IT in manufacturing: Supply chain management

The recent horsemeat scandal shone a light into some murky supply chains and raised stark questions over the ethics and commercial risks of making cost king of sourcing strategies. But from an IT perspective, what lessons can manufacturers learn from the debacle? Malcolm Wheatley finds out.

On January 15, Ireland’s Food Safety Authority reported the presence of horsemeat in samples of frozen burgers sold by five retailers, including Tesco, Lidl and Iceland. In one instance, the horsemeat content of the supposedly ‘beef’ burgers reached 29%.

What followed alarmed consumers, retailers, manufacturers, consumer groups and food safety authorities. Ireland’s Food Safety Authority, for instance, was so surprised by the results that it had samples tested and re-tested by laboratories in both Ireland and Germany.

But as the scandal spread, retailers, manufacturers and consumers alike were forced to acknowledge that the European food industry’s supply chains were far murkier than had been suspected.

Meat crisscrossed the continent, passing through numerous hands, and presenting ample opportunities for adulteration. What’s more, it wasn’t just horsemeat that was found in products that ranged from spaghetti bolognese to burgers, and lasagne to meatballs: in dishes that were supposedly beef, pork meat was present in generous proportions, too.

For the food industry, of course, this isn’t the first time that ingredient adulteration has been an issue. Scares and scandals are a relatively regular occurrence.

Back in 2005 Premier Foods – one of Britain’s largest food manufacturers – discovered that Sudan 1, a dye used in applications such as floor polish and shoe polish, had entered the food chain via supplies of chilli powder. The bad news: the chilli powder had then been used in the preparation of industrial batches of Worcester sauce and been included in some 359 other contaminated products.

But this kind of issue is not confined to the food industry. Problems arise even in industries where high standards of product assurance are supposed to exist.

Just last year, a United States senate committee found that America’s Department of Defense had bought 1,800 batches of counterfeit electronic spare parts, equating to over a million individual parts in total, despite stringent procurement procedures and quality standards.

So while the food industry evidently has issues to address, the overall problem is clearly wider. And it’s a problem that is rapidly propelling questions regarding supply chain integration and visibility firmly to the top of the IT agenda. When manufacturers such as Nestlé, Birds Eye and Findus – not to mention retailers such as Tesco – find themselves embroiled in a scandal that simply shouldn’t have happened, the efficacy of the IT infrastructure supporting their extensive supply chains is thrown into sharp relief.

John Bailey, European vice-president, JDA Software
John Bailey, European vice-president, JDA Software

“Even if beef were to be substituted for horse, there would be no legitimate route for the beef to be reintroduced into the supply chain” – John Bailey, European vice-president, JDA Software

So what exactly is the state of end-to-end supply chain traceability today? What tools and technologies exist to help mitigate the damage of supply chain slip ups – or ideally, to prevent them? Do technologies such as track-and-trace and serialisation hold the answer?

Work in progress

Let’s start with the good news. First, and in contrast to popular perception, supply chain traceability, particularly in foodstuffs, is in better shape than might be believed.

Europe’s food traceability legislation, in the shape of regulation (EC) No. 178/2002, which came into force on January 1st 2005, forces food manufacturers to be able to produce on demand information about the sources and destinations of the ingredients and foodstuffs that they sell.

The result: when the horsemeat scandal broke and horsemeat and pork DNA was found to be present in product samples, it was possible to quickly identify the present location of suspect batches, and remove them from retailers’ shelves and distribution centres. In most cases, the requisite product recalls took just hours to execute.

Given the fact that regulation (EC) No. 178/2002 is enshrined in law, food manufacturers’ ERP systems can be broadly regarded as compliant. What’s more, as similar legally-enforced traceability requirements exist in other critical industries, such as pharmaceuticals, compliance in those industries will be in place, too.

In short, there isn’t a problem with traceability from the point of view of product recalls. That said, if you talk to insiders with strengths in such industries, several salient points soon emerge about the adequacy of ERP solutions from a b roader perspective.

For one thing, not all manufacturers are starting from the same point: in some cases, purely minimum levels of compliance exist, notes Sally Waterston, a director at IT manufacturing consultants Waterstons.

“Systems have evolved enormously over the last ten years, but not every manufacturer has invested in them – or been able to afford to invest in them,” she warns.

What’s more, adds Neil Blackman, technical manager at industrial automation specialist SolutionsPT, ERP systems are inherently constrained by the information fed to them.

“ERP systems can only act and provide business rule execution on the information provided to them,” he notes. “If this information is incorrect, then correct execution may be flawed.”

Sally Waterston, Director, Waterstons
Sally Waterston, Director, Waterstons

“Systems have evolved enormously over the last ten years, but not every manufacturer has invested in them – or been able to afford to invest in them”Sally Waterston, Director, Waterstons

And don’t forget, points out Alan Braithwaite, chairman of supply chain consultants LCP Consulting, and a visiting professor at Cranfield School of Management, that information may be incorrect by design. It’s unlikely, for instance, that horsemeat and pork in the quantities discovered entered the food chain by accident.

“IT on its own can only mitigate so far against outright criminality,” he observes. “If the potential profit is high enough, there will always be an incentive for fraud.”

Furthermore, the adoption of best practice within individual ERP solutions can vary widely, stresses Gordon Fleming, chief marketing officer at ERP supplier QAD. Minimum levels of compliance might be enough to trigger the required recall mechanism, but are not enough to make supply chains robust enough to prevent the need for a recall in the first place.

“In our solution, you physically can’t move a product or batch onto the next stage in the process without all the documentation being in place and correct,” he stresses. “Individual item serialisation, too, is a best practice – and one that you can’t just bolt on to a generic ERP system: the data relationships don’t exist. It has to be designed-in right from the start.”

Putting it right

But are such best practices really necessary? At the smaller end of the manufacturing spectrum – bearing in mind that some of the companies caught up in the horsemeat scandal have been distinctly small businesses – such a question will naturally arise.

In other words, will a basicallycomplaint ERP system suffice and are practices such as serialisation and track-and-trace really important?

Bruce Stubbs, director of industry marketing at serialisation barcode and RFID vendor Intermec, is in no doubt. Going forward, he emphasises, supply chain traceability best practice won’t be viewed as a cost, but as brand protection.

“The reputational damage to brands such as Tesco has been enormous,” he avers. “Large retailers, and large manufacturers supplying those retailers, simply won’t do business with manufacturers who can’t comply with high traceability and assurance standards. Minimum levels won’t do.”

And undoubtedly, serialisation offers a solution. John Bailey, European vice-president at JDA Software, which merged with specialist traceability vendor RedPrairie in late 2012, argues forcibly for end-toend supply chain traceability, with each participant in the extended supply chain uploading serialisation data to an ‘available to all’ cloud-based repository at each touch point.

In the food supply chain, for instance, serialisation would begin with the ear tags of individual animals. At a stroke, it would then be possible to link back to the animals contributing the meat contained in each manufacturing batch of a dish such lasagne or spaghetti bolognese. Better still, it would act as a barrier to the fraudulent use of inappropriate meats such as horsemeat.

“Horses don’t have ear tags: so you’ll have not only positive information in respect of the animals which were included, but also negative information in the form of products where ingredients were missing,” he notes. “Even if beef were to be substituted for horse, there would be no legitimate route for the beef to be reintroduced into the supply chain.”

Gordon Fleming, Chief Marketing Officer, QAD
Gordon Fleming, Chief Marketing Officer, QAD

“Individual item serialisation is a best practice – and one that you can’t just bolt on to a generic ERP system: the data relationships don’t exist” – Gordon Fleming, Chief Marketing Officer, QAD

And further protection comes from ensuring that transactions within that supply chain take place within a ‘closed universe’ of suppliers and potential suppliers, argues Nick Martin, senior vice-president for northern Europe at Trace One, a vendor recognised as a key supplier of compliance capability by analysts IDC, Gartner and Aberdeen Group.

Simply put, explains Martin, Trace One enables retailers and the manufacturers with their own label offerings to work collaboratively together, all the way from product specification to bid solicitation, specification lockdown and manufacturing – using one set of data, and removing the ‘specification creep’ that can come from communicating through phone calls, faxes, and e-mails.

Today, he notes, over 30 retailers, including Marks & Spencer, Wal-Mart Asda, Carrefour, and Auchan, use Trace One for just this purpose, working with over 18,500 manufacturers.

“You can home in on a specific supplier, and see every single product to have come from that supplier,” he explains. “It gives retailers the power to look ahead, rather than responding reactively.”

What’s more, adds Bob Godfrey, European vice-president and general manager of businessto- business trading platform E2open, such closed universe visibility also offers opportunities for costreduction not available in today’s ‘arm’s length’ trading scenarios.

Dell, an E2open customer, leverages its scale to buy components not just for its own direct manufacturing operations, but also for their subcontract partners and other suppliers, he points out, adding that manufacturers such as Seagate and Blackberry manufacturer Research in Motion do the same.

“The world of consumer goods has yet to really tap into this, but the result is not only an assurance of quality and supply, but also cost savings,” he concludes. Yet again, affirmation that improved traceability and greater product assurance needn’t necessarily be a net cost to the manufacturers and their supply chains.