Traceability must solve business challenges to enable E2E visibility

Enabling traceability will create new opportunities for supply chains to be more sustainable and resilience.

In brief:

• Traceability requires companies to develop action plans and clarity on the purpose of enabling the technology
• Business leaders need to engage with stakeholders to create a sustainable supply chain from external pressure.
• EY has a proven methodology that enables digital traceability, across the supply chain network to see the legacy of the product.

After years of focusing on trimming supply chains to become as efficient as possible, companies have been struggling to find themselves in the new reality of unpredictable environments affected by e.g., the Covid-19 pandemic, the blocking of the Suez Canal, global supply disruptions across industries, and other events. Today’s leaders need to build resilience and build processes to steer around the disruptions, with increased flexibility, creating insights into how to handle changing demands and disrupted supplies before it damages the supply chain, brand reputation, and customer experience.

Moreover, the increased focus on sustainable and socially responsible supply chains is increasing the complexity of the external environments; this being both directly from the customers, but also regulatory requirements across the globe, demanding information about the source of supplies. We now see companies tracing the supply through their E2E supply chain, going e.g., 5 tiers upstream, reaching full transparency.

New markets conditions for certifying sustainability and social responsibility more intensively, are becoming the reality for most companies, much sooner than expected, and will be the cornerstone of supply chains of the future. The right frameworks and existing supply chain technologies can help organizations be proactive and use this information as a competitive advantage to both increase revenues and minimize costs by avoiding regulatory penalties.

However, the technologies themselves will only come as an extra cost unless organizations plan their approach carefully, and identify which business challenges they are solving. Technologies and the data used will be very different depending upon which business purpose the traceability platform tries to solve:

1. Being a platform for documenting origin to avoid costs associated with increased laws and regulations.
2. Using traceability data to boost sales and marketing, increasing demands by targeting consumers with a focus on sustainability and social responsibility.
3. Using traceability data to handle the supply side of the business, e.g., reduce the footprint of the supply chain.

1) Governmental pressure in terms of sustainability and social responsibility is being affected across the world as a part of the increasing focus on the sustainable development and agenda e.g. the German government has affected, on 1 January 2023, legal actions for certain companies in Germany that are now obligated to make efforts to ensure no violation of human rights in the end-to-end Supply Chain. EU has affected certain reporting requirements for companies to cope with sustainable standards, where companies are forced to report on sustainability risk, society, and environmental impact, anti-bribery, corruption, etc. It emphasizes the patterns of governments across the world targeting the sustainable agenda more intensely. Companies are therefore questioning how to manage their supply chain profitably while coping with the new legal actions and taxation, all in the already changing and competitive landscape. Companies will also be subject to green initiatives affected on a country level e.g. Countries of the EU have pledged to reduce their emissions by at least 55% by 2030, and that 40% of the energy in the EU must be sourced through renewable energy.

2) Consumer patterns have been rapidly changing towards a heavy focus on sustainable and responsible products and services. We have therefore seen a transition for companies to establish more sustainable and responsible supply chains. But we have also seen many companies that have claimed the above, and then later been exposed to the opposite, resulting in greenwashing. Therefore, actively tracking the end-to-end origin of a product through the exploded bill-of-material, can document the truth. The next step is then to use this information as a competitive advantage through the marketing of the products and services, to win market shares and increase revenues, based on the unique selling point and demand for sustainability and transparency.

EY has helped many organizations trace their supply chain data and then made the data available to the consumer, to see the actual product journey of the product in their hands. This can include relevant information about sourcing of raw materials, production and transportation methods, accessed through a QR code, and enabled by e.g. planning software or blockchain technology.

3) While the use of data enables traceability, the solution can also be the enabler of making better supply chain decisions e.g. lowering the CO2 footprint of the company.

We measure performance to improve it. Today’s supply chain is typically optimized based on parameters such as costs or lead time. But with traceability solutions, we can add data points focused on e.g. emission levels, waste, and forced labor, resulting in several opportunities for supply chain planners, for instance:

• Efficient use of resources is a step towards sustainability, why the measurement of e.g. energy or raw material use, can lead to an increase in efficiency, hence also more sustainable performance.
• Use of more sustainable raw materials to ensure greater utilization of recycled and more sustainable sourcing for components in production
• Select more sustainable packaging methods or raw materials to be used in the BOM.
• Select a longer, mixed, but more sustainable, transportation method, depending on the customer’s lead-time sensitivity e.g. using a ship instead of a plane.

Whether we are talking about regulatory-, demand- or supply drivers, or perhaps a combination of the three, the companies of the future must be able to build transparency and visibility of the data across the end-to-end supply chain. The data will be very different, sometimes focused on certificated, CO2 emission, scrap, forced labor, etc., depending on what purpose the company is trying to solve. The same goes for the technologies enabling traceability in the supply chain. In some cases, there will be a need for advanced planning solutions from leading technology firms, and in others, a simpler blockchain solution can do the trick combined with a nice customer-facing app, giving access to the relevant information for that specific company and industry, through a scanned QR code on a product.

The use of traceability technologies will accelerate the core business value of E2E visibility in the supply chain.

To get clearness on how traceability can solve essential business challenges, it is crucial that companies: 

A) Identify key regulations and new customers requirements, 

B) Develop a process for data to create digital passport – and certificates by utilizing their suppliers as data providers,

C) Implement a platform for the management of data from the end-to-end supply chain

Based on the above, EY will host an event in Copenhagen 12 May, where traceability will be discussed for the sustainable supply chain to enable immutable and tamper-proof data, and real-time access to ministerial and region data through the use of traceability system solutions.