 Hello, and welcome back to the course on supply chain digitization on the NPTEL platform. I am Professor Sushmita Narayan, I am a faculty in the Indian Institute of Management Mumbai. In this series of lectures, we are going to begin with the module that focuses on digital infrastructure for supply chains. We have seen up till now how a supply chain functions, what is the role of technology in terms of what kind of capabilities it can provide, what is the role of decision making in terms of optimization methods and data analysis, what is the role of having good relationships within the supply chain as part of processes, what is the role of proper design of systems in order to meet the requirements of the supply chain and the role of coordination within the systems. Now, this was the foundational aspects of supply chain management where we were focused on the traditional concepts of supply chain in the era of the platform economy. However, supply chain functioning is incomplete nowadays without understanding the role of digital infrastructure in supply chains. So, as part of the digital infrastructure, there are many elements to it which needs to be considered. We will start with the first lecture on digital infrastructure where we focus on one of the most popular aspects of digital infrastructure namely product tracking and traceability systems. Now, in this first lecture that I am having on this topic, we will focus on a broad overview of the role of product tracking and traceability. In essence, what we will be looking at is what is the need for product tracking and traceability in supply chains, why is it important, what is the relevance of it. And then once we have understood the same, we are then going to focus on understanding how can we bring about improvement in product tracking and traceability systems within supply chains. Given the understanding that this is one of the most difficult aspects of implementation within supply chain management which has a huge amount of impact on the productivity and performance of supply chains. Let us try to understand the need for product tracking and traceability through an overview of what supply chains usually look like. If I were to consider a typical supply chain, up till now we have seen broad understandings of what the supply chain looks like. There are manufacturers, suppliers and there are wholesalers, distributors, retailers and many other parties downstream before the product actually reaches the supply chain. We usually have a very holistic perspective of what this looks like, but in reality supply chains are not that simple. If we were to consider a typical supply chain starting with the supply side, let us say we have a few raw material suppliers or material suppliers, perhaps they are supplying components let us say this is the automotive industry or perhaps they are supplying chemicals or active ingredients let us say this is the pharmaceutical industry, perhaps they are supplying some kind of dyes and pigments let us say this is the paint industry. So these are the raw material suppliers who may or may not be located at the point of consumption of the product, the final product. So it is possible that these components let us say this is the automotive industry may be coming from a place like China whereas the final automobile that is being manufactured could be in a region like the US states. So this is a possibility, the raw material supply is happening from a location which is very far from the point of consumption. Now let us say we have other elements also within the supply chain, one is material suppliers or component suppliers, we have a factory or the manufacturer who is going to put together the materials that they have procured and then we have intermediate storage points, perhaps it is a warehouse or a distribution center or a combination of the two or fulfillment center and then we have retailers who are going to be present and beyond the retailers obviously we would be having the end consumers or the customers. Now if this is the case, what could the network really look like? So this is what the factories could look like, they will differ in locations, there may be multiple factories located in multiple geographical regions, they could also have varying sizes, this may be a much larger factory when compared to this and it could be such that a large portion of the production capacities are held by this particular factory whereas these two smaller factories have a lower proportion of the manufacturing capacities or production capacities. Then we have the intermediate storage points, once the production has happened there would be intermediate storage points for the finished goods in locations that are closer to the customers, these could be again varying in sizes, we could have a larger warehouse and a smaller warehouse, there could be multiple such warehouses or just the two of them and finally we have the retailers, let us say we have a few retail points that are associated little bit close to this particular warehouse, then we may have other retail points which are coming up in recent times and then we have few more retailers that are located much closer to the much larger warehouse as well. Now if this is the case, then how does the product flow actually happen? So we can observe that the product flow should be coming from the suppliers to the retail zones. So the product flow would be going in such a way that the two markets are being targeted, one is the market that is close to the smaller warehouse, market one and the second is market two which is closer to the larger warehouse. So we can see that these two distribution centers or warehouses are much closer to the points of consumption over here and then when we were to consider what is going to be the material flow look like, it would start right from the point of the supply side where the raw materials are going to the factories. We can see here that this particular supplier is associated with just this factory and this supplier over here is associated with just this factory whereas this supplier in between is associated with both these factories. Now these factories could be competitors or these factories could be the same kind of company and hence not competitors but subsidiaries of the same company or plants within the same company. So there could be multiple clients or multiple partners for the supplier over here. Now once the manufacturing is occurring in the factories then the supply has to go forward. It could be possible that the large factory is also getting additional resources from some of the smaller factories. Now this is not uncommon, sometimes there is some kind of work in process that is some kind of partial inventories that are created or manufactured at a different location and then they are supplied to a larger factory where they are consumed either as work in process inventory or they could be used for some kind of processes finishing processes so on and so forth. This could also be packaging materials that are being supplied from this particular location to this factory. So there could be always a flow of materials that not just happens from the suppliers to the factories but within the factories themselves and across the factories is also possible to have this kind of stock movement that occurs within the supply chain. Now similarly as we proceed we are going to see that the factories are then going to supply their materials to the distribution centers. It is not necessary that they directly meet the retailers but it is possible as we have seen in the earlier lectures on channel structures it is possible that we have direct channels that are going to be present between let us say the factory and the retail points or between the factories to the end customers themselves. So it is highly possible that this is going to be the case. And then from the factories once a product has gone to the warehouses or the distribution centers the product is then going to further move towards each individual retail point. Let us say over here we have a retail point, we could have movement to this retail point, to this retail point, we could also have retailers picking up the materials from the warehouses and then picking up the items or the movement is going to happen from the distribution centers to these retail points. And similarly since this particular distribution center over here is associated with market one we would have material movement from the distribution center to each of these points as we observe over here. So this is going to be the nature of movement of the materials and like I said there could be other channel structures that are also possible. We could have a case where the factory is directly connected with let us say one of the retail points considering the proximity of that retail point to the factory. And then further from there the material is going to further go down to the various end customers who are going to be present. Let us say these are the finished goods and these are the supermarket retail points the customers are going to make their purchases of the product from these small points of retail that look small in comparison to the size of the manufacturing facilities. That they could be quite large in terms of the area that they are going to consume at the point of retail. So we can see that the material flow is going to keep trickling down from the supply site through various ways through various forms and finally reach the end customer. Now what we observe over here the product is going to undergo a lot of transformation as it moves through the system. Over here it would be simply as raw materials or components. Over here these are work in process inventories which are going to be present. Over here we are going to be mostly having products which are finished goods and more specifically we might observe that some amount of palletization or packaging of the materials in bundles would be occurring at the centers of distribution over here and here. Now as we can observe the material moves in different forms and ways through the supply chain and as it moves through the supply chain it indicates what is going to be happening to the supply chain how well the supply chain is actually functioning. If there is too much hold up or build up of inventory let us say at the end of the factory it would mean that the factory is producing in excess of the requirements of the market. Now let us say similarly there could be problems at retail there is excess of hold up of inventory in some of the retail points that are not getting consumed which means there could be a problem in this particular retail point where it is not able to attract enough customers or the density of customers over here may not be much in comparison to the amount of product which is actually present in the retail point. Similarly if there is lot of shortages which are occurring in this particular distribution center it would mean that the factories have misjudged the demand of market one altogether and as a result this is going to require a relook at the kind of inventory norms that are going to be present at the end of distribution and similarly there may be a requirement to look at the inventory norms which are present at the end of retailers. So it leads to a lot of analysis that can be carried out for fine tuning the performance of the supply chain altogether. In a sense if we were to consider product movement it is very very important and hence tracking the product movement is quite important. What we understand from this particular perspective is firstly supply chains are not simple they are very very complex there are interactions occurring at each stage within the tier itself. Let us say there could be interactions occurring within the factory tier there could be interactions occurring across tiers such that over here the factory is interacting directly with the retail points and there could be a lot of mismatch which happens in the kind of capacities allocated across these nodes with respect to the actual demand and requirements of those markets. So they are very complex networks firstly of product movement which is material flow we also understand that the material is going to change in the nature and shape as it flows through the supply chain. The second one is it is going to be very complex in terms of financial flows. We understand that the payments which happen at the end of the customer may be real time transactions that is you have made a purchase and you are going to immediately pay in cash. The payments which are going to happen between retailer and the distribution center may be in terms of credit transactions. Then the payments that can be happening between the factory and the distribution centers could be on the basis of credit again the purchases which are happening from suppliers could be on the basis of credit. And there could also be possibilities where a lot of these financial interactions can actually be simplified if we are considering that the factory is owning the entire supply chain downstream. So there is not much of a competition that occurs between different tiers within the retail point or within the distribution tier. So all these possibilities to exist and finally in terms of information flow it is going to be complex because we are going to consider information related to how the purchase is actually happening at the end of the customers, how the inventory is being maintained at the retail point, how the inventory is being maintained at the distribution center, how are dispatches actually occurring from the distribution centers to the various retail points, how are dispatches occurring from the factories to the various distribution centers, how is the material actually being consumed within the factory, how is the material being actually procured from the supply side that is the material suppliers or components suppliers and how it is being managed. This is all very important information as we can see it is again related to material flow and financial flow. So we can understand that if we were to really look at the performance of a supply chain there is a vast amount of information that is actually required to work through this. One of the most important pieces of information that we require is the information related to the products location, products health status, etcetera, etcetera. Now if this is the case we can see that this is indicating the need for visibility of inventory status at each point within the supply chain. Now why is it required? First and foremost the availability of information on what kind of storage systems are going to be present or storage conditions are going to be present for the product is going to help us understand what is going to be the health of the product in the sense is the product expired or is the product in good condition or not. Second we need to understand how much of the product is actually available in the system. If we look at product movement we need to understand where the product currently is in the supply chain. Suppose the demand is suddenly going to spike up in market one in one of the retail points. So we need to understand if the material which has been asked for this retail point is actually on the way from the distribution center or not. Has it been dispatched or not? This movement information is very much required because if the retailer knows when the material is going to actually arrive at the retailer, the retailer can then make promises or can negotiate with the end customers in terms of delivery times, in terms of price and other parameters. So this is very important information which is required for the various partners within the supply chain. It is also a parameter of customer service. If you think of nowadays when you make purchases online, you would very much want to know where the product is currently that you have purchased or where what is the location of your order such that you can make adjustments at your end in terms of whether you need to be available for picking up the items at your home or should there be someone who picks it up on your behalf so on and so forth. So this helps you in making those decisions once you know where the product is actually within the supply chain. And finally, we need product tracking because it helps us understand usage of the material within the supply chain. So when we speak about usage, it refers to usage at different levels. It could refer to usage at the end of the customer. So how is the customer actually using the products that they have purchased? How are they making use of these products? In which fashion are they discarding these products and in which fashion are they actually talking about these products once they have started using? This is very important information because this then tells us how popular the product is, how viable the product is for the future, for sales as well, for growth as well. And similarly when we talk about usage of the products within the supply chain, we would be interested in knowing, let us say we are talking about factory levels, we would be interested in knowing if the factory is actually functioning efficiently in terms of using the materials that it has procured in order to make the end products. If it is not doing so then there may be issues which are occurring within the processes that are going to be present in the factory or there could be issues associated with the way materials are being handled within the factory. So this is very important for us to understand what is the productivity of the system in terms of how well the products are being used or how well the materials are being used when in process. Now if these records are present as you can see the availability of these records helps us in decision making for the supply chain. So we see it is very important for us to understand where the product is, how it is being used, how it is being stored and what can be infer from this particular information and data that we have so as to assist in decision making as we go ahead within the supply chain. And what kind of decision making that could that be? For example, if we know that there is a huge amount of spike in demand which is going to occur in market one and this is an unprecedented spike that means information was not available to you earlier with respect to the demand and this can be indicated through the presence of shortages that occur at these retail points that there is a huge popularity of this product in these retail points. So in that case what is the decision that could be taken? One of the decisions that could be taken is to reallocate stock from the other distribution center in market 2 to market 1 so as to meet the requirements in this particular retail zone. If this is not possible then we need to definitely indicate to the factories to produce more in order to supply to the retail points on priority. So these are the decisions that need to be taken and of course which decision is better is also a question that is going to emerge as we start evaluating these decisions. So you can see that the visibility of inventory is helping us make a simple decision at the outside it looks like a simple decision but it could be quite complicated in terms of how well this decision is actually going to be implemented in terms of where the production is going to happen or if there is going to be any kind of stock relocation from one warehouse to another warehouse or from one distribution center to another distribution center. Now before we can understand what else are the utilities of product tracking and traceability what we need to understand is perhaps from the other side. Product tracking and traceability is not necessarily very common within supply chains. In fact it is one of the major issues which happens in supply chains that is we do not have enough information as to where the product is or what is the condition of the product how much inventory is available where it is moving how it is moving or how fast it is moving this information is a bit difficult to capture and it can lead to certain issues within the supply chain and it leads to a lot of challenges for the supply chain to function very effectively. Now what could those challenges be? One of the impacts that we can observe if there is an absence of product tracking or product traceability within the system what we can observe is a major challenge that we see is once we are not aware as to how much inventory is there with us. Let us say you want to know how many units of the product are actually there in the distribution center and you are an upstream player such as the manufacturer or a seller who is making this supply and you are not aware of how much inventory is there within the system. So, you could take the worst case scenario the worst case scenario that you would think of is that there is bound to be some amount of shortage which happens within the distribution center and this is the worst thing that could happen to you and this could lead to poor service levels for the customer. So, what is the decision that you would take? You would probably take an erroneous estimate of what the inventory is going to look like at the distribution center and basis this you are going to make wrong estimates or even large estimates of what should be the inventory that should be currently positioned in the distribution center and since you feel there is a shortage you might place large orders for manufacturing that is you might start manufacturing in excess or you might even start placing large orders for raw material supply and start procuring in excess. In other words what you are going to do is you are considering the worst case scenario of not having enough finished goods in the market and hence you start planning in excess for production and you start building safety stocks or buffer stocks with the erroneous judgment that there is going to be a shortage in the market. Remember you have no idea as to what is the status of inventory within the market. So, this is the worst thing that you could do if you happen to be a very risk a worse kind of a manufacturer that is someone who wants to ensure that their products get sold in the market. Now, the other issue that could happen is because of these phantom orders or large orders that you place with the understanding that there is going to be shortage in the market you might start placing very large orders to your suppliers and they will start placing even larger orders to their suppliers and as a result of which there will be huge amounts of materials that are going to present in the system and since there is a positive of information which is there on the actual progress of or the actual movement of inventory within the system what could happen is a very common phenomenon called as the bullwhip effect which is the amplification of actual orders through the supply chain till the end suppliers. Another concern that could happen is there could be poor practices with respect to materials management. So, suppose you are not able to track the inventory health or the condition of the inventory you do not know if the inventory is old or new inventory it may be very close to expiry and if it is very close to expiry it would be prudent that it has to be used as quickly as possible within the expiry period that is available to us. If this is not the case then what is going to happen is that you are going to have with you a lot of dead stock or expired stock of materials which have no use for you as a company to sell and no use for a consumer as well if it reaches very late to them. So, what would happen is since you did not have a proper understanding of the condition of the inventory you might you might end up losing out on good quality inventory because you did not issue them on time and the demand does not get met properly. At the same time if you are going to issue poor materials within the supply chain and not remove them from the system it may lead to improper processes as we go along and create a lot of quality concerns within the supply chain. Another impact that we can observe is if you do not have any idea as to what is the nature of inventory that you are holding or if you only have a broad idea as to what products you are holding this kind of absence of visibility of the product can encourage the presence of fake products or counterfeit products within the system. Now, this is a problem that we see in a lot of supply chains where a brand is associated with the product and in the name of that particular brand there may be a very closely resembling product which enters within the supply chain. It could be a fake medicine, fake apparel which have the characteristics of the original product but are not the original product simply because you are not really tracing the original product. So, what does this lead to? Obviously, this creates a secondary market for the products which are fake in the name of your brand. So, it leads to a loss in brand value once people start realizing that these are fake products they are going to indicate that you know fake products are being sold and hence this is going to impact your brand value. It can also lead to a loss in revenues the potential revenues that you could have earned if you had sold your original products in that market instead. Another challenge that could occur is since you are not tracing the products properly it will create an environment for theft, pilferage and wrongful claims. Basically, it means that amount a large amounts of inventory may be stolen or stolen in small amounts over a long period of time and there could be wrongful claims because if you have not tracked your product who is to say that the product that you sold is actually that the product that was purchased right. So, the customer might even make a false claim with respect to the product that they purchase saying that this is the product that I purchased from the manufacturer via the retail chain and now it is giving me trouble and hence I want some kind of refunds or replacement of the product and when you actually see the product it might have been a fake product it might not be even a product that they purchased it could have been a product that was stolen and they are claiming for it wrongfully. And in some cases the product might have been purchased but the damages done to the product would be at the end of the buyer and they may be claiming wrongfully from the suppliers, from the manufacturers for the damages that have come to the have occurred to the product. So, these kinds of issues can lead to loss in revenues it will lead to excess costs because now again you are going to start building up on safety stocks and start ordering excessively. It will lead to insurance cost because once you know that you have this possibility for theft and pilferage you are going to start investing a bit more in insurance and hence this is going to impact the inventory carrying costs that you are going to have. Once you start getting into issues with respect to wrongful claims and other such contingencies you are going to incur more litigation expenses. As you can see all of this is happening because you simply did not really understand where your product is how it is being handled and who is having your product right now. And further one of the issues that could occur is since you are not tracking the product usage at various tiers of the supply chain there is loss of valuable information as to how the consumers are actually using the product how the materials are being used within the supply chain are they being used properly are their proper storage practices being used for the materials and the components are the materials being handled properly when they are being moved from one location to the other. If this information is not available to you then what is going to happen is you are going to not understand the full potential or challenges which are occurring within your supply chain and hence this can very easily hamper market growth and also hamper supply chain relationships there could be issues with respect to the product design due to which there are poor material handling practices being carried out. But instead you are going to blame the warehouse partners or the distribution partners for wrongful handling or it could be the other way around that the product is in perfect shape it is also being packaged properly but since you do not know how it is being handled and how it is being pulled apart there could be wrongful practices being carried out by the logistics players who are present in the supply chain. So, there is a huge amount of valuable information that gets lost when you are not tracking the material usage. So, how do we go about improving product tracking and traceability this is where we move to the final discussion point of this lecture. Improving product tracking and traceability requires a three pronged approach. One is we need to create processes and systems that can enable product tracking and traceability. The second is we need to look at ways of implementing technology and the third very important part of this intervention would be to look at how do we include people people within this entire system of product tracking and traceability. As you can see when we speak about process it refers to creating systems for product tracking such as ensuring that regular records are being maintained, enabling quality assurance within the supply chain, regular inspection that happens within the supply chain, having processes which are systematic in nature for inventory counting so on and so forth. Another kind of process that we need to look at is once you have information with respect to where the product is, how it is being stored, how do we create for how do we create systems for using this data that can enable decision making. So, creating processes and structured processes or decision making methods that can help create decisions with respect to how the material needs to be used. The second one is with respect to technology when it comes to product tracking and tracing. First and foremost we need to look at whether we need to adopt certain technological tools for real-time tracking of the products. This could mean investment in sensors, scanners, tagging methods, RFID chips, bar coding, QR coding so on and so forth. This would also mean that we need to look at adopting decision support systems that are technologically enhanced through the analysis of the signals and data that are captured by the product tracking devices. The last element of this approach would be to look at involving the people within the process of product tracking and traceability to a large extent. One is with respect to training personnel on the good practices of how to handle materials and how to maintain records properly and the other is to train personnel on using the material information and records information in order to make proper decisions within the supply chain. So, with this we will conclude on the lecture related to an introduction on product tracking and traceability and in the next lecture we are going to take a little bit more deep dive into understanding what are the different kinds of tools and processes that we can incorporate when we are looking at understanding product tracking and traceability within supply chains of today. Thank you very much.