DIGITAL TRACEABILITY: HOW IT MITIGATES FOOD FRAUD AND PROTECTS YOUR BRAND
We have all heard about food fraud. Examples are all over the news ─ horsemeat scandal, melamine in baby formula, fake honey, impure olive oil, and this list goes on. However, this article focuses on things we don’t often hear about: tangible solutions and how companies are mitigating food fraud challenges while protecting their brand.
FIRST, A FEW FACTS:
- Food fraud is estimated to cost the global food industry $10 to 15 billion per year.
- The World Customs Organization (WCO) states that 7% of global trade consists of counterfeit products
- Product counterfeiting is growing fast and has increased by 10,000% in the last 20 years, according to US-based non-profit organization, International Anti-Counterfeiting Coalition (IACC)
We are fortunate enough to live in a time where digitization of business processes is becoming the norm and quickly reaching the masses. This provides an unprecedented opportunity for brands to digitize their supply chain and increase data knowledge by tracking products from farm to fork. We refer to this as product-based digital end-to-end traceability.
To mitigate food fraud, raw materials, packaging and end products need to be physically tracked in real time throughout the supply chain. You may be asking yourself: “Why physically? Don’t I already track my products effectively?” Unfortunately, the answer is usually no.
Here is a concrete example. An organic coffee company realizes its product is the subject of fraud. The company is already tracking product lots and has a chain of custody in place, which basically follows the chronology of documentation and therefore sales transactions within the supply chain.
This is a typical scenario where different fraud activities can occur. Examples include:
- Counterfeiting and product piracy: product is being manufactured by a counterfeiter
- Theft of original products: small quantities to truckloads can be stolen in transit.
- Gray markets: product is being diverted to other markets, for an upsell.
- Unauthorized production: products that are outsourced are actually being overproduced without the brand’s consent and then sold on the black market.
- Limiting falsified raw material in end product: fraudulent raw material can enter into your supply chain without being detected.
As you can see, there are several challenges to overcome food fraud, and it is becoming increasingly important to mitigate the risks and find effective solutions to protect both consumers and brands.
One of the most effective ways to combat food fraud is to implement product-based digital traceability, which can also be known as next-generation serialization.
How does it work? Every single product (from raw materials to the end product) has a unique identifier that is known by the brand owner. Putting a unique identifier on each product does not, however, reduce fraud in itself. To mitigate fraud, we need to connect the data dots of the supply chain, and the unique identifier on each product is a vital part of this process. With this data, the supply chain becomes connected and, therefore, intelligent. This is where the magic happens.
For example, consider the organic coffee company we mentioned earlier. The company could trace and track physical products within the supply chain, from bean to cup. Since the unique identifiers are known by the suppliers and the brands owners, it’s now possible to detect irregular trends occurring within the supply chain at different check points, including the consumer. Also, the unique identifier is a way to engage with consumers via marketing campaigns and loyalty programs. Brands can gain great customer insight this way.
After implementing a product-based digital end-to-end traceability solution, here is what the fraud picture looks like:
- Counterfeiting: Unknown unique identifiers are tracked within the supply chain, even at the consumer level, improving visibility on real-time counterfeiting issues.
- Theft of original products: Stolen products have unique identifiers, which are tracked as they emerge in the supply chain, later on. Insurance companies use this tool as proof of lost items.
- Gray markets: Diverted products are detected and tracked when they emerge in the supply chain.
- Unauthorized production: By controlling the quantity and the information about each unique identifier, risk of unauthorized production is significantly decreased.
- Limiting falsified raw material in end product: By identifying raw materials with unique identifiers and aggregating the information as it moves along the supply chain, the risk of fraudulent raw material is significantly decreased.
Clearly, the food and beverage industry can derive immense benefits from traceability solutions, as they can help protect the public (i.e., customers) and brands. Luckily, such systems are now a reality and accessible. Namely, OPTEL is a multinational traceability solution provider helping Fortune 500 companies tackle food fraud challenges and improve supply chain visibility using AI, IoT and blockchain.