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April 05, 2010

Traceable Supply Chains and Food Safety

Illnesses and deaths associated with tainted food are a constant concern for consumers, retailers, and suppliers. In addition to physical consequences, economic consequences of food recalls can be enormous. According to a recent study, food-borne diseases cost the United States $152 billion annually in health care and other losses ["Food-borne illnesses cost U.S. $152 billion," MSNBC, 3 March 2010]. In the worst cases, companies go out of business. You might remember that a year ago tainted peanut butter products manufactured by the Peanut Corporation of America cost the food industry over a billion dollars in lost production and sales ["Peanut industry: Recall price tag $1 billion," Associated Press, MSNBC]. Although it is nearly impossible to eliminate tainted food from the supply chain, being able to track food from grower to retailer can help mitigate the effects of such contamination. Being able to track food also has other benefits, like helping optimize the supply chain and reducing the carbon footprint of the food we eat. A pilot project in the Netherlands has demonstrated some promising results in this area ["A fresh perspective on tracking supermarket produce ID tags," by Ross Tieman, Financial Times, 27 January 2010]. Tieman reports:

"Does an electronic tag costing just 10 centimes of a euro hold the key to developing the more sustainable supply chains we will need in the future? Radio Frequency Identification (RFID) tags have failed to achieve the widespread adoption that many were forecasting almost a decade ago. But a two-year pilot project in the Netherlands using RFID tags to track the flow of fresh vegetables from farm to supermarket has shown fascinating cost and environmental benefits. Creating an efficient supply chain to stock supermarkets with fresh produce matters more than you might imagine. Fresh fruit and vegetables sourced from a variety of countries are a staple of our diets. Because they decay fast, we buy them every few days. They arrive at big retailers by the tonne and are often displayed at the entrance to the store. So ensuring they are at the peak of freshness is critical to retailers, consumers and the environment alike: a wilted lettuce or brown bananas thrown away are a waste of human effort and money. In environmental terms, they represent carbon needlessly produced. Getting the right amount of fruit and vegetables to the store, in perfect condition, with a minimum of carbon released during transport, is the ultimate low-carbon supply chain challenge, with lessons for distribution of other goods."

Tieman believes that "tomorrow’s supply chains are likely to look increasingly different from those we use today." One of the biggest differences, he believes, is that organizations will more often than not share supply chains. He explains:

"A report from the Global Commerce Initiative, a manufacturer-retailer alliance to promote better supply chains, warns that many changes are on the way. The study, 2018 Future Value Chain, highlights consumer trends and pressure to reduce carbon footprints as two of the biggest drivers of change. In emerging countries, consumers are still discovering supermarket shopping. In developing countries, home delivery is on the rise, and everywhere, online shopping attracts new customers. That is changing distribution demands, at a time when retailers and manufacturers are seeking to cut their carbon footprints and their costs. One way to solve this conundrum, the report concludes, is a shift to shared supply chains. Shared logistics could improve efficiency of transport, and reduce the number of half-empty trucks and vans congesting cities. But goods travelling in shared loads need to be instantly distinguishable and traceable. RFID tags can provide the information that would enable delivery driver, distributor and retailer to track the goods and ensure the right product reaches the right customer, and minimise the carbon footprint."

Clearly, shared supply chains will require a lot of shared information -- and not just information derived from RFID tags. Suppliers, transporters, and retailers are all going to have to share information if orders are going to be satisfied, delivery trucks are going to be filled fully, and shelves are going to be fully stocked. Tieman continues:

"So what are the lessons from the use of RFID tags to track the humble lettuce? The Vers Schakel project was a collaboration between seven interested parties, embracing a supermarket, its suppliers, and technology specialists and the Wageningen University. Its mission was to discover whether there were benefits from putting lettuces into RFID-tagged crates at the packing shed, and tracking them through the supply chain until the contents were sold and the crates returned. It sounds simple, but unlikely problems had to be overcome. Finding a glue to stop the tags falling off the crates proved difficult, and iron ions in some green vegetables made first-generation tags unreadable. But Ard Jan Vethman, global RFID leader at Capgemini, one of the participants, says that knowledge of where each crate was all the time yielded clear benefits. In-store quality improved, because the system could send automatic text or e-mail alerts if a crate was left out of the fridge too long. The quantity of vegetables thrown away was reduced, because staff could easily get them from the retailer’s fridge in date order, but also because everyone knew how much stock was in the supply chain, and where. Improved information 'enabled the retailer to ensure nothing went out-of-date', Mr Vethman says. The producer got a surprise bonus: fewer rush orders meant less overtime paid. Across the system, the investment payback proved to be 2.7 years. The cost and environmental benefits were clear. But to reap them, information had to be shared. 'One of the biggest challenges of RFID systems,' says Mr Vethman, 'is that they require close co-operation and agreements between partners along the entire supply chain'. That, rather than the 10 centimes a tag, may prove the bigger barrier to greener products."

I couldn't agree more. Before leaving the topic of RFID tags, I want to mention a recent article that discusses printable RFID tags that could replace barcodes on many if not most products ["Hidden RFID tags could mean end of bar-codes and lines at the checkout," by Darren Quick, Gizmag, 19 March 2010]. Quick reports:

"Newly developed radio-frequency identification (RFID) technology could usher in the era of checkout line-free shopping. The inexpensive, printable transmitter can be invisibly embedded in packaging offering the possibility of customers walking a cartload of groceries or other goods past a scanner that would read all the items at once, total them up and charge the customer’s account while adjusting the store’s inventory. More advanced versions could even collect all the information about the contents of a store in an instant, letting a retailer know where every package is at any time. Researchers from Rice University working in collaboration with a team led by Gyou-jin Cho at Sunchon National University in Korea, developed the new technology which is based on a carbon-nanotube-infused ink for ink-jet printers first developed in the Rice lab of James Tour. The ink is used to make thin-film transistors, a key element in radio-frequency identification (RFID) tags that can be printed on paper or plastic. ... Paper or plastic tags printed as part of a package would cut costs dramatically and the roll-to-roll technique, which uses a gravure process rather than inkjet printers, could replace the barcodes that currently appear on just about everything we buy. ... There are several hurdles to commercialization. First, the device must be reduced to the size of a bar code, about a third the size of the current device. Second, its range must increase."

Even if ubiquitous RFID tags provide more and better information, sharing that information is problematic. Companies are concerned that competitors will obtain shared data and gain a competitive edge or they are concerned that the cost of sharing data will cut into their profits or that shared data could corrupt IT systems. Nevertheless, the only way to significantly improve supply chains to discover ways to share data more intelligently. My company, Enterra Solutions, believes that Resilient Supply Chains are only possible if they become smarter through the intelligent sharing of sensitive information. Returning to the topic that opened this post -- the risk associated with tainted food -- Bob Ferrari, Managing Director of The Ferrari Research and Consulting Group LLC and Executive Editor for the Supply Chain Matters blog, recently discussed the importance of traceability in the supply chain ["Supply Chain Traceability and Risk Mitigation are New Table Stakes"]. He wrote:

"Readers of the Supply Chain Matters blog ... know how often we have been highlighting incidents of supply chain risk related to product recalls originating from contamination or bogus materials. ... One common aspect of many of these incidents is when certain products originating from specific suppliers are the source of the contamination and the effects rapidly cascade to other multiple product-related supply chains. ... The most recent real-time incident involves the suspected contamination of hydrolyzed vegetable protein (HVP), which is an ingredient incorporated in many food products. On March 4th, the New York Times reported that thousands of processed foods, from soups to hot dogs, contain this flavoring ingredient that is suspected of being contaminated with salmonella. The specific supplier named was Basic Food Flavors of Las Vegas Nevada, and the original discovery was made by a customer upstream in the food processing supply chain. The U.S. Food and Drug Administration (FDA) inspected the Basic Foods plant in February and uncovered salmonella in the company’s processing equipment, which led the company to voluntarily recall all of its HVP product produced since September 17, 2009, over five months worth of production. ... Once again, the important take-away reinforced by these ongoing incidents is the critical importance that both supply chain traceability and risk mitigation have become as required process capabilities, and how important technology helps in supporting such capabilities. An overdependence of regulatory agencies to discover and track the actual sourcing of contamination often implies that the supply chain has already been impacted by an incident. This mandates the need to be able to quickly and efficiently trace where certain products were manufactured, and to which customers or retail outlets they were distributed. It also implies the ability to be able to quantify the overall risk involved and the ability to quickly quantify, assess and implement risk mitigation plans. Having a supply chain planning system that can perform what-if analysis and quickly re-plan for alternative ingredients is rather fundamental, as well. Our community often looks to P&G as the benchmark in world class supply chain capability. It should therefore be no surprise that within days of the original announcement, P&G was able to trace what specific end-products were or were not at risk, what lot numbers were involved, and was able to transmit important information to consumers on a dedicated web site. Successful risk mitigation occurs when proper planning, process, and information technology enablement are in place. Too often, the negative effects come when they are not in place."

The basic "take-away," to use Ferrari's term, from the two pieces cited above is that information sharing is becoming a necessity in the modern supply chain. Systems that share information must be able to help with planning, real-time events, and post-event auditability. I'm certain that as more information is shared by stakeholders in the supply chain more benefits (and risks) of that sharing will emerge. I believe the benefits, however, will far outweigh the risks associated with information sharing.

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