Supply Chain Traceability and Why Everyone Should Care

Supply train visibility, transparency, management, optimization, resilience… these terms are ubiquitous, and often used interchangeably in conversations around supply chain sustainability and Scope 3 emissions reporting and management. Underlying these overlapping, and sometimes vaguely defined phrases, is the concept of traceability.

Traceability is the ability to track a product or material across the entire supply chain, and attribute data on provenance, transport, and processes from initial procurement to final product.

Supply chain traceability is a critical enabler of supply chain decarbonization, a range of ESG regulations, recyclability and circularity, and emissions mandates across nearly every industry (steel, critical materials, chemicals, textiles, rubber, batteries, renewable energy, etc.). The battery industry is perhaps the use-case that has brought the importance of traceability into the public eye. In particular, the EU´s EV Battery Passport mandate, slotted to take effect in 2027, will require “passports” for all EV and industrial storage batteries sold in the EU.

While the specific details and requirements have yet to be announced, these passports will likely be required to provide information on battery components, provenance, carbon footprint, and recyclability, among other data. In order to comply with this mandate, battery and EV producers must access and compile data from across their extensive supply chains. As OEMs have found, this is a massive undertaking, encompassing digitalization of documentation processes, coordination of suppliers, navigation of varying data privacy and sharing legislation, and data verification.

The field of supply chain traceability has burgeoned in response to this challenge; the most experienced innovators have spent the past 8-10 years developing software platforms to track materials from beginning to end of their respective supply chains and compile the key data points required by specific industries.

Examples of Current and Future Demand Markets for Traceability Solutions

Demand Markets for Traceability Solutions

Demand for traceability solutions is driven in large part by regulations, as seen in the example of battery passports. Trade facilitation is another key regulatory driver. Regulation such as the U.S. Uyghur Forced Labor Prevention Act (UFLPA) require specific provenance and traceability for goods to enter specific countries.

The high costs associated with stranded goods and supply chain disruptions are an effective incentive for suppliers and manufacturers to deploy traceability solutions along their supply chains. Incoming regulation with specific climate and sustainability focus will have to establish clear data and reporting standards as well as stringent penalties for non-compliance in order to effectively leverage traceability to meet sustainability goals.

Some examples include:

• EU Deforestation Act: Affected sectors include coffee, rubber, tires, soy, palm oil, wood, etc.
• France’s Anti-Waste for Circular Economy Law (AGEC): Affected all waste-generating products sold in France
• EU Carbon Border Adjustment (CBAM): Affected sectors include steel and aluminum

While regulation is currently critical to establishing a sound business case for providing traceability solutions, compliance is not the only use-case for these tools. OEMs in the chemical and automotive industries in particular are exploring how traceability can be leveraged for new revenue streams, business models, and operational efficiency.

• Leveraging analysis of cost and emissions data from upstream suppliers to meet Scope 3 emissions (potentially taking into account emissions taxes)
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• Development of sustainable products and business lines with verifiable data on recycled content, carbon footprint, and other climate data (e.g., chemicals, plastics) and to prevent claims of greenwashing
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• Enabling circular economy initiatives, tracking products post-sale and facilitating recycling (e.g., textiles, fashion, plastics, battery components)
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• Quality assurance and risk management: particularly relevant for sectors such as high-quality steel production
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• Certification of low-emissions fuels with complex lifecycle emissions (e.g., biofuels)

The Innovation: Blockchain, Data Verification, and Security

The traceability space remains a developing market. The most experienced, market-leading innovators have been developing their products for about eight years. Due to the complexity of thorough supply chain data aggregation and management, many have chosen to focus on specific sectors, leveraging deep sector expertise and value chain experience. Domain expertise and bottom-up development of software solutions that specifically address pain points of individual sectors give these innovators a significant advantage over corporates (such as IT services) interested in expanding into traceability.

Traceability Platform Process Examples

Source: Circularise

Innovation:

• Technological evolution of key software in recent years (e.g., blockchain, cybersecurity) has unlocked capability to fully trace products through the supply chain
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  • Leveraging of blockchain for secure, decentralized data sharing, protection of data sovereignty, and levelized accessibility
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• Cybersecurity, encryption, and data verification solutions to protect sensitive and proprietary data (e.g., Circularise)
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• Product and quality certification via cryptographic key (e.g., Steeltrace, Circulor)
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• Interoperable solutions including flexible data collection (e.g., Minespider), and integration of a range of upstream data capture tools (e.g., EON)
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• Authentication and digital identity solutions to trace raw materials (e.g., Dust Identity, SMX)

Most innovators have developed SaaS models and subscription-based services paired with project and consulting services, client education, or support on regulatory and compliance requirements. While there is currently a range of data practices and service offerings, solidification of regulatory requirements will facilitate general standardization and the development of specific differentiation points between innovators. Currently, a key differentiator is the use of either public or private blockchain to address data sharing and privacy challenges, as well as the ability to provide data security and verification.