Food Traceability – ROI and benefits

Very early in my life I learned that there are two ways to get to more money in my pocket. Either I make more or spend less. It is that simple, and during my entire professional career including some years as CEO of a software company, I learned that there are no accounting gimmicks changing that. They are some tricks that make us believe having more, but they are not showing on our bank accounts.


I participated in quite a few discussions about the ROI and the benefit of traceability. PTI is not moving as fast forward as the authors wanted, other segments of the food industry wait with investments until the ‘food modernization act’ (HR.2749 / s.510) clears the Senate and is reconciled with the House bill, some others may even wait until FDA comes up with final rules on how they want you to implement traceability systems.

They are all waiting for legislation, because it is so hard to make a strong business case for investing into traceability systems. Here are a few reasons.

There is next to no financial benefit for improvements in food safety because of traceability. Smaller lot sizes, reduced time spent on mock recalls make all pretty small benefits. The key problem with this approach is that the costs of food safety failures are not borne directly by the food industry or by those that are causing them. Better traceability systems do not have an impact on companies liability insurances, and the likelihood of them occurring is in the companies view small. They make ‘safe foods’. If an outbreak happens, a large portion of the related costs of tracing the origin of an outbreak, for the cure of the sickened people and the damage to others in the same industry is not borne by the culprit that is causing the issue. So the largest portion of potential ROI is up in smoke, like CO2 emissions. The end of the benefit argument is normally, that food companies just do what government and customers require them to do, period.
There are benefits of traceability systems in other areas.

For internal reasons, Traceability systems are normally part of other systems and have been implemented already way before we knew how to spell “Bioterrorism Act”. Traceability systems got implemented as part of yield management systems and as part of material handling / materials flow management systems (MHS). In both cases, you create value largely by reducing costs. Automating MHS improves costs by saving space, reduced labor hours faster inventory turnover and you need a traceability system to so some degree to make them work. The financial benefits of these systems can be huge, depending on the market environment you are in. Similar goes to yields. The more granular you understand where your resources are being used, what products are being made of them, and what the net profit margin in your supply chain is, the better you are able to manage the bottom line. To get to that level of granularity, you need traceability systems to track costs, usage, labor and eventually delivery and invoice data. This is a large and pretty obvious area of cost justification, any company, also those that have these systems to some degree can improve on these systems. The ROI is pretty simple to determine and traceability is part of the solution design.


Going forward we will see a larger demand for external traceability systems. Internal traceability systems improve the bottom-line, while external traceability systems promise to improve the top-line. The current generation of Netizens, the NetGeners, however you want to call them, have a strong desire for more information. They have grown up in an environment where they are used to be able to look up anything and everything they want. They dangle with their IPhone’s or Android based smart phones all day searching information they care about. They question anything and everything. The only problem is that these people are currently between 10 and 30 years old and do not have their full purchasing power yet. The oldest among them moved out of dorm rooms recently and are paying off their college loans. Once they can afford it, they care about whether their coffee comes out of a plantation that uses child labor, they care about the distance their produce travels to the retail store, they want to know. Some companies have already started implementing traceability systems, that prove certain product attributes and certain claims they have about the products they make. They distrust the large companies, the government, they are all guilty until proven innocent. In this environment we will get to a point, where we create product attribute information that will command a premium price. Traceability systems will create value in certain market segments that will be reflected in the price and will improve revenue of organizations. This is at least the promise and we have large companies investing into this already.

This will not be for everybody of course, since we have still too many low income earners in this country, which cannot afford to pay a premium, that will always shop for the cheapest and most affordable foods.

I’m not trying to say that there is no internal benefit at all related to food safety and traceability. I’m just saying that these cases are way to weak to make financially beneficial cases in most instances. Yields and material management systems help you spend less, external systems help you to make more. We shall see, but in both instances you get more money in your pocket or in your bank account.