Why Complete Traceability is Important in the Food & Beverage Industry

In our last two episodes, we’ve talked about the supply chain from multiple directions – From AI-driven consumer data to the supply chain’s impact on food safety, this final episode of our second season connects all of the dots.

With us today is Maggie Slowik, Global Industry Director for Manufacturing at IFS. During the episode, we talk about the biggest challenges facing the industry right now, including how food and beverage companies are operating in an environment that's influenced by a lot of change. We really hone in on why is traceability so important and its essential role in maintaining an efficient – and resilient – supply chain. We cap things off talking about data, the Internet of Things, and how manufacturers can work with companies like IFS to better utilize their ERP systems.

Transcript

Erin: Welcome to the special bonus episode of the Food for Thought Podcast. Why don't we get started with first talking about you and your role at IFS?

Maggie: Hello Erin, and thank you so much for having me on this podcast today. I work for IFS, a global enterprise software solution provider that and has a very strong focus on the manufacturing industry. But we also serve other industries, predominantly those who produce goods or maintain and operate assets.

I'm an industry director for manufacturing at IFS, with very dedicated focus on food and beverage, as well as other process manufacturers. And that means that I get to look at the big trends that are shaping the manufacturing industry today, but I'm also the eye and the ear of our customers to understand what they're motivated by and how they need to change, and therefore how we at IFS need to shape a product roadmap accordingly. We then work with our R&D and product management team to make sure that we really embed these insights and feedback accordingly.

Erin: Can you talk to me about some of the key challenges facing the food and beverage industry right now?

Maggie: The food and beverage space is a very interesting one, because there's so much change; it’s coming from all angles. The biggest and most obvious challenge is meeting the legislations and laws that surround food and beverage manufacturing. Whether it's the Food Safety Modernization Act in the U.S. or the general food law in Europe. Regulations have become a primary driver for improved traceability in the food industry. And not only a driver, but also a license to operate in a given market, really, and the challenge with regulations for food and beverage company is to stay on top of them because they always change and they get updated.

And another challenge or opportunity is changing consumer behavior. Consumers are dictating a lot of the change in the industry, and that is for two main reasons. For one, consumers today are much more knowledgeable and demanding about the food they purchase. And they have literally become information obsessed and they demand closer connection to the food.

What they want is more in-depth product information beyond what is already provided on the physical label. Research shows that consumers are even willing to switch to another brand if they cannot get this kind of transparency with a product that are already using. Second, consumers also change their preferences rather quickly, right? Just think about your own preferences and your sort of relationship to the foods and beverages that you buy, and think about alternative forms of protein or moving away from meat, less sugar, less salt, or changing to more organic and sustainable ingredients. These are all things that consumers demand. And they put significant pressure on manufacturers to develop new products to fend off new entrants coming literally from nowhere and overnight.

And that ties nicely to new product innovation, which I see as another challenge in this industry. And that's about bringing new products to market quickly. That's critical because you need to retain shelf space with major retailers and you need to satisfy consumer needs. And in food and beverage manufacturing, demand planning and fulfillment require organizations to be very agile since the ingredients they are dealing with have limited life and the planning cycle, it can be very short. Seasonality on external influences like weather and also social media, for example, they can have significant impact on demand-planning on a daily basis.

We can also talk about competition, which is another key challenge driver for our food and beverage manufacturers. The market today is very competitive with new entrants appearing out of nowhere, as I mentioned before, because of advances in technology making it much easier for them to start up a new company. I think of the pandemic and how many food and beverage companies built online sales channels to not lose out on those opportunities to sell to the consumers. But more importantly, to build a much closer relationship with consumers at the end of the day. They really increased their chances to be in touch with these consumers and really understood their behaviors and their preferences today, as well as in the future. The bottom line with these challenges that I just highlighted is that food and beverage companies are operating in an environment that's influenced by a lot of change. And they need to be able to operate very quickly and under very compressed timelines today.

Erin: Let's talk traceability. What does that mean? Why is it important? And what's at stake if not done properly?

Maggie: The increased focus on food safety by regulations and industry bodies as well as rising consumer awareness requires producers to have end-to-end traceability capabilities. They need to be able to trace backward in the supply chain to inform consumers where raw materials came from as well as be able to immediately recall delivered goods when there is a reported quality issue.

What exactly is traceability? Traceability is the process that provides the identification of all relevant data as well as data relationships for the ingredients and raw materials used in the sourcing and the production, but also in the distribution of those finished products and goods.

Good traceability is only possible if enough tracking information is available and if the systems covering different process steps are connected and integrated. And this is where technology comes into the picture. Traceability can apply to the entire supply chain or value chain of a company, from the upstream section that focuses on tracking the receipt and the intake of raw materials to manufacturing processes, and then all the way downstream as finished goods are distributed to the final customer destination.

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At the end of the day, full transparency, or the ability to provide a full history download of a product may for some food and beverage companies be the worst nightmare but for others, it can also be the greatest opportunity. Given the challenging environment that we're in, traceability is not just a matter of mere regulatory compliance, but it is gradually becoming an enabler of competitive differentiation for brands. And while the industry in the past used to simply react to events in the past, today, food beverage manufacturers they really must demonstrate an increased focus on preventing these problems before they even arrive because the cost of not doing for properly is gonna be really big.

Why is traceability so important? I already hinted at it, but the reason why traceability is important for any food and beverage manufacturer is because it has the capability for end-to-end transparency, for quality, but also for recall readiness. But it's also operational excellence because the byproduct of most internal traceability projects is that companies can achieve much better knowledge of their processes. And this opens up further process optimization opportunities. In reality, traceability, good manufacturing practices, and operational excellence are all interconnected.

And what exactly is at stake if traceability is not done properly? I think most of us remember media headlines like the horsemeat scandal in the UK many years ago. Even though this was a while ago, contamination incidents are still happening today. Recall incidents can cost a food and beverage manufacturer and its associated retailers hundreds of thousands, if not millions in direct costs. And direct costs can be things like legal costs, or replacing products on supermarket shelves, for example. But even more worryingly there's also these indirect costs. And this is the impact on the share price of a company and the impact on the brand or the reputational value. And this has really far-reaching consequences. And in some cases, this can be the biggest threat to profitability yet.

Erin: You mentioned benefits a little bit ago. Let's talk about that. What are the benefits of traceability?

Maggie: There's several ways of looking at benefits when it comes to traceability. Traceability initiatives, they can vary across food and beverage manufacturers all the way from a reactive approach to a more proactive one that delivers more value-added benefits in return.

Let's take a look at some of these benefits bottom-up, if you will. I already talked about the criticality of compliance with regulation. But that is just a bare minimum, and quite frankly, it doesn't add any business value per se, even though it ensures that a food and beverage company is legally viable to have a market presence to begin with.

Another benefit, and this is a level up, is on speed and efficiency of recall. If a recall is required, a food and beverage company must have the ability to pull the affected products off store shelves very efficiently and in a timely manner. Because that is key for damage remediation, and brand reputation and protection, and most importantly, ensuring public health. And here being able to identify the exact source of potential contamination quickly and accurately matters because it leads to more targeted recalls, in other words, lower or smaller recall batches or lot sizes, and less cost in downtime associated with investigations. But quite frankly, lower administrative costs associated with processing recalls, and investigations, and informing the media, and damage compensation to retailers, as well as end customers and of course, stock recovery.

These two types of benefits that are talked about are more on the sort of reactive camp of benefits. Let's take a look at something that is a bit more advanced in approach and adding more value and return on investment for a company that's really taken a serious effort at traceability. And that is really when a company has granular knowledge of any details from sourcing to delivery in a very extended way, potentially multi-site, multi-company, and across different countries and regions.

Because with access to data spanning across the end-to-end process, companies are now in a position to analyze the supply chain for insights and improvements to, for example, meet the real needs of the individual market and better predict future customer behavior, as well as trends. And finally, the most, what I would call value-add benefits is when the food and beverage manufacturer has achieved end-to-end traceability and they can leverage this capability for competitive differentiation by demonstrating that they are viable and trustworthy to their retailers and that they are also a reputable brand to those, as I mentioned before, information-hungry consumers, who are really looking for that sort of trusted brand in the market. And on both accounts, this really enhances brand value because you now can have a much better customer relationship.

Erin: Can you talk to me more about what the role of data is when enabling traceability?

Maggie: Data is really paramount because it helps with determining expiration dates, and shelf life, recipe structures, and knowing exactly what has gone into a product and which batch it relates back to. Companies have a lot of data, although being able to easily access accurate and real-time information is not exactly easy. Just imagine there are pockets of siloed data stored in applications throughout the entire organization and all of this can be harnessed for traceability purposes. As long as data can be captured, it can be managed and shared across the organization. And if any organization can do exactly that. They can make use of the data to make timely decisions, manage corrective actions, but also capture new opportunities.

Erin: How does technology enable food and beverage manufacturers to drive traceability?

Maggie: There are still a lot of manual processes in place. The reality is that quite a lot of companies are still using spreadsheets, which is not a very effective approach. What you really need to be good at traceability is technology-enabled tools, apps and software which allow you to log and process those massive amounts of transactions and product information that are going through your organization, or that you process as an organization. For example, smart labels such as radio frequency identification, also known as RFID, and QR codes are able to carry a lot more information than traditional barcode labels. And then think of the Internet of Things, IoT, and the business opportunity it offers to process manufacturers. In some cases, it has actually revolutionized supply chains as it can collect data from literally anywhere. This means consumers are now able to scan a product label with an app on their smart phone or smart device, and they can immediately track its journey back or down the supply chain, giving companies the chance to show full transparency into their products.

But IoT is not just efficient in the automated collection of data, but also the analysis. Everything from the temperature of the transportation truck, to the source of ingredients can now be recorded using IoT-enabled devices. Product quality can also be monitored as soon as the item leaves the factory, or the field, or the warehouse, giving companies real-time automated and intelligent actions to ensure complete traceability. There are a lot of tools, apps, and solutions out there that can help companies capture information.

But that also poses another problem, right? Because where do you store this vast amount of data? And how can it be analyzed and be used to achieve real business objectives? At the end of the day, food and beverage manufacturers, they need a modern flexible enterprise resource planning solution, an ERP that is cloud-enabled and that unifies data and processes from different sources into one single digital thread. In fact, an ERP can process, analyze, and act on large volumes of data generated by IoT in real-time. And this really turns ERP not only into a strategic decision-making tool, but also a suitable technology to enable end-to-end traceability.