Supply Chain

Why Supply Chain Traceability Matters to Small Businesses

December 8, 2023 • 6 min read

In today’s business climate, supply chain traceability affects profitability, productivity, and how a business is perceived by its customers and clients. It’s a common misconception that supply chain traceability is a luxury only large companies and corporations can afford. Businesses of every size, including small businesses, can benefit from creating a more sustainable, transparent, and optimized supply chain.

This article will define supply chain traceability, explore why it’s essential to small businesses, and then zero in on the benefits and challenges of implementing such a strategy.

What is supply chain traceability?

Supply chain traceability gives businesses visibility into their inventory as raw materials and finished goods move through the supply chain. Companies can “trace” the origin of goods they purchase, whether those items arrive as finished goods sold by a wholesaler or raw materials sold by a manufacturer.  

In construction, for example, supply chain traceability wouldn’t just refer to understanding from what company engineered hardwood was purchased, but exactly where and by what organization the wood was harvested, where and how the composite materials used to produce the engineered hardwood were manufactured, and so on.

supply chain traceability

Who is supply chain traceability important to?

It’s a common misconception that supply chain traceability is only necessary when a business is so large it faces pressure from consumers and lawmakers. In practice, virtually every business can benefit from a better understanding of the origins of the products it relies upon. This knowledge can unlock many benefits for even the smallest of businesses, including improved relationships with suppliers, more environmentally friendly procurement practices, and a deeper understanding of a supply chain prone to shortages and volatility.

Benefits of supply chain traceability

There are various benefits to practicing supply chain traceability, from corporate responsibility to risk mitigation. Here are five of the most common benefits:

1. Customer Transparency

Because supply chain transparency provides consumers visibility into how your business procures the materials it needs, your company can bolster its reputation by showcasing a supply chain that highlights its corporate values and ethics. There’s no doubt that now more than ever, businesses are recognized not only for the goods they sell or the services they provide but for how socially responsible they are.

2. Compliance

Local, federal, and international regulations often stipulate some degree of supply chain traceability. Beyond pure social and corporate responsibility, supply chain traceability can help your business confidently adhere to laws wherever it makes purchases or conducts business. For example, a business that can trace its raw materials to well-operated, safe, and clean factories also protects itself from legal action.

3. Risk Mitigation

As noted above, supply chain traceability is not only about properly sourcing materials but also about a business protecting itself from the consequences of failing to do so. By tracing every step of its supply chain, a company is inherently knowledgeable about its products, where they’re made, and how and by whom.

Moreover, by improving supply chain traceability, a business unlocks more details about its supply chain than ever before. These findings can reveal various vulnerabilities, from environmental concerns to labor violations to a supplier switching vendors so frequently there’s a reason to believe they may not be able to deliver on your next order.

Benefits of supply chain traceability

4. Profitability

By creating a traceable supply chain, your business also takes necessary steps to protect its bottom line. This is partly because, when inspecting your supply chain, you may uncover inefficiencies that raise costs you’ve been forced to pass on to your customers. 

Simply by optimizing your supply chain for traceability, your business will also have the opportunity to improve organizational efficiency by streamlining standard operating procedures, reevaluating poorly performing suppliers, and implementing a more modern inventory management strategy.

5. Improved supplier relationships

Finally, supply chain traceability fosters collaboration between all players in the supply chain, which can lead to an improved relationship with your existing suppliers. By taking the time to better understand the organizations you work with and rely on, you’ll have the opportunity to practice better supplier management, which can often lead to better pricing, more flexible minimum, white-glove service during times of crisis, and even critical insights into market trends and potential supply chain challenges down the road.

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Challenges of supply chain traceability

Just as there are various benefits to implementing a traceable supply chain, small businesses also face challenges when putting such a strategy into practice. The top three challenges small businesses face are:

1. Limited resources

Sometimes, even the smallest of businesses rely on a very complex supply chain to receive the materials they need. It can be challenging for some small businesses to stay on top of the complicated logistics that lead to deliveries at their companies’ front doors.

As a result, some small businesses may decide that supply chain traceability—despite its many benefits—is simply too complicated. One workaround is to partner with suppliers who already practice supply chain traceability. That way, your business can lean on trusted vendors to better understand its supply chain.

2. Resistance from suppliers

Unfortunately, not every supplier is interested in supply chain traceability. To combat this, explain to your vendors why supply chain traceability is vital to your business or consider switching to suppliers interested in the practice.

If and when your business searches for new suppliers, remember to ask about supply chain traceability during your search process.

3. ROI concerns

Even if a business does not face limited resources internally or resistance from its suppliers, the company may wonder whether the return on investment from practicing supply chain traceability is worth the hard work. Balancing supply chain traceability with its associated cost is a delicate task, and businesses struggling with that balance might consider a slower approach to traceability.

After all, a business can rarely implement true supply chain traceability in a matter of weeks. Instead, set annual goals and collaborate with suppliers to pave the way for gradual but meaningful improvements. For improved transparency, share these goals with your suppliers and customers. Simply acknowledging that your business is working to do a little bit more every day to improve supply chain traceability is a great start.

Improve supply chain by optimizing your inventory with Sortly

If your business maintains inventory from more than a couple of suppliers, using a digital inventory management software solution to manage your inventory can help make your supply chain traceability goals much more feasible. After all, visibility into your supply chain begins with a thorough understanding of exactly what you have on hand and what supplier you purchase it from. Sortly makes it easy to document, track, and manage your business’s entire inventory and give you full, accurate visibility into your inventory.

Sortly lets you and your team manage inventory from any device, in any location—so you can manage inventory on the go. You can easily customize and track unique details about each item in your inventory, such as location, cost, price, vendor, serial number, warranty information, and virtually anything else. Automation features like built-in barcode and QR code scanning and low stock alerts keep your business efficient and ensure you always keep the right amount in stock. Sortly is perfect for small businesses because it makes complex inventory processes easy, fast, and convenient

Learn more about how Sortly can help your business manage inventory and get started with a free, two-week trial.