The ROI of real-time cold chain visibility

Cold chain management   07 Nov 2018

Businesses at every step of the supply chain are rethinking spoilage and waste of their temperature-controlled and perishable products, and not only for their high-value goods. Real-time monitoring and traceability solutions using Internet of Things (IoT) technologies and connected platforms can identify more problems in cold chains than ever before. They offer new opportunities to deploy multiple sensors, track a variety of parameters, and make logistics safer and more efficient.

Supply chain resilience is becoming increasingly important because the frequency, magnitude, and costs of disruptions are increasing. Within the cold chain, problems typically happen at multiple handoff points. Today, temperature excursions account for nearly 80 percent of supply chain problems, damaging food products, pharmaceuticals, and flowers. Climate change, increasing transportation costs, driver shortages, and other supply chain disruptions are forcing greater efficiency, not only to prevent spoilage but to maximize profitability.

How product waste happens

For producers handling perishable goods, one of the most significant challenges is maintaining produce at optimum temperatures. This is made more challenging as products make their way through various stages of the supply chain. At each step, a slight variation in temperature conditions can lead to unsafe conditions and impact quality and integrity. The product may have been left out of refrigeration, left to sit in the sun or in a holding area for too long, or placed within a truck without palettes to optimize the airflow inside.

Each lane of travel—air, road, or sea—requires different types of handoff points, which each pose different risks. As the global cold chain is increasingly more complex, there has been a growing need for a trusted, secure way to document temperature and product movement end-to-end in a traceable format that can satisfy reporting requirements and data shared with stakeholders.

Embracing real-time visibility

Technology has improved considerably over the past few years. Previously, monitoring of the cold chain was two-fold, and consisted of placing temperature data loggers in trucks and shipping containers to ensure quality temperature handling. Upon arrival at their destination, the loggers were collected and data was downloaded and read. However, there wasn’t always sufficient time in the receiving window to fully assess the temperature history before shipments are accepted or rejected.

Smart IoT and sensor technology is changing the uncertainty, integrating the global cold chain, and improving transparency, because they travel with the goods and calculate quality and relative shelf life in real-time.   

Data can be accessed immediately through a centralized cloud platform and can be utilized to facilitate corrective action, redirect shipments, and keep customers and partners apprised of shipment statuses. Temperature notifications and alerts keep stakeholders updated regarding any deviations so they can be respond to before product integrity is compromised.

Today’s data provides transparency on where a product has been, who has touched it, and the temperatures and conditions to which it has been subject. Insights enable businesses to help curb foodborne outbreaks, prevent quality issues from arising, and isolating profitability leaks in the cold chain.

Active supply chains = greater ROI

There are tangible and less tangible cost savings that can be gained from leveraging a preventive, risk-based approach to supply chain management. A proactive program would include real-time visibility data—not just at the end of each leg of the supply chain—and enables businesses to track, measure, and optimize their logistics processes and performance. 

To maximize ROI, there are direct and indirect costs to consider, including recurring savings and per-disruption savings that can directly impact a brand’s reputation, market status, sales, and share value. A basic formula to calculate ROI is:

ROI = Recurring Savings + Per Disruption Savings

where

Recurring Savings = Manual Resources Savings + Insurance Savings + Procurement Savings

Per Disruption Savings = Crisis Containment + Inventory Cost

Recurring savings includes the costs of manual entry that arises in the supply chain, as well as the costs of human error. A data logger that requires manual handling, such as pressing a Start or Stop button, or that requires that data be manually retrieved from the device, increases time and costs spent that can otherwise be automated.

For every load lost, another load must be sourced. Who pays for it? Automating the supply chain through real-time data means businesses can avoid having some of those difficult discussions with partners and insurers; the data speaks for itself. 

There are direct costs associated with crisis containment in the supply chain. Significant supply chain disruptions can cost a company millions of dollars. In 2012, the Grocery Manufacturers Association (GMA) and Food Marketing Institute estimated that the average direct costs for a food recall in the U.S. was $10 million, such as the retrieval and disposal of all recalled products. This number doesn’t include other costs, such as for lawsuits and investigations, stock price and market capitalization devaluation, and sales losses, and is likely much higher today.

In a study by the World Economic Forum and Accenture that was published on “Building Resilience in Supply Chains,” the organizations found that, on average, supply chain disruptions reduce shareholder value by 7 percent. This study was based on an analysis of 62 supply chain disruptions that were publicly announced during 2005 to 2011. For a company with a market value of $1 billion dollars, that’s a decline in shareholder value of $70 million.  

The ROI of switching from a passive to an active cold chain can be broken down as:

  • Protecting brand integrity - Product quality, safety, and freshness impact customer loyalty, brand reputation, and the bottom line. 
  • Reducing temperature excursions - Real-time visibility helps businesses to proactively prevent waste, illuminate weak spots, and mitigate them. 
  • Limiting time spent on quality review - With an automated cold chain, data is available earlier on in the shipment process.  
  • Proactively preventing waste - Up-to-the minute quality notifications enable rapid response to issues before they escalate.
  • Improving operational efficiency and performance - Automated data collection reduces redundancies and alleviates reliance on manual entry.
  • Preserving shareholder value - Every disruption results in lost shareholder value. How long that loss lasts for depends on the severity.
  • Improving margins and growth - Direct and indirect costs add up to substantial cost savings. 

Consider a global pharmaceutical enterprise shipping several reefers full of high-value pharmaceuticals—collectively, worth tens of million of dollars—from a European site to South America. As the containers are loaded onto a ship, temperatures inside the containers begin to deviate. Alerts are immediately sent to internal stakeholders and the company’s logistics provider, who contacts the loading team at the port. The door of the reefer wasn’t properly closed, causing cool air to escape. The door is properly closed, temperatures drop within normal boundaries, and precious cargo is saved. If a real-time solution had not been implemented, the deviation might not have been discovered until the freighter arrived at its destination, at which point the products would have spoiled. 

Similarly, a major food brand ships produce from a grower in California to a destination in Texas. To avoid traffic, the truck driver selects a route going through the Mojave desert. En route, temperatures within the reefer begin to increase, and the IoT technology sends notifications automatically to a cloud software platform. The technology provider’s 24/7 monitoring and response team is alerted, and the driver is notified. Part of the cargo has shifted while in transit causing the airflow to stagnate, and blocking some of the palettes. The driver corrects the boxes on the palettes, and the temperature levels drop within normal boundaries.

Over time, the direct and indirect cost savings resulting from real-time data compound exponentially, shifting the supply chain from a cost center to a competitive differentiator.

That which is measured improves

The adage “That which is measured can be improved,” holds true for businesses operating in the cold chain. Linking analytics to operations and ongoing measurement is the key to maximizing ROI. As organizations look beyond optimizing their short-term processes, further efficiencies will be gained by expanding their view for the longer-term. It is here that data analytics for supply chain management become important as a key competitive strategy.

To forward-thinking businesses, regardless of their size, a proactive approach to achieving greater supply chain efficiency and efficacy provides an opportunity to distinguish based on product quality, customer loyalty, and brand integrity, which means more dollars that can be invested on future innovation. Controlant is helping global brands achieve greater agility, cost reduction, and ROI.

Get more ROI out of your supply chain

Contact us to learn how Controlant can help take cost, inefficiency, and uncertainty out of your supply chain. Get started with a pilot today.

Contact us

Share Close close
close
close