Over the past few years, security precautions have been put in place to protect this country from domestic and international terrorists, health-related outbreaks, and even financial shenanigans among others. In spite of that, however, the most important pipeline-the food supply-has mostly been ignored and even neglected. The European Union has had food traceability regulations in place since 2005 with the U.S. taking a less than direct approach with voluntary, mostly arbitrary programs. With the U.S. Food Safety Enhancement Act of 2009 (HR 2749) having already passed the House and a similar Senate version (S510) on the fast track, mandated system-wide traceability is coming. While food safety may be the catalyst, the benefits extend beyond food safety and into the supply chain by increasing visibility, and potentially long-term profitability.
From a food safety perspective, traceability is a necessity if businesses are to have a clear and immediate visibility into the source for food and ingredients received and more importantly, the recipients. This not only minimizes damages for individual companies, but protects industries and their partners from damage to reputation and sales. If the sales of unsafe items are ever made, the ability to track distribution is critical in both reducing the costs and scope of a recall.
However, one significant aspect of system-wide traceability that has an even more immediate financial impact is real-time inventory visibility and ongoing collaboration across the supply chain. Fundamentally, traceability is about collecting and understanding data to make informed and critical decisions. Traceability systems are nothing new, and many food suppliers use them for numerous reasons including supply chain management, specialized targeted marketing, and food safety and quality control traceability. But, while the technology has existed for years, the high price tag and IT resource requirements have been barriers to adoption to all but the largest companies.
From the farm to the dining room table, retailers such as Wal-Mart and Sysco and logistics companies including D.B. Schenker and Associated Global Systems (AGS) have implemented some form of traceability system. And, understandably, the vast numbers of businesses today are even more sensitive when discussions about system-wide tracking system arise in an uncertain economy. Conversely, this also explains why less than 30% of warehouses in North America have an inventory management system in place. The consequence is that most companies have no visibility into their supply chain let alone traceability.
Because traceability inherently also means real-time visibility and collaboration, financial benefits can be reaped rather quickly. Livestock provides a good example of how traceability works both from an inventory management and business perspective. Over the past several years, an industry that has had its fair share of recalls due to contaminated product is the meat industry. Time and time again, discovering the source has proven difficult and time consuming not to mention devastating to the industry's image. To identify the origins of a specific piece of meat, information must be available to determine the specific animal it came from and the ranch where the animal resided.
One method of tracking is through a unique identifier similar to a license plate. Similar to a car, assigning a license plate on each piece of meat identifies the ranch. By entering the animal identification number through a specially established Web site, businesses can access information related to the animal and ranch. Consumers would have access to the compliance and health inspection history for that ranch. For the ranch, it's all about visibility into its supply chain. On a typical day, the ranch can streamline operations, diversify product offerings and revenue channels, and improve customer and partner relationships. In the case of a recall, the ranch can identify exactly what has been recalled and its origins using the identification number, which not only saves times but a significant amount of money and resources.
Although price sensitivity explains the hesitation and resistance by businesses, technological innovation such as on-demand Inventory Management Systems has made traceability affordable and with the many financial benefits, a worthwhile investment. Also known as Software-as-a-Service, the on-demand approach in inventory management has gained momentum within the small business community as well as with large enterprises because of its cost-effective and flexible framework. Via a Web browser and a live Internet connection and using a tracking method such as bar-coding or RFID, businesses have visibility on every item across single or multiple facilities within their supply chain. From fruits, vegetables and livestock to packaged goods and crates, any item can be monitored and tracked anywhere within the supply chain.
Supply chain-related activities and the ability to reduce costs while creating additional revenue is the difference between those who succeed and those who don't. While important in the perception of food product quality and safety for consumers, traceability of products and activities in the supply chain is a new factor of competitiveness for businesses of all sizes.
Like it or not, traceability and supply chain management go hand in hand. Risks will define the livelihood of your business whether they come from product recalls and liability or from more agile competitors. Real-time visibility and collaboration with those in the supply chain will determine how effectively you respond. While the fundamentals of business may not have changed, the rules certainly have, and only you can take advantage of them.
Jim Burleigh is CEO of SmartTurn and has more than 19 years of software experience. He is a seasoned supply chain innovator. www.smartturn.com
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