Digital Supply Chains Know Where Your Lettuce Comes From

If you have any suggestions for the show or topics you'd like to hear, find Danta and me on Twitter. We'd love to hear from you, and of course thanks for listening. Okay, onto the show. Today, we're going to talk about supply chains. To keep up the regulations around ethically source products, greenhouse gas emissions, products, safety and consumers who want to understand more about the things they buy, companies need a lot more visibility on their supply chains.

This weekend the show, we've got Curtie fasta digital industry analysts for BENF She'll tell us about new developments and track and trace and how implementing advanced technologies and systems to more deeply understand their supply chain can make a company's operations safer, more efficient, and competitive. Our discussion is based on report titled track and Trace Digitalizing Supply Chains being if. Users can get this report on benif dot com,

the benof mobile app, and the Bloomberg terminal. Oh and near the end of the show, Courage mentioned another report she's working on. It's called ben IF National Industrial Digitalization Ranking. Well that's out now you can go read that too. As a reminder of BENO does not provide investment or strategy advice, and you can hear the full disclaimer at the end of the show. Him Mark Taylor here with Danna Perkins, and you're listening to switch On. Hi, care tee,

Thank you for joining Mark and I today. Thanks for having me on the show. So we're here today to talk about track and trace. And I must admit the first time that I heard that phrase was in response to actually tracking of people in COVID, But there is a much bigger application at the industry level. So I want to understand today why did you begin writing a

research note about track and trace technology. The idea behind track and trace is really to help companies gain full transparency and visibility of the goods that they're buying and selling within their supply chains. Track and tracing products isn't necessarily a new thing. Supermarkets retailers have been using bar codes, r f I d s to track their products for decades.

But the reason why we're writing about this now is because we've found that companies just don't know enough about the products that they're buying and selling to satisfying new regulations around safety and quality of goods, or even just meet customer demands for more sustainable, ethically sourced goods. And so we recognize this issue and we're trying to help companies get ahead of it and really think a bit

more about tracking and trace. So, Curtie, it seems that companies, when consumers and regulators are pushing for this track and trace in the products, but it seems that you know, when companies are asked where their products are coming from or where their supplies are coming from, it seems to be a kind of a generalized shrub. Is that the case, and if companies want to start to get a handle

on it, what are the options available to them. So what we're finding is just to meet these new regulations and these new customer demands, you know a shift towards organic sustainable products. You're right, customers don't often know enough about where their products are coming from, how they were mind the components used to make these products. But there

are solutions in place and technologies. Some of them have been used for years, so bar codes, for example, they're often used on batch levels on food products, so supermarkets commonly use them, and you know, they provide a basic level of identification of goods. And as we try and collect more detailed information, r f I D tags are being used, often in combination with sensors to track more information to things like location as well as temperature, shock

tilt of goods. And this information is really useful for things like high value assets such as let's say wind turbines or machinery that are being transported long distances. And then customers can actually go even further and collect more data if they track end to end across their supply chain.

And more recently we've seen examples of blockchain being used so like a Ledger based system to really track this data and habit on a trusted, reliable platform and then it can then be shared amongst their other stakeholders within their supply chain. So there's a kind of a range of technologies out there that customers can use to use track and trace. Which industries employ this technology the most

right now? Initially because of government regulation, it was the pharmaceutical sector that really drove the uptake of things like barcodes, r F I D serialization on products. But if we think about more of our BNF relevant sectors, so the mining industry is a good example. So asset provenance STATA is understanding where a product comes from is really crucial.

Often metals, precious jams, extremely valuable materials originate from these countries that face challenges when it comes to responsible labor, health and safety, and so you know, supply chain transparency helps companies make sure that the goods that they're using, the raw materials they're using are indeed ethical and they align with the standards that the company wants to abide by.

So recently we've seen automakers like BMW, Volkswagen, Ford but in place ethically sourcing initiatives for cobalt, which is used in e V batteries. And I think that's like a really interesting example given that it's the companies themselves that are trying to like build these platforms and find solutions to this problem. We've talked about where products come from, but are there other applications of track and trace? I

guess I mean like real time tracking. Yeah, so when it comes to real time tracking, track and trace generally go hand in hand. The tracking element is also really portant and often you know, barcodes, sensors, r f I d s do this really well for logistics companies, manufacturers, retailers, and it's just like when you buy something online, you know, you can track your parcel into it reaches your doorstep.

In the same way, companies are being encouraged to share their logistics information for their stakeholders to understand where their inventories are in their supply chain, and this has been really helpful for companies to manage their inventories, cut their operational costs, and eventually kind of make their supply chain so efficient that it becomes a competitive advantage for their business. So yeah, tracking is equally as important as understanding the

assets provenance of the tracing Part two security. When we talk about the various different forms of track and trace technology that's available out there, how reliable is track and

trace technology? When I think about it. I really think about things that you know, we receive as end consumers, and the first one comes to mind, or something like a diamond engagement ring, where it's more than likely very important to the end consumer that they know that it is conflict free and more importantly, you know, did not

involve any human suffering. That said, there have been various journalists who have uncovered that really what you're end up getting at the end of the line, that's not necessarily the case. And I know that this technology isn't always applied to individuals like ourselves, and it's not designed necessarily to give the end consumer visibility, and it's more for companies to have visibility regarding their supply chains. But how reliable are track and trace technology for us? That's a

great question. And immediately the technology that comes to mind is blockchain. So blockchain has attracted a lot of attention as the technology for end to end track and trace, and just to take a step back, what it is is it's a type of data system that maintains records of data to enable multiple stakeholders to really access the

same information confidentially. And it's come up is one of the most reliable, secure platforms of track and trace, because it's encrypted and it's tamper proof, and any attempts to change information on a blockchain would be flagged and inspected. And so in the case of you know, diamonds or precious metals, as you mentioned, it has been commonly used, and I think in mining as well, we're likely to

see it used more. But of course there is this element of skepticism I guess with blockchain, given that good data practices might not always be in place, particularly upstream

in the supply chain. Companies might not necessarily upload information immediately, or it might not be automatically uploaded, which is ideal, is the ideal way that blockchain data should be tracked, right, because if people have the ability to put in information themselves, there's chances that there's potential fraud or information that's uploaded

that isn't necessarily true. And so a company that we spoke to called Treum has a platform that can be configured in a way to analyze data and detect potential fraud and counterfeit products, and and so there are there are ways of overcoming this challenge, but like you say, it's a relatively new technology. It's yet to mature, and there is a bit of skepticism around how it's being used. So Curtius, seems like you're saying that it's good data in,

good data out and vice versa. Right, And this, at least this one startup is trying to be a police of that. Is there really just a risk of using blockchain that people just won't upload the data and it won't get up taken that way, Yeah, so upstream in the supply chain, particularly where things are mined in agriculture

as well. These these countries are not necessarily don't necessarily have high levels of connectivity Internet access to you know, automatically have tracking tags to submit data onto a blockchain, so you'd want it to be done immediately, right right, right, And so where tracking tags are used, you know, it's a lot more reliable and that can consider you know,

data that's been captured to be true and trustworthy. Assuming that there are a lot of benefits to the companies that participate in track and trace, what are the barriers right now to this being more widely spread In terms of the challenges for track and trace, there are a number of them, and one of the main ones is

into operability. So a lot of times when companies digitalize their supply chain, they often go with this system without really collaborating with their stakeholders and their partners, And what kind of ended up with is multiple companies using lots of different systems, and it turns out that like logistics, companies end up having multiple platforms that they then need to configure with to update data and track and trace the collectrack and trace information. So this is really quite

a challenge. And more recently, what we've seen is that blockchain appears to be a potential solution to this give and that it offers a single trustworthy database where all supply chain stakeholders can update upload their data. So a likely solution to that could be blockchain. If people upload

their data, right, that's kind of the robin all of it. Yeah, yeah, so if if companies are willing to share their data, and so that's the next kind of challenge that I wanted to talk about is that data sharing and data privacy is another thing. In order for track and trace to really work, stakeholders need to work together and collaborate

in share data. But there is this general reluctance among companies to share data with their peers and partners despite the potential benefits of you know, efficiencies, gains, operational improvements, costs that they would say, So, even where data is anonymized, there's I guess a risk that peers or competitors may deduce any operating advantages or strategies that the company has built from that data. And so that creates this general

reluctance to share data. And then where they do share data, data primacy is a real challenge, so you know, companies, particularly where data protection laws and regulations might differ across countries, companies really need to be on track of that and make sure that they know what where they stand with that. And that adds another layer of complexity as well. So if I am a company interested in getting a handle on this or getting into this, like it seems kind

of daunting, right where should I start? I mean, we did mention all the different technologies available, but how would I go about being a responsible company in this uh, in this space Because there's so much cooperation required, right, Like, so many companies have to be involved in the same chain in order for it to work, right, it sounds like it's kind of almost a nonstarter. Like maybe that's why people haven't been doing it as much as because

it just sounds really hard to get going. I think when companies approach track and trace, there really needs to be a driving force for them to want to collect more information, have this visibility and transparency within their supply chain.

And an example in the agricultural sector is where safety is really a key priority and you know, food traceability, being able to trace back batches of certain products and where they were were farmed really helps in cases where there's eco light outbreaks or food born illnesses and then results and recalls. So an example is with Walmart who put in place a food traceability initiative, and what they did was they required all of their suppliers of leafy

greens to join this blockchain based traceability system. And given that they are such a large organization, they have the power to really encourage their suppliers to get on board and start tracking and tracing where their products are coming from. They enabled this system to work and has actually been in place for a couple of years now. So I think that's one way in which in order to get arted.

If there's this driving force and you know there's a stakeholder within your supply chain that's really pushing this to kind of happen. Then it's it's certainly doable. Now. One thing that Walmart was able to do was actually make sure that the adoption costs that farmers were we're having to pay to kind of get on board with the blotchain based system and were kept quite low and they didn't really incur much costs in order to do this.

So I think in that sense it kind of helped suppliers of leafy greens to kind of get on board. But otherwise it is it is a challenge, and yet there really needs to be this driving force or some sort of motivation that companies need to start tracking and tracing. And you're talking about where people really want and need this implementation to come from. So one that immediately comes to mind is the necessity around well, so the potential

necessity around Scope three emissions. And that's really where my question lies is how critical is it to have this track and trace to technology in place across the entire supply chain of particular industries. As more companies are coming to the table saying that they are going to have,

you know, potentially net zero Scope three emissions targets. And by scope three emissions, I mean the emissions that will be associated with all of your in this case and consumers and all of the suppliers that are actually selling items to you. Yeah, So, like you said, scope through emissions refers to understanding our stakeholders emissions and making sure that they're thinking about reducing their emissions as well. And so the track and trace definitely helps in this area too.

Given that track and trace gives visibility, it gives transparency, It allows customers just to understand where their products are coming from. So you know, in relation to this, we've seen oil and gas companies recently announced a number of ambitious targets around corbon reduction, so shall Hotel, BP in the last six months have all made these sort of targets. And while they are interested in track and trace, I

think they are also thinking about their supply chains. So add Nock was an example that we looked at in our research note who basically implemented a blockchain based system just to manage the data that they were collecting on their individual business units. And I think that was really successful for them, and I think in this way, by collecting data, they're also conscious of carbon emissions and other

sort of E s G related metrics. Thinking about emissions and an asset providence and consumer preferences and regulation, Which do you think is going to be the biggest driver? I really lashed onto big companies being the instigators or pushers or drivers for this track and trace movement, But what reason do you think will be their biggest one for for doing it? Again? It comes back to the motivations and the driving forces that companies have to to

really adopt track and trace. I think consumers demanding greater transparency is probably the one that particularly for consumer goods in agriculture, food, even healthcare, we're going to see companies adopted because because of consumers, there's been a growing proportion of millennials, particularly who are a little bit skeptical when products are sourced as ethical, organic, and what we're familiar with is like fair trade and sort of certifications that

might have been used in the past no longer kind of being as important, and customers want to be able to actually find out exactly where there products are sourced from. So I think consumers shifting in this way would would actually be a driving force. At the same time, you know, there is regulations and governments actually thinking about being able to understand more about products as well. So an example

actually is in Russia. The government there have put in place a system where they actually want to understand more about products across all sectors, including dairy, including footwear and apparel, including bicycle tires. So they want to implement a track and trace system across all these sectors, and they're really

pushing companies to do that. Similarly, in the EU, actually they announced a green deal earlier this year, and as part of that there was a mention around circular economy or sustainability initiatives to have potential product passports attached to certain types of goods like textiles, electronics, and this would allow companies to track things like emissions, track their carbon footprints, understand the components that are being used, maybe even push

industries to be a bit more cop conscious of the materials that they're using, given that now it's actually accountable through the track and trace data. So I think there's a number of driving forces there, and those are two which I think will be probably the most impactful. I started the podcast talking about how the first time I heard about track and trace, as in regard to COVID, and there's another element that is actually extremely relevant right now.

One of the things that we noticed when people first originally started to go into more restrictive lockdown measures was that supply chains started to break down. And there's some conversation right now around relocalization of supply chains. How critical is track and trace to supply chains in terms of the localization or globalization and how it interplaces with kind of both of those ways of doing business. There's been this broadest speculation among companies who might start thinking about

reassuring their supply chain. Personally, I think that it's a lot easier said than done. In reality, on showing a supply chain, particularly for a large multinational company, would be incredibly complicated and create cost and efficiencies as well. I think if it made economic sense to do so, then it's arguable that companies would have probably done that already. It wouldn't have take a pandemic to actually realize that

that's that's the case. I mean, I think although there is this kind of conversation around it, I'm not sure companies will really think about it seriously. However, this is where I think track and trace can really make a big impact because it's a smart way for companies to gain the control and visibility that they need. And actually it's probably a lot easier to implement just by using technologies instead of moving all of your relationships and your

complex network of suppliers around. So this links actually to a research note that I'm currently working on, which is looking at digital policies and initiatives that countries are announcing for a ranking that we put together of national digital strategies, and some countries like France, for example, have also started thinking about bringing manufacturing facilities and research projects around, particularly

around healthcare pharmaceuticals, closer to home. So while companies are thinking about this, I think governments are also thinking about reassuring supply chains, and so it is an interesting conversation topic. Yeah, we're likely to see where that goes. I realized that this probably sounds conflicting because we've got governments on one side thinking about it and then potentially companies talking about it.

But it's not looking likely to happen. In my opinion, I think it makes economic sense to have geographically dispersed supply chain networks, and I think it will probably stay that way for a while despite COVID and the potential issues around supply chains that we've seen, and track and trace as a critical part of larger supply chains that are more global. Correct exactly, Yes, well, CERTI thank you so much for joining us today. Thank you for having me.

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