Digital transformation has seen the supply chain become more fast-paced and efficient than ever before. It has become truly global, with manufacturing hubs across multiple countries meeting the demands of consumers worldwide.

The far-reaching ecosystem of suppliers, vendors, manufacturers, retailers and others has made supply chain management even more complex. The proliferation of geographically and politically diverse environments has also meant that companies are constantly faced with new regulatory conditions, local challenges, threats and opportunities.

To overcome these challenges, supply chain managers need access to real-time information about all variables in the supply chain, which means they need unprecedented levels of transparency. Managers who can achieve traceability in their supply chains will be able to identify disruptions, ensure quality, recognize strategic opportunities, respond faster to changes in demand, streamline inventory, better manage risk and reduce the risk of delays and disruption, all while keeping budgets lower than ever.

Traceability in the supply chain is the ability to identify and track the entire chain of movement of any product, at any stage, as it changes hands on the way to the end consumer. It includes everything from the raw-material source to various indirect suppliers, through the manufacturing process and to the retailer. Traceability allows organizations to get precise information about the origin, practices, processes and other variables in detail.

However, even after digitization of the supply chain, very few companies, usually niche players, currently have the technology to achieve the level of traceability that’s needed to upgrade their supply chains.

The alternative has been to employ supply chain workers to make calls and send e-mails with static Excel attachments to gather information on what was going on, and to implement tracking measures reactively, typically in the event of shipment losses or delays, rather than preemptively. 

Why Is Traceability Critical?

Initially, traceability became necessary because of regulations, especially in industries such as food and beverage, where standards for compliance were becoming extremely stringent. In a global supply chain, with different regulatory requirements at various points along the chain, regulatory compliance becomes much easier if you have traceability in place.

Traceability is also invaluable in managing disruptions, especially when it uses historical data and algorithms to predict where delays are possible, where oversight is needed, and what steps need to be taken to mitigate specific risks. In supply chain management, risk is an everyday reality: involving anything from raw-material shortages, lost products and shipment delays to disruptions due to political conflict or labor unrest. During the pandemic, when companies found their supply chains devastated, they realized how important it was to have information to help them respond faster to risk, build backups and predict future risk.

Traceability also supports an increasingly important goal of supply chains worldwide: sustainability. Companies and consumers want to know that the products they buy are sourced sustainably —where they come from, and what sort of practices and processes go into the choices they make.

Understanding where the maximum carbon utilization is along the supply chain, or where resources such as energy and water are wasted, can help reduce the carbon footprint and prevent waste. Companies that track sustainability are in a position to aim for a zero-waste supply chain, even before environmental regulations mandate it. Traceability also sets the foundation for sustainable practices such as recycling at scale and the establishment of a circular economy.

Some businesses have already started turning the transparency of their supply chain into a marketing strategy, validating the marketplace’s preference for responsibly farmed, ethically sourced products. 

The First Step Toward Traceability

To achieve traceability across supply chains, companies first need to identify the exact outcome that they expect from the undertaking. Businesses typically adopt traceability technology to facilitate greater regulatory compliance, enhance reliability and sustainability, improve customer engagement, create a more resilient supply chain and insulate themselves from risk.

More than simply acquiring a new technology platform, traceability offers businesses an opportunity to move toward a new business model based on complete operational transparency. So before they investigate the right technology platform and services provider to implement the suitable traceability technology, business leaders need to engage in cross-functional discussions to ensure collaboration among all stakeholders. The business has to implement its own internal operating model and identify what its data acquisition strategy will be.

As the supply chain moves from a traditional, linear model to one that’s dispersed, dynamic and global, businesses need a technological supply chain management tool that’s driven by data, artificial intelligence and machine insights, enhanced collaboration and empowered stakeholders. Traceability is a strategically critical aspect of the supply chain of the future, and will provide new and exciting growth opportunities for businesses and their partners.

Moving toward the greatest level of traceability is more than a strategic decision that optimizes growth. It’s a new value system that could transform the supply chain for a future that’s good for businesses, consumers and the planet.

Carlos Moncayo is co-founder and chief executive officer of Inspectorio.