In a previous post, I wrote about the way a global traceability solution can help manufacturers to quickly and cost effectively comply with ever-changing global regulations, which are designed to make our supply chains safer and more secure. Manufacturers that develop their global traceability systems and processes can reduce risk and more nimbly respond to opportunities in new regions or markets. While this is a terrific benefit, there are actually many other reasons to invest in a global traceability processes and solution, five of which I have detailed below.
- Ease compliance with global regulations. There are many ways a global traceability solution can help simplify the complex process of achieving regulatory compliance on a global scale. Elevating traceability to the global level standardizes processes and data, which leads to a lower cost of compliance, reduced risk and stronger customer relationships. To see further discussion on this topic, please see “Investing in Global Traceability to Ease Regulatory Compliance”
- Improved recall process. When a quality or compliance failure leads to a product recall, companies face not only $10’s of million in direct costs, but much more. According to a 2010 IDC report, in addition to direct costs, there are hits to the stock price, loss of customer loyalty and damage to the brand. The report indicates that it typically takes months or longer for stock prices to recover. And, another report found that consumers typically will not return to a product for at least one year following a product recall. If a company can leverage its global traceability capabilities to quickly contain problems before they enter the distribution channel, they might obviate the recall in the first place. At the very least, accurate genealogy and traceability capabilities enable targeted recalls which significantly reduces the cost and impact of a recall.
- Greater inventory visibility. Inventory is one of the most expensive assets, typically representing up to half of total invested capital (source). The first step in controlling that cost is enterprise-wide visibility to inventory levels, location and status. ERP will have aggregate finished goods inventory information, but typically does not have the level of granularity needed and will have little to no visibility to Work in Progress (WIP) or Semi-Finished Goods (SFG). To seriously reduce inventory waste, timely and granular visibility to inventory at a global level is needed. To make matters worse, WIP and SFG data is often locked up in multiple plant-level applications across the enterprise. A global traceability solution that can pull detailed data from disparate systems into a single, central repository does more than power your compliance initiatives – it opens the door to Six Sigma, Lean and other continuous process improvements that improve efficiency and reduce waste.
- More timely and accurate upstream and downstream data. The GS1 standard as well as most regulatory initiatives such as California’s ePedigree law, require that each party in the supply chain can provide “one step up and one step down” traceability. That means every party tracks back to their direct supplier and forward to the direct recipient of their goods. For many companies, the challenge is improving upstream visibility to include not only their direct (or “Tier 1”) suppliers but to those suppliers further upstream (“Tier 2” and “Tier 3” suppliers). Downstream traceability is also a challenge for many manufacturers, and a growing requirement in most industries, where regulations hold manufacturers responsible for their products through end of life and disposal. This issue presents an opportunity for manufactures. Maintaining visibility to a product after it enters distribution has significant economic benefits. It lays the foundation for better synchronization of the supply chain, improved and more far-reaching containment capability and greater understanding of demand.
- Improved returns process. It’s estimated that in some industries, 50% of product returns shouldn’t have been accepted, due to product expiration, counterfeiting, or other issues. How much does your company lose to returns? Don’t forget the hidden costs. For instance, a manufacturer might make incur costs unnecessarily, such as unneeded engineering reviews, shutting down the wrong lines, or attributing the problem to the wrong supplier. A comprehensive global traceability system can dramatically improve returns reconciliation.
The next step in addressing your traceability needs is to assess your own capabilities and risks, which includes evaluating both traceability processes and manufacturing IT systems. And, while I’ve presented 5 compelling benefits of global traceability, achieving world class performance is never easy. One common stumbling block is the proliferation of disparate manufacturing systems across the enterprise, which results in inaccurate and untimely access to data. But, ripping and replacing manufacturing systems is probably a non-starter, so a solution that avoids that is more likely to be approved and funded.
Are there other financial reasons for investing in global traceability? Leave a comment below and share your company’s experience.
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