatch, 11 May 2012] Steve Banker reports, “In several industries, pending regulations call for more robust product traceability.” [“Traceability Benefits Can Extend Far Beyond Better Recall Capabilities,” Logistics Viewpoints, 11 June 2012] He continues:

“Many manufacturers view traceability as a necessary cost, rather than something that brings benefits. However, under no regulatory requirement to do so, Bayer CropScience recently implemented an end-to-end product tracking system solely for the benefits it could provide, particularly to customers at the end of the value chain — in this case, farmers. … Bayer CropScience, with revenues approaching seven billion euros, is a key supplier of seed treatment active ingredients to local seed treatment companies. The company already had the ability to trace all the raw materials used in the company’s production lots backwards from the factory. However, Bayer CropScience wanted the ability to provide complete stewardship — as well as end-to-end traceability — for the farmers at the end of the value chain.”

Banker reports that one of most important benefits of Bayer CropScience’s end-to-end traceability initiative “was improved yields.” Banker concludes, “Clearly, traceability projects don’t have to be driven by compliance requirements. They can deliver real benefits to both manufacturers and all key participants across an extended supply chain.” I suspect, however, that most traceability efforts will be driven by compliance requirements. Failing to implement traceability and recall processes could prove costly. The damage to your brand and overall reputation may be incalculable. Kozenski writes, “Remember Peanut Corporation of America? Although that episode in 2008 may have involved intentional misconduct, the company went bankrupt, was connected to hundreds of cases of salmonella and prompted the recall of more than 2,000 other items that contained PCA products.” For more on that topic see my post entitled Traceable Supply Chains and Food Safety. The lesson should be clear, ignore traceability at your own peril.