Traceability: The Path towards More Sustainable Supply Chains

How improving traceability can help companies tackle negative impacts in the supply chain
Traceability: The Path towards More Sustainable Supply Chains
Publ. date 15 Jul 2021
In the improvement of sustainability practices, there is still massive potential in the supply chain. For example, according to CDP, if suppliers to 125 multinationals were to increase their renewable electricity consumption by 20%, over a billion metric tons of greenhouse gas emissions could be saved: equivalent to the combined emissions of Brazil and Mexico. Nevertheless, only 23% of tier-1 suppliers are engaging on emission reduction activities with their own suppliers. Evidently, business processes such as planning, sourcing, producing, and logistics require restructuring and redesigning. One of the factors that can play a major role on enhancing efficiency and optimization in the supply chain is improving traceability: the ability to track and monitor all steps involved in the development of a finished good, from the procurement stage of raw materials to production, consumption all the way to the disposal of goods.

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Stakeholders demand more on sustainability

Companies are experiencing increasing pressure from stakeholders to pursue more sustainable practices within their supply chains. As approximately 50% of individual investors and 80% of institutional asset owners in the United States are adopting sustainable investing strategies, investors are waking up to supply chain challenges.

Concrete examples are the recent shareholder resolutions addressing the (lack of) ambitions for carbon reduction at oil & gas companies, but also the global investor coalition led by FAIRR and Ceres, covering over 90 investors with combined assets worth $11.4 trillion.

Since 2019, this coalition has engaged with six fast-food giants to decarbonize their supply chains. This investor pressure resulted in five of these six companies (McDonald’s, Yum! Brands, Chipotle, Domino’s and Wendy’s) announcing commitments through science-based targets (SBTs) to address Scope 1, Scope 2 and especially Scope 3 emissions. The latter represents the most important factor, as the environmental impact of end-to-end supply chains is five times bigger than companies’ direct operations.

Regulatory bodies are also raising the bar for making supply chains more sustainable, with Germany at the forefront. The German Act on Corporate Due Diligence in Supply Chains, set to commence in 2023, will impose fines for the breach of human rights or environmental rules for enterprises registered in Germany. Due diligence obligations will ensure companies are held responsible for each stage of their supply chain.

In order to commit to this legislative decree, businesses must have sufficient visibility on their suppliers, and manufacturers on their own level of compliance, so they can guarantee their key stakeholders that they have a sustainable supply chain. The creation of traceable systems and enhanced verifiable data can be fundamental drivers towards realizing sustainability commitments across supply chain networks.

From fish to cocoa beans – traceable system frontrunners

One of the industries lagging behind on traceability systems is the fishing industry, which still relies on paper-based recordings on the type of fish, weight and the following steps in processing the fish for end consumers. Seafood supply chains are naturally complex, with harvesters and seafood processors often being different entities. This is a challenge for end consumers who are increasingly demanding more transparency on their seafood sources, with around 58% of buyers willing to opt for alternative seafood brands to protect oceans.

That being said, industry leaders have started accelerating the use of verified data. Spanish seafood firm Nueva Pescanova has recently announced a partnership with tech-giant IBM for the use of its blockchain-based platform. The IBM Food Trust traceability platform documents an extensive amount of supply chain data in close to real-time. Using the Hyperledger Fabric enterprise blockchain, it allows fisheries to upload data on the fish caught via satellite, before reaching the shore. The platform also enables fisheries to include fish feed details, allowing Nueva Pescanova to identify inefficiencies, optimize procedures and ensure better quality control.

The chocolate industry is another sector that is frantically pursuing improved traceability. Through cutting-edge traceability methods, the Swiss chocolatier Lindt & Sprüngli claims to have achieved 100% traceability for its cocoa beans with external verification. Cocoa beans belonging to the company’s Farming Program are processed and transported separately from all other beans with a unique barcode identification, meaning they can be traced back to their origin and be assigned to participating farmers in the program. This allows the chocolate manufacturer to have tangible impact through its socially responsible cultivation programs, facilitating improved living conditions for farmers in its supply chain.

Identifying and addressing hotspots of environmental and social impact

For companies to fulfill on their supply chain commitments, the adoption of digital traceability tools shows great potential. Embracing digital tracing technologies will allow increased visibility both in upstream and downstream activities. On the upstream side, a challenging aspect comes to play, as suppliers will have to find the balance between sharing information for the purpose of transparency across supply networks, whilst ensuring the confidentiality of competitive advantages from suppliers. On the other hand, digitally tracing products after the production process offers an opportunity to extend the product lifecycle and enable remanufacturing and recycling initiatives, creating new service business models.

Cross-sector collaboration can help amplify the use and impact of supply chain traceability, as demonstrated by Nueva Pescanova and IBM. When companies are able to invest in digital verification technologies, the resale of products and secondary markets can become a reliable form of business for both companies and consumers. When products have an incorporated authentication system, this could increase consumer trust on secondary marketplaces, extend the lifecycle of products and reduce the prevalence of counterfeit products. Defying the availability of counterfeits is an important step towards sustainable supply chains, as they are often manufactured in conditions that lack safety and quality controls.

Ultimately, digital traceability tools are the steppingstone towards circular supply chains. Companies must ensure they are actively addressing and monitoring their impact across their supply chain, as this is where ecological footprints tend to be the biggest, and the risks of social misconduct are often the highest.

Impact measurement and valuation methods allow companies to effectively identify and manage risks, leverage cost-optimization opportunities and tackle environmental concerns. Pinpointing the main sources of negative impact can lead to implications on a decision-making level, as companies will have tangible data to improve their supply chain management.

Get in touch for more information

Do you want to get a better grip on knowing and actively managing your company's main impacts along the value chain, and improve your ESG performance? Download the service description on this page for more information about our Impact Measurement & Valuation approach, or contact Jan van der Kaaij, managing partner, at jan@finchandbeak.com or +34 6 82 04 83 01 to find out how Finch & Beak can help you.

Photo by Fredrik Öhlander on Unsplash

About Tomás Flora da Silva

Young professional seeking to aid companies make a difference through sustainable approaches. tomas@finchandbeak.com

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