The ability to track and trace products is fundamental to sound supply chain management. Traceability affects supply chain efficiency, product safety and security, managing deep tier risks, on-time delivery performance, troubleshooting customer issues, controlling costs, and regulatory compliance.
Companies need to address the way they evaluate supply chain traceability to make the right investments, and to mitigate the risks of missing their sustainability goals and suffering reputational damage in the event of a supply chain failure. However, while these demands are increasing and are extremely dynamic, traceability technology is confusing and, in a number of respects, behind the curve.
At a recent roundtable on supply chain visibility held at the MIT Center for Transportation and Logistics, one shipper seeking to improve traceability in their supply chain commented that there are “many fragmented players, different technologies, lots of choices, and no single standard.” These sentiments capture the problems that often frustrate the adoption of effective traceability solutions.
In a typical scenario, materials and products are traced only at certain phases of the supply chain, and data is not communicated effectively between trading partners.
Such issues have long been a cause of frustration, particularly in the use of data to both pinpoint operational inefficiencies and support risk management programs. In cases where technology can solve for some of these frustrations, companies often struggle to evaluate the mix of solutions available, and are deterred by the lack of a clear ROI.
Among the various technologies that are available to assist in tracing materials and products throughout supply chains, the most common ones are alphanumerical codes, bar codes, RFID tags, and GIS. Depending on the product and needs of the company, technologies are selected based on the product and production processes, and levels of automation in the supply chain.
Alphanumerical codes are inexpensive but require human resources for code writing and data input. Bar code systems—the most frequently used tracing technology—offer high levels of automation and are economical, but require manual screening that leaves room for error. RFID tags, long hailed as the future of product traceability, track materials in real time with precision and no manual intervention. However, the cost of tags is still prohibitive in many applications. GIS is similar to RFID, but the technology uses radio signals that are collected by satellites or cell phone antennas as opposed to radio tag signals.
While many of these tools are in place in certain phases of the supply chain, often information collected at each point is not translated across the chain between actors. Consequently, data management is carried out in silos, which leads to a fragmented view of the supply chain. In many cases the problem is not so much a lack of data, but that data becomes stranded in internal systems. Moreover, tracking data is often limited in scope, inappropriate for a company’s needs, or mismanaged. The need to provide additional data to support sustainability objectives adds more complexity. And, most of the information is limited to location, which does not inform companies of impending risks or provide sufficient decision-making support.
A technology that could leapfrog many of these issues and transform supply chain traceability is blockchain, the computing system behind Bitcoin. Because the information generated in a blockchain system is crowd-sourced, competing or conflicted actors can cooperate because no one organization has control of the information.
The blockchain computing system creates an encrypted record of a transaction and sends it out to all other nodes in the network. In supply chains this means serial numbers, barcodes, or tags representing physical goods in the system. Once sent, the nodes perform complex cryptographic calculations on the data record and verify the “block” of transactions as legitimate. After the nodes agree that a “block” is legitimate, it is added to a ledger that then serves as the next version of cryptographic calculations for future transactions. In this way, the transactions or exchanges are continually being extended and verified collectively. This is important because through verification of other nodes, the system is resistant to fraud.
Even blockchain has drawbacks, however. The security and reliability of a network is reliant on the size or the number of nodes involved. The technology is ideally suited for applications in complex supply chains, but less so where there are relatively few actors.
Organizations such as Provenance have been the first to offer this type of system for supply chains with testing the ability to trace T-shirts to Africa and tuna to Indonesia.
Although the path to improved supply chain traceability is not clear, the need to achieve improvements in this area can only increase. The Responsible Supply Chain Lab has identified several critical benefits of investments in traceability. For example, companies can verify the integrity of their supply chains with data. The data also makes it easier to evaluate and participate in related initiatives to certify products, inform sustainability reporting, and create media outreach programs. Also, having a clearer picture of product movements reduces risk by making supply chains more transparent.
Alexis H. Bateman, is Director of the Responsible Supply Chain Lab at the Massachusetts Institute of Technology’s Center for Transportation & Logistics. She can be reached at [email protected].
This piece appears as part of KnowTheChain’s blog series on the intersection of technology and supply chain transparency. Follow the discussion at: http://bit.ly/1kPLLw8.