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Global Traceability: Key Drivers, Challenges, and Solutions for Today's Manufacturers

by Ganesh Hegde | SAPinsider

July 1, 2011

End-to-end traceability is essential to protect a manufacturer's brand, customers, and customer relationships, as well as to increase profit margin. But why do so many manufacturers today struggle to ensure traceability at a high level? This article explores the drivers and challenges around traceability and how SAP solutions can help.
 

Global manufacturing is a common business practice today because a worldwide reach can lead to more customers and more sales opportunities. However, global markets can also lead to increased competition and additional legal requirements. To be successful in a global environment — and to avoid jeopardizing customer relationships, customer satisfaction, profit margin, and regulatory compliance — manufacturers must ensure a high level of traceability (see sidebar).

Unfortunately, ensuring traceability can be a struggle for manufacturers in any industry. This article explores these struggles and explains how SAP solutions can help. First, let’s look at the key drivers of traceability.

4 Key Drivers of Traceability

Manufacturers desire traceability capabilities to help them achieve four key goals:

  1. Comply with regulatory and quality standards
  2. Proactively manage product recalls with near-real-time corrective action
  3. Improve customer safety, customer satisfaction, and profit margin
  4. Manage product quality and reduce the cost of nonconformance

An Aberdeen Group survey of manufacturers revealed that 53% of respondents in the food and beverage industry chose regulatory compliance as the top reason for needing traceability.1 Product recall risk management was, unsurprisingly, a close second for food and beverage manufacturers; the frequency and severity of product recalls have been on the rise across various industries, as we’ve seen in headlines in recent years:

  • 2009–2010: Toyota’s major recall halts sales and production of eight car models2
  • 2010: China recalls more than 170 tons of melamine-tainted milk powder3
  • 2011: Unilever United States, Inc. recalls certain peanut butter products due to potential salmonella contamination4

To avoid such recalls, traceability within the manufacturing supply chain is more important than ever — especially as the supply chain becomes more complex now that more manufacturers are outsourcing their operations. The supply chain is only as strong as its weakest link, and consumers, retailers, customers, suppliers, and regulators are increasingly encouraging industries to be able to trace the origin, movement, and destination of components, ingredients, and products “one step forward and one step backward” (see Figure 1). That way, manufacturers can manage a recall event proactively by tracing the issue in real time to a particular product batch or process and taking corrective action.

Figure 1 Traceability requires visibility across a manufacturer’s complex global network

The Struggle to Be Best-in-Class: Common Traceability Challenges

Best-in-class manufacturers that have achieved end-to-end traceability are able to answer the following key questions within their operations:

  • How much of an order have we processed?
  • Where is this product? At which step in the manufacturing process is it currently?
  • What percentage of this product’s parts are we scrapping?
  • Is this product compliant?
  • Are we using our equipment efficiently?
  • Do we have enough raw materials to fill this order?
  • Did we monitor the quality of this product before shipping it to the customer?
  • What is the root cause of this quality issue?

Many manufacturers struggle to answer these questions. Even with recent technological developments, such as radio frequency identification (RFID), that enable manufacturers to trace and track products using real-time data, manufacturers still wrestle with traceability requirements for critical products. There’s proof in the fact that US manufacturers spend billions of dollars a year on product warranty claims — and that excludes revenue lost due to negative publicity.

Why is this such a struggle? When it comes to traceability, manufacturers’ challenges include:

  • Accurate data entry: Collecting the right data at the right time and at the right location along the product life cycle
  • Data persistency: Making sure the data is consistent across the product life cycle
  • Business process and system integration: Integrating business systems and processes in a seamless fashion to provide end-to-end visibility across the supply chain and product life cycle
  • Data integration: Integrating various data collected at different times and locations to extract intelligent information that the business can use to make appropriate decisions

These issues tend to occur in the absence of an adequate traceability solution. Most manufacturers don’t have a real traceability system in place to address these challenges, instead relying on spreadsheets, homegrown solutions, and other disconnected tools to track products and processes, thus leading to data inconsistency, longer time-to-action, and a lack of end-to-end visibility.

SAP Solutions Solve Traceability Issues

To address these challenges and achieve their traceability goals, manufacturers need to have a robust global manufacturing traceability solution. Enterprise software and services should provide capabilities for supply network traceability by enabling:

  • Product genealogy: Maintain links between end products and the raw materials, components, labor, processes, machines, and time invested in manufacturing them, providing the ability to trace products based on their manufacturing inputs
  • Tracking and integrity assurance: Secure the supply chain through authentication, visibility, and condition monitoring, ensuring that only an authentic product in the desired condition reaches the intended customer
  • Impact analysis and response planning: Optimize strategy selection in response to quality, safety, or compliance issues to protect the brand, the customers, and the public
  • Recall management: Efficiently execute the reverse logistics processes associated with recalls and proactively manage all aspects of the company’s response

This is where SAP comes into the picture, with its robust global traceability application — SAP Manufacturing Execution. This application not only provides global process and product traceability capabilities, but also manages overall manufacturing operations and integrates them with the rest of the enterprise. Let’s review some of the application’s key features and benefits.

Main Traceability Capabilities

To address a major traceability challenge, companies can configure SAP Manufacturing Execution with appropriate workflows to collect quality data at the right time and location in the manufacturing process. The application also features a product history record that provides documented tracking of a given product that is being built. In addition, SAP Manufacturing Execution collects:

  • Nonconformance data. The application records a product’s quality issues as it moves through the manufacturing process. This nonconformance data can be used to evaluate potential issues critical in defining and implementing best-in-class manufacturing processes.
  • Assembly data. Assembly data records include the assembled components, the person who assembled them, and the location at which they were assembled. Plus, information like the vendor that manufactured the component, the external serial number, or the shop-floor components (SFCs) may be tracked and recorded.
  • Process data. SAP Manufacturing Execution gathers process data for SFCs as they move through a manufacturing process. With this process data collection, product quality issues can be easily traced to process problems, and corrective action can be taken without impacting further product lots.

Integration Benefits

Manufacturers ultimately achieve process and product traceability through business process integration. SAP Manufacturing Execution can integrate with the following applications, for example, to enable traceability to the engineering unit, customers, and suppliers across the supply chain.

  • SAP Manufacturing Integration and Intelligence (SAP MII). Integration with SAP MII provides complete enterprise visibility since SAP MII enables a direct connection between shop-floor systems and business operations, linking enterprise processes and master data with manufacturing processes. The application also features a real-time analytics engine and capabilities for delivering information through alerts, reports, and KPIs.
  • SAP ERP. SAP Manufacturing Execution is packaged with integration content called SAP ME ERP Integration (SAPMEINT), which runs on the SAP MII platform and enables an SAP customer to integrate SAP Manufacturing Execution into its existing SAP ERP application for tight, closed-loop production integration and traceability.
  • SAP Product Lifecycle Management (SAP PLM). Integrating SAP Manufacturing Execution with SAP PLM enables companies to trace a product quality issue back to engineering design flaws; users can identify exactly where the design flaw is and then take corrective action within the design process. Seeing this kind of issue ahead of time, and thus giving the company a time-to-market advantage, is a benefit of SAP PLM integration.
  • SAP Supply Chain Management (SAP SCM). SAP SCM, when integrated with SAP Manufacturing Execution, provides capabilities for tracing backward and forward to your suppliers, subcontractors, and outsourced manufacturers. SAP SCM links to information about items coming from and going to them, providing an end-to-end picture that is critical in this global outsourcing era.

Summary

End-to-end traceability is essential to protect your brand, your customers, and your customer relationships, as well as to increase your profit margin. To help manufacturers achieve this, SAP continues to enhance its manufacturing solutions and enable integration with various related offerings.

To learn more, please visit www.sap.com/solutions/manufacturing.

Ganesh Hegde (ganesh.hegde@sap.com) is Senior Director of Global Manufacturing Solutions Marketing at SAP, with over 20 years of experience in the manufacturing domain within high-tech and consumer packaged goods (CPG) industries in both North America and Asia. Prior to joining SAP, he worked at high-tech and CPG companies where he was responsible for reengineering business processes and was instrumental in the implementation of various business systems, including ERP, manufacturing execution, manufacturing intelligence, and factory automation systems.

 1 Aberdeen Group, “Compliance and Traceability: Food and Beverage Manufacturers” (February 2008). [back]

2 New York Times, “Rapid Growth Has Its Perils, Toyota Learns” (January 27, 2010). [back]

3 Bloomberg News, “China Recalls More Milk Powder in Crackdown, China Daily Says” (February 8, 2010). [back]

4 ABC News, “Skippy Peanut Butter Recalled Over Possible Salmonella Contamination” (March 5, 2011). [back]

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