Supply chains face a future full of challenges: abrupt changes to the market, increased volatility, the need for more flexibility and speed, reduced environmental impact, etc. New digital technologies bring the prospect of the change needed to enable such challenges to be overcome, but preparation is required if they are to be fully harnessed.
Traceability is a priority in terms of the incorporation of these technologies, which will enable greater automation of the supply chain. In the article that follows we address these issues.
Definition of traceability in the context of supply chains
Traceability in a supply chain is the process of identifying and monitoring the origin and transit through the different stages of products and their components, from the beginning of the supply chain until they reach the end consumer.
In other words, traceability provides information making it possible to ascertain the location of a product at all times, as well as the route it has taken and will take. There are sectors in which traceability has historically been very important, such as food and pharmaceuticals, above all for reasons related to health.
Although this consideration may not be a priority in other industrial sectors, traceability offers other opportunities. In fact, it is almost mandatory if certain levels of automation and efficiency are to be achieved within the supply chain.
Importance of traceability in industry
Traceability has a direct impact on companies‘ bottom lines by reducing logistics and manufacturing costs, increasing service quality (and associated revenues) and facilitating an efficient approach to new business and geographical markets.
In certain markets where sustainability is becoming increasingly important to consumers, traceability offers companies a great opportunity to comply with regulations and demonstrate the truth of claims such as “emissions neutral“, “organic” and “free of child labour“. A product cannot be labelled as sustainable if there is no traceability system collecting and validating the data that proves it.
But at what point are we currently located? What is the traditional approach to traceability in supply chains?
Starting point for supply chains in industry
The traditional supply chain approach is underpinned by two principles: cost optimization and being assured of the flow of work/transportation. These days this approach falls short, because it has become essential to include a key element in the supply chain: the end customer.
One of the most important indicators today is customer satisfaction. A large part of this satisfaction comes from the fulfillment of product deliveries in a timely manner. But there is growing demand for other requirements, such as those related to the environment and social responsibility.
As if that were not enough, we must add to the cocktail the complexity of operating in the current marketplace: commercial and transportation operations at a global scale, with additional requirements stemming from the COVID-19 pandemic and, in some sectors, a shortage of resources and supplies.
Challenges of the new supply chains
The challenge facing supply chains is considerable. As mentioned above, it is no longer enough to ensure delivery and contain costs. There are also other factors to be taken into account (for which traceability is essential) such as the following:
Globalization of operations:
The siting of manufacturing stages (design, manufacturing, assembly, etc.) in various locations around the world, increased demand in emerging countries, different regulations and production costs depending on location, etc.
Failure to adopt an adequate approach to respond to manufacturing globalization can result in increased transportation times, delivery quality problems and increased costs. This is evident from a study by the consultancy Minsait, which states that almost 60% of Spanish companies report problems with the delivery of their products.
Focus on the customer:
As customers become increasingly demanding, it is no longer enough to focus on a cost optimization strategy. The success of a supply chain inevitably involves extending and including suppliers, carriers and customers at all stages. Customer satisfaction will depend to a large extent on the interrelationship between all these parts, with traceability being the cornerstone.
By visibility, we refer to the part of traceability shared with the customer and other actors in the supply chain. It’s increasingly necessary to share more information for greater transparency, which is closely related to globalization and increased customer demand.
But, at the same time, it’s necessary to simplify the data collection process so that it does not incur complexity that adds delays or costs to the supply chain. In this context, the incorporation of new technologies is essential, such as blockchain technology, as we explain elsewhere in this article.
Naturally, cost containment continues to be one of the main challenges. Most supply chain improvement measures are aimed at achieving savings that are sustainable over time and independent of cyclical factors. Here again, the incorporation of new digital tools is fundamental, and therefore a traceability system that generates sufficient information to take advantage of the full potential of data analysis tools is necessary.
Traceability as the starting point of the digital revolution in supply chains
New challenges and the advance of digitalization in industry have made traceability a key element in the improvement of supply chains. The trend is towards the efficient integration of technology, processes and people, both within the company itself and at other stages of the supply chain.
Most organizations are clear about the need to invest in traceability, but not all are a the same stage. According to data from the Global State of Traceability Survey (2021), 58% of companies are still in the early stages (establishing their traceability strategy or starting pilot tests) while only 15% are already obtaining an economic return on investment.
A paradigm shift is needed and the old view of the supply chain has been rendered obsolete. Today we have the technology to trace every component of the production system, either by means of the IoT (Internet of Things), massive data analysis (big data), new communication networks(5G or WiFi 6), etc.
This new traceability capability will enable companies to improve their efficiency, resilience and sustainability, redefining the supply chain concept and reaching new heights of quality. Companies that do not possess a traceability system will be perennially exposed to any type of unforeseen circumstance.
For example, when the cargo ship Ever Given ran aground in the Suez Canal in March 2021, it blocked the passage of hundreds of vessels for six days. This severed supply chains around the world, resulting in estimated losses of $10 billion per day. Companies that knew which ships their cargo travelled on were able to rearrange delivery routes to minimize stock shortfalls. Companies that did not have this information could only wait for the problem to be solved.
Where to start?
The first step always involves establishing a strategy and starting with a pilot test that is scalable once its operational performance has been verified. This task can be challenging on many levels: data management, technology, system scaling, etc. At Centum we have experience in Industry 4.0 solutions, digitalization and the use of Big Data and Artificial Intelligence algorithms to help you. If you want more information you can get in touch with us.