Guest blog post by Karil Kochenderfer
Much is being posted about product tracing, trace-back and traceability. Rarely, however, do I see the words profitability or ROI in these posts. Are you profiting from your tracing system? Do you have a paper ledger or hyper-ledger, and is it geared toward profitability?
Four product tracing methods exist, each reflecting a different business model and pathway to profitability:
1. Tracing for Government Compliance: The most basic form of product tracing is used to comply with government mandates. Record-keeping requirements under the new U.S. Food Safety Modernization Act, for example, distribute responsibility for food safety along the value-chain and facilitate product recalls.
2. Tracing for Risk Reduction: Here the market sets the threshold for taking on additional risk in the marketplace, most notably through industry standards and customer contracts. Tracing requirements may focus on product safety (e.g., GFSI, F4SS), product quality (e.g., reduced social or environmental impact). Oftentimes, it's both. Once certified, products are traded openly based on trusted linkages between customers and their suppliers.
3. Tracing for Supply-chain Efficiency: Logistics is probably the most important word in business today and is synonymous with product tracing for supply-chain optimization. To be competitive, businesses continually scan the horizon to source quality inputs, prevent supply disruptions, reduce costs and ensure just-in-time deliveries. GS1, encoded in product bar codes, is widely used for capturing this information and represents tracing for supply-chain efficiency.
4. Tracing for Enhanced Value and Reputation: Highly individualized consumer preferences for products with unique attributes have transformed the FMCG marketplace. In response, businesses strive to differentiate their products as “fair trade,” “organic,” “free of” pesticides, preservatives, gluten and harm to bees, turtles or dolphins or to source salmon from Chile, tea from India, wine from France and potatoes from Idaho. Capturing the sizeable premium placed on such products requires product labeling that can be validated only through sophisticated product tracing, isolation and “identity preservation.”
Operating Cost or Profit? The first two product tracing methods mentioned above reflect basic requirements for any business operating in today’s marketplace. They are well-defined and compliance-driven with costs often absorbed within operating budgets. In contrast are the later product tracing methods. They require greater creativity and investment and are driven by businesses eager to differentiate their products either through reduced costs or enhanced product attributes in order to yield greater profit margins.
Determining your business model will help determine your approach to product tracing, the sophistication of your investment in an elaborate IT system and the value it yields in profits for you and your customers.
Do you have a paper ledger or a hyper-ledger geared toward profitability?
Karil Kochenderfer confronted the concept of product tracing in preparing WTO cases on environmental and biotech labeling. Today, she advises clients in the fast-moving consumer goods sector, creating LINKAGES along the supply-chain among producers, retailers, NGOs and others. She helps clients “connect the dots” and think differently, manage special projects with additional breadth and expertise and overcome market and regulatory trade barriers based on twenty years of experience working with many of the world’s well- known brands. Karil can be reached at karil@linkages-b2b.com and you can visit her website at www.linkages-b2b.com.
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