Asset Visibility: Changing Regulatory Landscape Driving Adoption of IoT Solutions in the Food and Grocery Verticals

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2Q 2022 | IN-6531

This insight briefly outlines the regulatory reforms in the food and grocery market and explores how traceability regulations are impacting IoT use cases. The insight then explains which geographic markets are already mature and which are less penetrated.

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Regulations Having a Transformative Impact on Food and Grocery Supply Chains


The U.S. Food Safety Modernization Act (FSMA), Canada’s Safe Food for Canadians Act (SFCA), and the European Union’s (EU) General Food Law have laid the foundation for traceability throughout the supply chain. The regulations do differ in scope, timeline, and record-keeping requirements. Traceability is generally defined as the process of maintaining records “one step forward and one step backward,” meaning who was the supplier of the food, and who was the recipient of the food. Typically, traceability is enforced in food supply chains through use of lot codes (also known as batch codes), which ensures that food products can be traced and recalled locally, rather than nationwide. In the case of the EU’s General Food Law, minimum traceability requirements require a “one step forward and one step backward” system, i.e., the record keeping is mandatory only for who the supplier was and who the buyer is and does not legally require batch code record-keeping. If companies do not keep batch codes, then they are liable for recalling the entire product in circulation, instead of the batch. However, despite a low legal baseline requirement, batch numbers/lot codes are common in the EU. Thus, business transformation is happening beyond the initial regulatory compliance layer.

How Do Traceability Regulations Lead to Asset Visibility and the Adoption of IoT Solutions?


Traceability regulations impact both cold chain and non-cold chain items. Cold chain items require both condition-based monitoring and geolocation tracking. Condition-based monitoring typically consists of ensuring that frozen food remains at a cold temperature, and that food is not exposed to excessively high levels of humidity. Other smaller varieties of condition-based monitoring include sensors to detect sudden jolts of sensitive foods (like cakes) during transportation. Thus, cold chain items, can be subject to Service Level Agreements (SLAs) from production to distribution. Non-cold chain foods have fewer condition-based monitoring requirements because temperature monitoring is not as critical as it would be in cold chain foods; however, humidity monitoring may still be useful. Also, the use of Internet of Things (IoT) devices for geolocation tracking is still possible, which leads to the use of Real-Time Transportation Visibility (RTTV).

Traceability regulations also impact digital tools like Enterprise Resource Planning (ERP) and Warehouse Management System (WMS) software, because digital record-keeping of lot codes and other traceability data points like expiration date and transaction date requires leveraging ERP and WMS solutions. It is beneficial to transfer to digital systems because of the greater efficiency by integrating with digital records instead of paper-based records, given the large number of data points that accumulate over time. Thus, the new regulatory requirements are facilitating modernization of these systems, which, in turn, allows asset visibility, itself built upon digital record-keeping. This is applicable not just for food, but also increasingly for both non-alcoholic and alcoholic beverages.

Mature and Growing Markets: Opportunities for Players across the IoT Value Chain


The growth market for traceability is manifest in emerging markets, especially those countries that have yet to implement a traceability system of record-keeping. In emerging markets, the limits to traceability rollouts are also met by fewer industry initiatives, unlike developed countries, which are part of industry initiatives like the Produce Traceability Initiative (PTI) and voluntary milk and other dairy product associations. The prevalence of industry initiatives and their pervasiveness tends to vary in developed markets, let alone emerging ones, hence support for industry standards is believed to be much lower in emerging markets. Compared to the pharmaceutical market, the IoT opportunity is believed to be relatively smaller given the slower regulatory rollout of traceability in Asia-Pacific and Rest of the World for food compared to pharma. Asset visibility is slower to roll out as many elements of the supply chain (especially farmers in emerging markets) face barriers to adoption of digital traceability systems that run “from farm to fork,” with paper-based systems often still being the mainstay.

Among mature traceability markets (that of Europe and North America), the IoT opportunity at present is likely to accelerate, because the regulatory framework, industry initiatives, and digital record-keeping are already in place for additional value-add services like asset visibility through Real-Time Tracking (RTT) to be layered on top. Asset visibility is evidently manifest in the cold chain where SLAs between companies are facilitated through standardized forms of data exchange like Application Programming Interfaces (APIs) and Electronic Data Interchange (EDI) formats, which can be provided by standards organizations like Global Standards 1 (GS1).

In summary, the regulatory landscape is rapidly evolving in developing countries with increasing pressure to implement baseline improvements, such as traceability, not only to access export markets in Europe and North America, but also to reassure concerns of domestic consumers about food safety. The IoT opportunity will likely accelerate in markets that have already matured in end-to-end traceability system rollouts, such as Europe and North America. Established digital record-keeping systems for food business operators naturally extend to IoT use cases like condition-based monitoring and asset tracking, driven by a regulatory environment that often incorporates digital traceability record-keeping or is based entirely upon this digital requirement. While many emerging markets are catching up in terms of traceability and asset visibility, implementing an end-to-end IoT solution will be more of a longer-term proposition as paper-based records kept by companies would first transition to digital Information Technology (IT) business systems (like ERP and WMS), so that inventory management and Operational Technology (OT) systems are then modernized with IoT technology.



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