June 21st, 2023

The challenges and opportunities of implementing traceability in the supply chain

Traceability is the ability to identify, track and trace elements of a product or substance as it moves along the supply chain from raw goods to finished products. Traceability is important for tracking the provenance and journey of products and their inputs, from the very start of the supply chain to end-use. Traceability also supports sustainability by providing data and information on the environmental and social impacts of the supply chain.

However, implementing traceability in the supply chain is not a simple task. It requires overcoming various challenges and leveraging various opportunities, such as:

  • Technology: Traceability relies on digital tools and platforms that can collect, store, share and analyze data across the value chain. These include sensors, barcodes, RFID tags, blockchain, cloud computing, artificial intelligence and machine learning. However, these technologies also pose challenges such as interoperability, scalability, security, privacy and cost.
  • Standards: Traceability requires common standards and protocols that can ensure data quality, consistency and compatibility across different systems and stakeholders. These include data formats, identifiers, taxonomies, ontologies and certifications. However, these standards also pose challenges such as complexity, diversity and compliance.
  • Regulations: Traceability is influenced by various regulations and policies that can incentivize or mandate certain practices and behaviors in the supply chain. These include laws, rules, guidelines and agreements on product safety, quality, origin, labeling, disclosure and reporting. However, these regulations also pose challenges such as variability, uncertainty and enforcement.
  • Stakeholder collaboration: Traceability depends on effective collaboration and coordination among various stakeholders in the value chain. These include suppliers, manufacturers, distributors, retailers, consumers, investors, regulators and NGOs. However, these stakeholders also pose challenges such as alignment, trust and incentives.

To overcome these challenges and leverage these opportunities, companies need to adopt a strategic approach to traceability that can help them achieve their business and sustainability objectives. According to Bain & Company, this approach involves four steps:

  • Connecting traceability to sustainability and business objectives: Companies need to identify how traceability can help them improve their efficiency, resilience, competitiveness and sustainability in their specific industry context. They need to define their goals, metrics and targets for traceability and align them with their value proposition and stakeholder expectations.
  • Building a collaboration ecosystem across the value chain: Companies need to engage with their value chain partners and establish a shared vision and roadmap for traceability. They need to define their roles, responsibilities and contributions for traceability and agree on the data governance and sharing mechanisms.
  • Deploying key enablers such as data and technology: Companies need to select and implement the appropriate data sources, technologies and platforms that can enable traceability across the value chain. They need to ensure that these enablers are interoperable, scalable, secure, privacy-preserving and cost-effective.
  • Taking a rapid test-and-learn approach to get started: Companies need to start small and fast with a high-value application of traceability that can demonstrate its benefits and feasibility. They need to test their assumptions, learn from their results and iterate their solutions. They also need to monitor their performance, measure their impact and communicate their progress.

By following this approach, companies can transform their supply chains into transparent and circular value chains that can reduce or reuse materials and remanufacture or recycle products—lowering costs and creating less waste. They can also redefine the boundary of operational excellence and set aspirational new goals for themselves and their stakeholders.