Customer attitudes and trends around sustainability have caused organisations to reevaluate their supply chain operations, as have heightened consumer demands for rapid product fulfilment, and strengthened international laws around the environment and consumer protection.
And amidst all these external pressures, there are often hefty internal pressures from management and stakeholders within an organisation to accommodate those external challenges whilst continuously increasing profits and efficiencies.
In response, product traceability is gaining popularity as a metric for measuring an organisation’s supply chain resilience against the stresses of an ever-evolving business landscape. However, enhanced product traceability can still be tricky to achieve for many organisations.
What is Product Traceability?
Traceability is a quality that reflects the capacity of an organisation to track the movement of products and other components around its supply chain – from raw material extraction to manufacturing, to supplying the consumer and beyond.
It is a crucial attribute to a wide range of industries, including but not limited to:
- Supply Chain Management
- Food & Beverage
- Consumer Goods
Being able to react effectively when a defective batch of products within the supply chain is identified, or when demand for your product is fluctuating, is extremely valuable to manufacturers and a hallmark of high product traceability.
Supply Chain Management functions within organisations value product traceability as it allows them to be more proactive in their approach, gaining granular insight into their operations, supplier sourcing, and their conversion processes, allowing them to better understand and serve customer needs.
Besides the benefits, several external drivers are forcing businesses to review and optimise their traceability strategy. A changeable, often volatile global market is one of them.
Consumers have gotten used to a consistently high level of product fulfilment due to the proliferation of hyper-efficient services such as DHL and Amazon. This sets high expectations for all other elements of the supply chain – a phenomenon sometimes described as the Amazon Effect.
There’s also been a seismic shift in consumer attitudes towards sustainability in recent years. Over half of consumers surveyed in this research presented by Seven Clean Seas stated they were willing to change their purchasing behaviour to protect the environment, and 66% were willing to pay more for products they view as sustainable.
Claims around product sustainability are also expected to be supported by evidence, otherwise, companies can be accused of greenwashing and suffer reputational damage.
Being able to trace a product’s origin and carbon footprint verifiably can help give customers peace of mind when making sustainable purchases, as well as enable businesses to comply with upcoming regulations and combat greenwashing.
For organisations continuing to resist these trends in favour of unsustainable practices, international environmental and consumer protection legislation is being put in place to enforce operational change.
The EU’s Circular Economy Action Plan, ESPR proposals, and Corporate Sustainability Reporting Directive (CSRD) are key examples of just some of the upcoming regulations, initiatives and directives that are being created to hold organisations accountable for their environmental effects.
Achieving a high level of traceability is an important factor in a business’s ability to maintain global supply chains, protect its customers, comply with changing laws, and optimise production operations.
Digital Product Passports and Blockchain for Product Traceability
Organisations already have ERP systems that track products from manufacturing through to the product’s sale. Many organisations augment their ERP systems with enhanced traceability solutions that help to provide more accurate stock figures, real-time production information, usage data and more.
However, a key drawback of these centralised systems is that they often work in silos with crucial information often being solely visible to one actor in the value chain. For example, suppliers have their own ERPs, separate to their manufacturing clients and their retail clients.
In this instance product information likely appears differently, on different systems, with no one true source of information. This limits the scope for stakeholders across the value chain, including end users, to check the sustainability, or effectively and accurately trace the lifecycle of products.
To achieve detailed, immutable and up-to-date traceability data for all stakeholders across the value chain, an efficient, accessible, and secure platform for data storage and sharing is necessary.
This platform should not only divulge data tied to each individual product across the entire value chain, but provide access to multiple participants within that ecosystem. Digital Product Passports are being put forward as a potential solution for building flexible, resilient product traceability infrastructure.
Digital Product Passports (DPP) are a tool for collecting and sharing product data throughout a product’s entire lifecycle. They can be used for traceability, to illustrate a product’s sustainability, and much more. DPPs can capture several types of data, including:
- Product ID
- Raw Material Composition
- Supply Chain Journey
- Sustainability/Carbon Footprint/LCA metrics
- Recyclability and end-of-life information
This data can also be made easily accessible via a QR code, RFID tag, or NFC placed on the item that customers and other stakeholders can use to view product information.
While existing ERP systems can capture a lot of this product information for each actor in the value chain (e.g. manufacturer, retailer), DPPs have the ability to provide product information and traceability data to a wide range of stakeholders from supplier to end-user.
This gives granular insight into product lifecycles that can be updated automatically as products travel through the value chain, enhancing the traceability of individual products and a giving much more detailed picture of the inner workings of an organisation’s value chain.
Digital Product Passports are an evolving concept. However, there’s enough confidence in the idea that the EU has created legislation (the ESPR specifically) as part of their drive towards a circular economy which mandates that DPPs have to be included with many physical goods that are sold in the region by 2030.
This has far-reaching implications not just for European companies, but for all companies that sell into the EU. Plus, for certain industries such as textiles and batteries, DPPs need to implemented earlier than the 2030 deadline due to their high environmental impact.
At the time of writing, the EU hasn’t specified certain technological requirements for Digital Product Passports.
However, blockchain technology stands out as a solid foundation for a DPP solution, as digital ledger technology offers data security, immutability, transparency, and efficiency, as well as the potential for secure collaboration across the supply chain that blockchain’s inherent decentralisation can provide.
How Digital Product Passports Can Facilitate Enhanced Product Traceability
Raw Materials Provenance & Component Quality
Being able to trace the source of raw materials used in the manufacture of products can support a brand’s sustainability efforts, aid with regulatory compliance, and deliver a competitive advantage.
Digital Product Passports can record this data at a product level – including where the materials and components of the product originated, the type of materials included within the produce, and whether ethical practices were abided by in the process.
For DPPs that utilise blockchain technology, data relating to materials provenance cannot be overwritten or forged, ensuring provenance for manufacturers and brands when making sustainability claims around their raw material acquisition methods or submitting information to supply chain auditors.
Having this level of traceability for raw materials readily available within a DPP helps to reassure auditors and customers alike that not only were the sources and methods of acquisition of raw materials ethical for your product, but it also allows you to prove the quality of your product right down to its core components.
Operational Responsiveness & Optimisation
Being able to collect data in real-time during the lifecycle of a product, or a line of products within your supply chain network allows your business to mount efficient and effective responses to unexpected events.
Customers can report a faulty product via its DPP, informing your organisation on the situation in real-time. This gives your organisation the capacity to act quickly and engage the customer to rectify the issue, minimising reputational damage amongst your consumers and other stakeholders.
The product lifecycle data that could be gathered within Digital Product Passports can also allow organisations to be more precise in their logistical management as they can be updated throughout the product lifecycle, enhancing supply chain traceability with powerful insights.
For instance, rather than using traditional assumptive metrics and identifiers, businesses could utilise a product’s DPP data to track sales and demand and anticipate supply bottlenecks more accurately, unlocking efficiencies and potential cost savings.
This helps to better understand and serve customer needs, fulfil orders more precisely, gain a greater understanding of consumer behaviours, identify operational inefficiencies, and continuously improve upon them.
Real-time Verifiable Audit Trails
When it comes to regulatory compliance, having an air-tight audit trail is paramount. Effective audit trails also help protect against fraudulent behaviour both internally and with external suppliers.
Digital Product Passports can collect data as the product moves around the supply chain – including original sale and resale information, manufacturing locations, suppliers, and timescales. This is valuable as the data can be accessed by manufacturers and retailers alike to gain a better understanding of product source, longevity, usage, safety and more.
When DPPs utilise blockchain technology, accurate and verifiable product data (or hashes of this data) can be stored on an immutable ledger that organisations can point to when necessary. This helps to create a traceable audit trail of events and transactions throughout the entire lifecycle of a product.
If there does turn out to be fraudulent behaviour within your supply chain, the data from product DPPs can help to identify the source of it so you can take the appropriate action.
Traceability Beyond the Supply Chain
In certain cases, such as luxury goods or automobiles, enhanced product traceability that DPPs afford can directly benefit consumers by tracing the movement of the product beyond the original sale into the second-hand market.
Unique digital representations of the physical item, stored on the blockchain can provide verifiable authenticity certificates and ownership credentials to valuable items, giving subsequent buyers tangible proof that their items are legitimate on second-hand markets, all by accessing data stored in the DPP.
Additionally, this opens a secondary channel for brands to maintain a relationship with their customers as they interact with their purchase’s DPP, and to form a relationship with their new second-hand customers.
With the shifting nature of customer trends and evolving environmental regulations giving enhanced product traceability a deeper urgency, it’s clear that to keep up with the pace of change, businesses need to invest in robust technologies that will assist them in overseeing their supply chain operations.
Digital Product Passports can boost your organisation’s supply chain traceability beyond what’s possible with traditional ERP and traceability solutions by providing granular insight into individual product lifecycles, delivering insights into customer behaviours and helping to unlock efficiencies.
DPPs are also a mandatory requirement for businesses involved in the production, manufacture, and sale of certain items, such as textiles, within the EU by 2030 – with plenty of other industries to follow.
To ensure they’re prepared in time to meet these deadlines, organisations should start forming a firm understanding of the upcoming regulations and begin to form strategies for data collection, standardisation and storage at the earliest opportunity.
Identify any potential gaps in the availability of product data whilst also evaluating current digital infrastructure, researching DPP solutions and assigning budget to both the pilot and implementation of DPP solutions.