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A cost-benefit evaluation framework of an electronic-based traceability system

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Purpose – The concept of “traceability as a strategy and mandatory initiative” has replaced that of “traceability as a cost of a business or as a voluntary responsibility”. This implies that the introduction of a traceability system should be perceived and positioned as a catalyst for better business practices. However, despite these benefits, a traceability system is also investment-worthy. Hence, the value of investment in a traceability system constitutes a matter of considerable concern and debate for both practitioners and academics alike. This paper seeks to present a cost-benefit evaluation applied in a natural mineral water company regarding the pilot deployment of an electronic-based traceability system. Design/methodology/approach – This is a case based study. Findings – Based on the experience described previously, a high-level framework is generated that any organisation can refer to as a proper guideline in order to demonstrate how the costs and benefits can be compared for overall evaluation of the deployment of any traceability system. The details of the framework are described by applying it to a specific case. Practical implications – The present framework has theoretical interest for replicability in a different number of food sectors. Originality/value – The paper contributes to closing the existing gap regarding the theoretical approach that food traceability systems can adopt when their costs and benefits are investigated.
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A cost-benefit evaluation
framework of an electronic-based
traceability system
George Chryssochoidis
Agricultural University of Athens, Athens, Greece
Angeliki Karagiannaki
Agricultural University of Athens, Athens, Greece and
Athens University of Economics and Business, Athens, Greece
Katerina Pramatari
Athens University of Economics and Business, Athens, Greece, and
Olga Kehagia
Agricultural University of Athens, Athens, Greece
Abstract
Purpose – The concept of “traceability as a strategy and mandatory initiative” has replaced that of
“traceability as a cost of a business or as a voluntary responsibility”. This implies that the introduction
of a traceability system should be perceived and positioned as a catalyst for better business practices.
However, despite these benefits, a traceability system is also investment-worthy. Hence, the value of
investment in a traceability system constitutes a matter of considerable concern and debate for both
practitioners and academics alike. This paper seeks to present a cost-benefit evaluation applied in a
natural mineral water company regarding the pilot deployment of an electronic-based traceability
system.
Design/methodology/approach – This is a case based study.
Findings – Based on the experience described previously, a high-level framework is generated that
any organisation can refer to as a proper guideline in order to demonstrate how the costs and benefits
can be compared for overall evaluation of the deployment of any traceability system. The details of the
framework are described by applying it to a specific case.
Practical implications The present framework has theoretical interest for replicability in a
different number of food sectors.
Originality/value The paper contributes to closing the existing gap regarding the theoretical
approach that food traceability systems can adopt when their costs and benefits are investigated.
Keywords Cost benefit analysis, Tracer methods, Food safety, Product management, Quality assurance
Paper type Case study
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0007-070X.htm
The research described in this paper is part of the TRACE (tracing the origin of food) project,
which is funded by the European Commission through the Sixth Framework Programme.
TRACE WP14 partners and particularly Heiner Lehr (Foodreg Limited) and Begon
˜aPe
´rez
Villarreal (Azti) have contributed to the research or data collection described in this paper. The
information contained in this paper reflects the authors’ views. The European Commission is not
liable for any use of the information contained therein. The authors also thank the executives and
personnel of the company, focused in the present case study and not identified here for
confidentiality purposes, for their efforts.
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evaluation
framework
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British Food Journal
Vol. 111 No. 6, 2009
pp. 565-582
qEmerald Group Publishing Limited
0007-070X
DOI 10.1108/00070700910966023
1. Introduction
Public and industry concerns over food safety have grown considerably over the last
decade. Food safety has traditionally been viewed as a “cost of business” (Littlefield,
2006) and, as a result, perceived and positioned as the voluntary responsibility of
companies. However, this perception is changing as stricter legislation and industry
standards are entered into force and require that companies not only adopt a strategy
of minimal compliance, but also treat such strategy as a catalyst for better business
practices.
Despite all the legal requirements and industry standards deployed to ensure
optimum quality, serious outbreaks of food diseases (e.g. BSE or Mad Cow Disease,
Dioxin contamination of animal feeds, Listeria) did occur where contaminated products
had already reached consumers. To meet such ethical aspect, the withdrawal/recall of
the inappropriate products from the market and the notification of authorities have
become top of mind for the food companies. Furthermore, such food deficiencies have
raised doubts in the consumer’s mind and created a lack of trust and confidence in
products put on the market. Consumers are getting more and more worried about what
they eat whether the food comes from a sustainable source and produced through
eco-friendly methods, and whether production, transportation, and storage conditions
can guarantee food safety. Betraying the consumers’ confidence may lead, in the long
term and the worst case, to damage a company and its brand image and lead it to
economic collapse (ECR Europe, 2004).
Under the pressures of legal compliance, safety and quality assurance, risk
prevention, efficient recalls/withdrawals and consumer’s right to know, the
introduction of a traceability system is not only an uppermost, but in some food
chains, a mandatory initiative. A generic definition for traceability is given by ISO
(1995): traceability is the ability to trace the history, application or location of an entity,
by means of recorded identifications. The EU commission (EU, 2002) narrows down
the definition to food industry defining traceability as the ability to trace and follow a
food, feed, food-producing animal or substance intended to be, or expected to be
incorporated into a food or feed, through all stages of production, processing and
distribution.
As follows, a traceability system refers to “the ability to describe and follow the life
of a requirement, in both a forwards and backwards direction (i.e. from its origins,
through its development and specification, to its subsequent deployment and use, and
through all periods of on-going refinement and iteration in any of these phases)” (Gotel
and Finkelstein, 1994). As a result, deploying a traceability system can bring about
significant improvements in three main dimensions (Golan et al., 2003a, b):
(1) Capturing efficiency gains through improved supply-side management.
(2) Achieving marketing/competitive advantage by differentiating foods with
credence attributes.
(3) Improving food safety and quality control by facilitating firms in identifying
and resolving food safety or quality problems.
Despite these benefits that are driving the development of traceability systems, such
systems are also investment worthy. As such, the value of investment in a traceability
system constitutes a matter of considerable concern and debate for both practitioners
and academics alike, meaning that it is essential to recognize the extent to which the
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potential benefits gained by a traceability system outweigh the value of investment in
such an initiative. Only then will the companies render a traceability system a constant
source of advantage. Therefore, this paper presents an application of a cost-benefit
evaluation in a natural mineral water company regarding the pilot deployment of an
electronic-based traceability system. Several considerations from the case are
presented that could provide valuable feedback to other organisations interested in
moving to an electronic-based traceability scheme. Moreover, based on the experience
gained, a high-level evaluation framework is generated that any organisation can refer
to as a proper guideline that helps appraise/assess the deployment of a traceability
system by weighing the total expected costs against the total expected benefits.
This paper is organised as follows. Section 2 provides the context of the case study.
Section 3 offers a relevance of the methodology used. Section 4 constitutes the main
body of the empirical investigation, giving the perceived benefits and costs of the pilot
deployment of the traceability system. Section 5 presents the high-level cost-benefit
evaluation framework and illustrates its functionality by applying it to the specific
case under study. Finally, Section 6 provides a number of conclusions and signifies
areas for further work.
2. Background
WaterCo is a sparkling and still natural mineral water company. It is situated in a
South European country and employs about 30 people. It produces 30,000,000 litres of
water per year. The products are glass or plastic bottles of still or sparkling mineral
water in different sizes. The production capacity of plastic bottles is 18,000 litres of
water per day. The customers are retailers and restaurants.
WaterCo has in place an effective paper-based traceability system. Currently the
operators record data in the production paper files. The quality control responsible just
needs to check the records. However, some processes are automatically controlled:
pallets labeling, location, and expeditions. A new electronic-based traceability system
has been deployed during a test phase. To notice that this new system has drawn on
TRACE IP work (see www.trace.eu.org[1]) and used the Tracefood (see www.
tracefood.org) framework of principles, standards and methods of good traceability
practice in the food industry. Proof of the performance characteristics of the new
traceability system has shown to be necessary including a balance the costs and
benefits of the new system to determine its relative effectiveness.
Within this context, the major objective of this paper can be described as the
identification and quantification of the major potential fields of benefits and costs for
introducing and managing an electronic-based traceability system in the pilot water
company. Consequently, meeting this objective would result in a comprehensive
framework for applying cost/benefit evaluation to the deployment of any traceability
system.
3. Methodology
The methodology adopted is clearly stated here, as it constitutes the authoritative
source for capturing the perceived costs and benefits of a traceability system and, as a
result, producing a high-level cost-benefit evaluation framework.
Drawing on literature from the topics of traceability and IT evaluation, the major
potential fields of benefits, and all reasonable cost categories for introducing and
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managing a traceability system were identified, respectively. Having identified the
relevant literature, two questionnaires were designed: one for capturing the perceived
benefits and one for capturing the perceived costs.
Regarding the benefits’ questionnaire, the design rationale was based on the six
interrelated dimensions of the IS success model proposed by DeLone and McLean (2004):
(1) Net benefits.
(2) User satisfaction.
(3) Intention to use.
(4) Information quality.
(5) System quality.
(6) Service quality.
The net benefits dimension was associated with every one of the three primary motives
for establishing traceability (Golan et al., 2003a,b): improving supply-side
management, achieving marketing/competitive advantage, and food safety and
quality control. Having defined these dimensions, a set of questions was formulated
using an appropriate 1-7 value-scale to elicit information and provide insight into the
perceived value of the new system compared with the currently used one.
Regarding the costs’ questionnaire, the design rationale was based on two cost
dimensions that are typical of any IT initiative; the initial investment costs that occur
during the system planning, testing and implementation phases and the ongoing costs
that are associated with the yearly costs incurred to maintain and modify the system.
Having defined these dimensions, a set of questions was formulated that are typical to
system development, operation and maintenance, education and training, data input and
staff related costs. Apparently, the initial investment costs are related only with the new
system while the ongoing costs concern both the new and the currently used one.
The two questionnaires were then completed by WaterCo executives. As a result, a
textual description or narrative of the WaterCo perspective regarding the perceived
benefits and costs was captured. By aggregating the key benefits and costs perceived
by the specific case example, it was likely to generate a high-level cost-benefit
evaluation framework that any organisation can refer to as a proper guideline to
balance the total expected costs against the total expected benefits.
4. Perceived benefits and costs of the traceability system
This section sets out the results of the two questionnaires. The completed
questionnaires regarding the WaterCo perceived benefits and costs of the
traceability system is given in the Appendix (Table AI), respectively.
4.1 Perceived benefits of the traceability system
The pilot implementation of the traceability system brings along many advantages for
WaterCo. The dimensions defined are: traceability for improving supply-side
management, traceability for achieving marketing/competitive advantage,
traceability for food safety and quality control, user satisfaction of the traceability
system, intention to Use the new system, information quality that the new system
provides, system quality and service quality. Each of these dimensions is addressed, in
turn, in the following sections.
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4.1.1 Traceability for improving supply-side management. This dimension involves
questions regarding:
(1) Supply chain operations efficiency.
(2) Improved trading partners.
(3) Operational advantage within the company.
Supply chain operations efficiency
This dimension tries to capture the value of a traceability system in terms of supply
chain efficiency; cost reductions throughout the supply chain; reduced cycle time. The
ability to reduce costs relating to the physical processing (i.e. movement, storage, and
control of products) and the information processing (i.e. information exchange) across
the supply chain often creates a financial advantage for firms. Greater the decrease in
costs greater the value of coordination along the supply chain, the synergies and the
operational as well as financial benefits. At the same time, the larger are the market
and the value of the food product, the larger are also the benefits of traceability for
supply side management.
A set of questions was formulated as follows. Will the new traceability system:
(1) Reduce the cycle time?
(2) Reduce the information logistics/transaction costs:
.Search ease of finding information?
.Data amount of information available for exchange and the quality of it?
.Speed how fast the transmission of the information occurs?
(3) Reduce error rate?
(4) Reduce the inventory and out-of-date data?
(5) Reduce the data input-associated time and cost?
WaterCo perspective: The time from production to make the product available to the
customers (cycle time) was long enough when utilising the old system. However, they
cannot give estimation whether or not the cycle time was reduced during the test phase
of the new system. In addition, WaterCo respondents feel that seeking information
about a specific product batch is easier with the new system and the amount of
information available for exchange and the quality of it is improved. Also, the
transmission of the information seems to be faster with the new system. All these
indicate that the new system reduces costs related to the information processing across
the supply chain. Moreover, they recognise that the time to enter data in the new
system is much faster and the number of errors during this process is reduced. This
signifies reduced transaction errors due to accuracy and automation. Regarding the
out-of-date inventory, its number is not significant.
Improved trading partner relationships
This dimension tries to capture the value of a traceability system in terms of
supply-chain integration and synchronization; improved trading partner relationships
and inter-organisational coordination and synergies. The ability to integrate and
synchronize with the supply chain has long been tapped a basis for both behavioral
and economic success. Moreover, the ability to work through improved systems and
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through an effective and efficient exchange will result in behavioural satisfaction
between the trade partners and an increased quality of the relationship. Satisfaction is
evidenced through satisfaction as expressed through lack of disagreements or
conflicts. Signs of a quality relationship include flexibility, solidarity, continuity
expectations, goal compatibility, and increased commitment of resources to the supply
chain members.
A set of questions was formulated as follows. Will the new traceability system:
(1) Allow real time exchange of quality information (forward and backward)
between chain links?
(2) Avoids unnecessary repetition of measurements in two or more successive
steps?
(3) Analyse information into meaningful reports for supplier assessment (and thus
continuity of the relationship and future joint actions) by monitoring and
judging the collaborative operations?
(4) Avoid conflicts and disagreements?
(5) Forges responsiveness?
WaterCo perspective: The information exchange between the partners in the supply
chain because of the new system is much faster. However, they cannot give estimation
whether or not the new system makes communication regarding the orders and
shipments better and whether or not the new system makes them react or reply to
requests in a faster way. They cannot estimate whether the new system avoids conflicts
and disagreements and generates reports to assess the performance of suppliers.
Operational advantage within the company
This dimension tries to capture the value of a traceability system in terms of increased
productivity; economies of scale; organizational efficiency, operational excellence. A
detailed traceability system can give very precise data about the production process
and can therefore provide the basis for process improvement (both planning and
control). Another aspect of productivity is the access of information within the
company, especially between production and general office.
A set of questions was formulated as follows. Will the new traceability system:
(1) Provide timely and accurate production information?
(2) Utilize existing data for productivity reports?
(3) Reveal transparency of processes?
WaterCo perspective: The new traceability system provides the same accurate
information regarding the production process as the old one. However, they cannot
give estimation whether or not the new system generates reports to assess WaterCo
performance in terms of productivity. In addition, they cannot give estimation whether
or not the new system reveals transparency of processes.
4.1.2 Traceability for achieving marketing/competitive advantage. This dimension
involves questions regarding:
(1) Building consumer trust.
(2) Increased product differentiation and information provision.
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Building consumer trust
This dimension tries to capture the value of a traceability system in terms of increased
trust to the company’s ability to provide safe products and products fast identifiable in
the case of problems. A company that provides effective and efficient traceability
embodies increased value in its products due to incorporating increased safety
precautions in operations and business. It thus allows a minimized risk to any buyers
purchase its products. This is a marketing and competitive advantage for the firm that
possesses better and increased traceability.
A set of questions was formulated as follows. Will the new traceability system:
(1) Make trade and the final users/consumers feel more secure and trust more the
products of your company?
(2) Provide confidence to consumers through the assurance of quality and safety
by having the trace back and track forward capabilities?
WaterCo perspective: The possibility of a connection between the traceability software
and the web page to let the consumers get access to some data has been discussed but
not implemented. If this were the case, WaterCo respondents believe that, with the new
system, their customers can be more aware of quality information regarding the
production process and the origin. Such awareness, in turn, will provide confidence to
the customers, make them feel more secure and trust more the WaterCo’s products.
Increased product differentiation and information provision
This dimension tries to capture the value of a traceability system in terms of ability to
supply products to the final user/consumer that possess increased information about the
production process and the origin of both the product itself and the ingredients used
during its production. Food producers differentiate products over a wide variety of
attributes. Content attributes affect the physical properties of a product, although they
can be difficult for consumers to perceive. The existence of a traceability system allows
the provision of products with quality information on their production process (e.g.
animal rearing or other conditions, the use of antibiotics, feed used) and the origin (e.g.
country of origin or exact location of the farms). The higher the expected premiums, the
larger the benefits of traceability for credence attribute marketing. Moreover, giving
information about the content attributes provides brand protection, meaning that there is
no fraud for the company as everything comes from where it says it comes.
A set of questions was formulated as follows. Will the new traceability system:
(1) Make trade and final users/consumers become more easily aware of your
products, prefer them and become loyal to them, thus having increased sales
and return on investment?
(2) Help you in the development of new products?
(3) Provide brand protection?
WaterCo perspective: If there was the case of a connection between the traceability
software and the web page, WaterCo respondents believe that, with the new system, the
quality of information would be better, it would make the product unique and some
additional resources would be necessary. Moreover, they recognise that the new system
will provide more protection for their brand. However, they do not believe that the new
system will help them develop new products compared with the currently used one.
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4.1.3 Traceability for food safety and quality control. This dimension involves
questions regarding:
(1) Compliance with regulations.
(2) Risk management.
Compliance with regulations
This dimension tries to capture the value of a traceability system in terms of meeting
legislations, easier compliance to regulations. Compliance in itself is a value, inasmuch
it saves trouble, e.g. with the public authority, time, e.g. when being inspected and
effort, e.g. in hiding non-compliances. It also has positive effects on your (company)
conscience and will have an influence on both the work climate as well as the
personnel.
A set of questions was formulated as follows. Will the new traceability system:
(1) Comply with existing food laws and regulations?
(2) Provide verification through online audit?
WaterCo perspective: They recognise that the new traceability system allows
compliance with food laws and regulations and verification through online auditors in
an easier way.
Risk management
This dimension tries to capture the value of a traceability system in terms of effective
and efficient risk management. When dealing with food, there are a lot of risks to take
into account. A conscious management of these risks can make a very big difference
both in the avoidance of errors as well as swiftly dealing with situations when they
arrive. Food safety related risks are probably the most obvious risk. This includes both
recall effectiveness and recall efficiency. The better and more precise the traceability
system, the faster a producer can identify and resolve food safety or quality problems.
Moreover, the higher is the value of the food product, the larger are the benefits of
traceability for safety and quality control.
A set of questions was formulated as follows. Will the new traceability system:
(1) Isolate the source and extent of safety or quality problems?
(2) Reduce the production and distribution of unsafe or poor-quality products, and
thus minimize the probability for bad publicity, liability claims, and recalls?
(3) Resolve food safety and quality problems more effectively, meaning reduce time
to identify compromised products and also the size of the recall by identifying
only the products affected?
WaterCo perspective: Owing to the fact that there occur very rarely a incident that
requires efficient withdrawal/recall they did not give any answers regarding the new
system in relation to a recall problem. However, they answered that by using the
currently paper-based traceability system, the number of affected products is big, the
required time to collect the affected products is not very short, the locations they have
to visit to collect the affected products are enough, and the procedure that they follow is
well defined. However, based on these responses, it can be concluded that the
introduction of an electronic-based traceability system can give a set of improvements.
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4.1.4 User satisfaction. Satisfaction can be reflected in a number of positive attitudes
by the company personnel and its supply chain towards the new system, but can also be
reflected in users being happy overall with the introduction of the new system.
One question was formulated as follows: Will the new traceability system make you
feel happy for having taken the decision to introduce it?
WaterCo perspective: It has been a good decision to introduce the system.
4.1.5 Intention to use/use. The intention to extensively use the new system in the
future for keeping records of all raw materials, product flaws and final dispatches
reflects its intention to use.
One question was formulated as follows: now you have experienced with the new
system, do you intend to use it fully and comprehensively in the future for records of all
your raw materials, product and production flows within the company and deliveries
to your clients?
WaterCo perspective: They would like to use it fully and comprehensively in the
future for records of all raw materials, product and production flows within the
company and deliveries to clients.
4.1.6 Information quality. An information is of good quality if it is valid, reliable,
accurate and timely, but at the same time relevant and does neither confuse (because of
its wide coverage) or insufficient (because of its provision in a summary or rather
generic form).
One question was formulated as follows. Does the new system provide information
that is:
.Always valid?
.Always reliable?
.Always accurate?
.Always relevant?
.always timely at the necessary degree of detail?
WaterCo perspective: The new system provides information that is valid, reliable,
accurate and timely, but at the same time relevant and does neither confuse or insufficient.
4.1.7 System quality. A new system serves when it is more useful, more usable, more
responsive, more reliable and more flexible than the system it replaces. As users are
volitional, any lack of the new system along the previously mentioned dimensions will
result in them considering it being of less quality.
One question was formulated as follows. Is the new system:
(1) More useable?
(2) More responsive to your needs?
(3) Able to develop as per your needs ( ¼scaleable)?
(4) As reliable as you need it?
(5) Available as per your each time needs?
(6) Adaptable to changes you need?
(7) Flexible as per changes you may require at the last minute? or
(8) Useful and functional.
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WaterCo perspective: They believe that the new system is more useful, more usable,
more reliable and more flexible than the system it replaces. However, they don not feel
that it is more responsive to their needs.
4.1.8 Service quality. It is essential to reflect the importance of service and support in
successful traceability system. There is no debating the importance of supporting
users as they attempt to execute transactions through the traceability system.
One question was formulated as follows. Does the new system provide support
capabilities and customised intelligence?
WaterCo perspective: The new system provides support capabilities.
4.2 Perceived costs of the traceability system
Investing in a new system implies two major cost categories: initial investment costs
and ongoing costs that are typical to system development, operation and maintenance,
education and training, data input and staff related costs.
4.2.1 Initial investment costs. These costs occur during the system planning, testing,
and implementation phases:
(1) Hardware: What is the cost of purchasing the necessary IT infrastructure
components (such as identifiers, printers, hand-held devices, scanners, etc.)?
WaterCo perspective: As installed and tested there is no hardware cost. However,
since WaterCo has a non-reliable internet connection, a number of standard PCs
would be necessary for a real operation. Each PC would cost around 500e.
(2) Packages software: What is the cost of purchasing the software or any other
program needed for the system?
WaterCo perspective: The initial setup cost was about 150eand the monthly
quota about 105e
(3) Communication: What is the cost of the communication equipment installation
(such as network adaptors, database servers, network cards, data lines, etc.)?
WaterCo perspective: No extra communication cost was needed.
(4) Custom software: What is the cost of any in-house application development
specifically designed to meet the needs of the traceability system?
WaterCo perspective: The cost of any in-house application development was
600e/day for single days; for several days and more negotiable
(5) Data input/conversion: What is the cost of recording and storing new
information? What is the cost of converting the old data types previously used
into new data types accepted by the new system?
WaterCo perspective: The cost of data input is about 1.100e. However, during
the test phase, no conversion was done.
(6) System integration: Is there any need for integration with the legacy systems? Is
there any need for compliance-enhancing changes within the infrastructure?
WaterCo perspective: There was need, but it was decided to leave the
integration with the legacy system outside of the project.
(7) Education and training: What is the cost of start-up personnel (associated with
the time, effort, and material required for the education and training of the
project team when planning, designing, implementing, and managing the new
system)?
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WaterCo perspective: The cost for education and training was approximately
0,5d £two persons
(8) Business process reengineering: Is there any cost of disruption to the rest of the
organization until the time it becomes adjusted to the new system and feels
confident in operating with it?
WaterCo perspective: During test phase, data was entered twice, thus there
was a cost of approximately 1.100e
4.2.2 Ongoing costs. These costs are associated with the yearly costs incurred to
maintain and modify the hardware and software of a system:
(1) Hardware maintenance: What is the cost of the regular maintenance and the
accidental repairs needed for the hardware devices?
WaterCo perspective: There are no new hardware devices before or after the
test phase.
(2) Software maintenance: What is the cost of maintaining the software represented
in the daily backup of the database to save current transactions on order to
avoid loss of data in case of sudden system crashes.
WaterCo perspective: When having the old traceability system, there was no
software system. Regarding the new traceability system, this cost was included
in license cost.
(3) Support: What is the cost of internal/external support needed in case of
problems, damages in either the software or the hardware?
WaterCo perspective: When having the old traceability system, there was no
software system. Regarding the new traceability system, this cost was included
in license cost.
(4) Ongoing training: What is the cost of training the staff onsite/offsite when
updating software?
WaterCo perspective: When having the old traceability system, there was no
software system. Regarding the new traceability system, this cost was included
in license cost.
(5) Upgrades: What is the cost of both hardware and software upgrades? Is
upgrading might included in the software maintenance contract?
WaterCo perspective: When having the old traceability system, there was no
software system. Regarding the new traceability system, this cost was included
in license cost.
(6) Staff-related cost: What is the cost of staff involved in traceability system’s
management and operation activities? Is there any cost caused by increases in
the staff salaries due to their skill enhancement and their gained experience in
dealing with the new system?
WaterCo perspective: During the test phase, the cost for paper and electronic
recording was doubled. However, there was no increase in salary.
(7) Consumables: Is there any cost of items consumed during the system operation?
WaterCo perspective: There was no such cost before or after the test phase.
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(8) Licenses: Is there any per year cost of the licensing right?
WaterCo perspective: When having the old traceability system, there was no
software system. Regarding the new, the monthly quota is 105e
5. A cost-benefit evaluation framework
The cost-benefit evaluation framework demands a taxonomy of benefits and costs that
maximizes its applicability while minimising the risk of narrowness with which costs
and benefits are reflected. The taxonomy defined has four components in relation to
benefits, as follows: cost savings, costs avoided, revenues and intangible benefits.
Respectively, the taxonomy regarding the costs has two components in exact
correspondence with the questionnaire’s dimensions: initial investment costs and
ongoing costs.
In Table I, the framework is applied to the case of WaterCo to demonstrate how the
costs and benefits can be compared for overall evaluation of the deployment of any
traceability system.
6. Conclusions
This paper describes work undertaken for a company that deals with water bottled
trading in an attempt to weigh the perceived benefits against the perceived costs of the
introduction of a traceability system. As a result, it is critical to summarize the main
findings, signify areas for plausible further work, and identify limitations.
The main findings of this paper can be categorised into two foci, the specific case
implications, and the cost-benefit evaluation-framework-implications.
Regarding the WaterCo implications, it can be concluded that the introduction of an
electronic-based traceability system would alleviate the ill effects of manual processes
due to automation; eliminate transaction errors, the labor intervention and the required
cycle time, while increase the throughput speed of product and the inventory accuracy.
These findings offer empirical evidence in support of the strength, weakness,
opportunities, and threats (SWOT) of the paper-based compared to the electronic-based
traceability systems suggested by Marshall (2004); see Table II). Also, they offer
empirical evidence in support of the traceability system motives suggested in Golan
et al. (2003a, b).
The cost-benefit evaluation framework developed could be considered as:
.a performance measurement model within an individual company; meaning to
identify the performance advantages behind investing in an electronic-based
traceability system (to-be system) compared to a paper-based one (as-is system);
and
.a planning guide that any organisation interested in moving to an
electronic-based traceability scheme can refer to in order to appraise/assess
such deployment and understand the linkages with process innovation, business
process reengineering and IT capabilities exploitation.
One can easily observe that such framework may contribute to cost-benefit analysis
and primarily seeks to help the organisation better understand the traceability
potential by balancing the benefits against the costs. In addition, such framework
provokes a debate on appraisal of an IT initiative, which in turn may give rise to
valuable learning. However, further work is required so as to replicate the original
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model developed for a specific case and move to a generic model that can be used for
evaluation in any company before/after a traceability system is deployed. Seeking to
formalise the cost-benefit evaluation process, it is worth mentioning that none of the
outputs in itself can be considered as sufficient and necessary to lead to valid
conclusions. Only by validating the framework by applying it to other real cases will it
Cost savings Benefits
Labor savings Doubled time for both paper and electronic data-recording activities
Reduced transaction errors due to accuracy and automation
Asset and operating cost
savings
Better tracking and management of returnable transport items and
logistics assets (totes, roll cages, pallets, etc.)
Inventory reduction
Fast, narrow-targeted recalls and identification of incident cause
Reduced counterfeiting and diversion
Costs avoided
Inventory visibility Improved, collaborative demand forecasting
Losses caused by misplacements or mistaken shipments
Shrink Improved tracking of product movement
Verified shipping and receiving at all nodes in the supply chain
Increased visibility of assets
Revenues
More responsive production
Increased product quality
Enhanced collaboration among partners
Intangibles
EU directives’ full compliance
Customers’ trust
Avoiding damage in company’s reputation in case of a recall failure or
delay
Competitive advantage of first mover
Improved decision making
Initial investment costs Costs
Infrastructure costs Hardware (a number of standard PCs that each one costs around e500)
Communication (no extra communication needed)
Development costs Software (custom software development ¼e600/day for single days
or packaged software licenses ¼e150)
Systems integration (data integration, integration with legacy
systems) (there is need, but it was decided to leave the integration with
the legacy system outside of the project)
Operational costs Data input/conversion (e1,100)
Users’ training (approx. 0.5d £two persons)
Business process reengineering (since during test phase data were
entered twice, there was a cost of approx. e1,100)
Ongoing costs
Maintenance costs Hardware/software maintenance (no hardware/software devices)
Support (cost included in licence cost)
Upgrading (cost included in licence cost)
Ongoing training (currently double cost for paper electronic recording.
However, no increase in salary)
Licences (monthly quota: e105)
Labor overhead
Table I.
Benefits and costs of an
electronic-based
traceability-system
business case
Cost-benefit
evaluation
framework
577
Strengths Weaknesses Opportunities Threats
Paper-based Low direct costs Disjointed information
Indirect cost of time
Transfer of templates to
electronic format
Time to recall information may
exceed legal threshold
Electronic-based Information can be correlated to
identify efficiencies
Enhanced costs due to IT
purchase
Interlinking traceability info with
sales/production/accounts and
with external partners
Developing/purchasing systems
which cannot communicate with
other systems and software
Fast lane perception
Source: Marshall, 2004
Table II.
Traceability systems’
SWOT
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offer an authoritative source for convincing inference about costs and benefits of a
traceability system. At the same time, it is necessary to note that an in-depth
investigation using a monetary basis for costs and benefits is dependent on each
company’s internal cost accounting systems and basis for calculations of costs and the
size of potential recalls. Such recalls depend on the complexity of the product lines,
company warehouse storage and logistics/distribution practices (e.g. the clearer where
each product lot is stocked or it is delivered the smaller the recall). Moreover, benefits
in monetary terns from increased sales interface with consumers’ willingness to pay for
increased safety, and also consumer willingness to pay for (additional) information that
can be provided through traceability systems. Such discussion is mentioned previously
and beyond the scope of the present article.
Note
1. TRACE (a project funded by the European Commission through the Sixth Framework
Programme under the Food Quality and Safety Priority) develops cost effective analytical
methods integrated within sector-specific and -generic traceability systems that will enable
the determination and the objective verification of the origin of food. A 12 European
countries assessment of consumer behaviour issues is also included.
References
DeLone, W.H. and McLean, E.R. (2004), “Measuring e-commerce success: applying the DeLone
& McLean information systems success model”, International Journal of Electronic
Commerce, Vol. 9 No. 1, pp. 31-47.
ECR Europe (2004), Using Traceability in the Supply Chain to Meet Consumer Safety
Expectations, ECR Publiscations, Biel.
EU (2002), “Regulation (EC) No 178/2002 of the European Parliament and of the Council”, Official
Journal of the European Union, L31, 1 February, pp. 1-24.
Golan, E., Krissoff, B., Kuchler, B., Calvin, L., Nelson, K. and Price, G. (2003a), “Traceability for
food safety and quality assurance: mandatory systems miss the mark”, Current
Agriculture, Food and Resource Issues, Vol. 4, pp. 27-35, available at: http://cafri.usask.ca/
j_pdfs/golan4-1.pdf
Golan, E., Krissoff, B., Kuchler, B, Calvin, L., Nelson, K. and Price, G (2003b), Traceability in the
US Food Supply: Economic Theory and Industry Studies, Economic Research Service, US
Department of Agriculture, Agricultural Economic Report No. 830, Washington, DC,
available at: www.ers.usda.gov/Publications/AER830/
Gotel, O. and Finkelstein, A. (1994), “An analysis of the requirements traceability problem”,
Proceedings of the 1st International Conference on Requirements Engineering, Colorado
Springs, CO, pp. 94-101.
ISO (1995), EN ISO 8492, European Committee for Standardization, Point 3.16, Bonn.
Littlefield, M. (2006), Compliance and Traceability in Regulated Industries, Benchmark Report,
Aberdeen Group, Boston, MA.
Marshall, P. (2004), AquaTT Student Workshop: Traceability Module – Section 4, IFQC Ltd and
AquaTT Ltd, Dundalk and Belfast.
Cost-benefit
evaluation
framework
579
Appendix
Figure A1.
WaterCo Questionnaire
regarding the perceived
benefits
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Figure A1.
Cost-benefit
evaluation
framework
581
Corresponding author
George M. Chryssochoidis can be contacted at: gc@agribusiness.aua.gr
Figure A1.
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Using Traceability in the Supply Chain to Meet Consumer Safety Expectations
  • Ecr Europe
ECR Europe (2004), Using Traceability in the Supply Chain to Meet Consumer Safety Expectations, ECR Publiscations, Biel.
Regulation (EC) No 178/2002 of the European Parliament and of the Council
EU (2002), "Regulation (EC) No 178/2002 of the European Parliament and of the Council", Official Journal of the European Union, L31, 1 February, pp. 1-24.
Compliance and Traceability in Regulated Industries
  • M Littlefield
Littlefield, M. (2006), Compliance and Traceability in Regulated Industries, Benchmark Report, Aberdeen Group, Boston, MA.
AquaTT Student Workshop: Traceability Module – Section 4
  • P. Marshall
AquaTT Student Workshop: Traceability Module-Section 4, IFQC Ltd and AquaTT Ltd, Dundalk and Belfast. Cost-benefit evaluation framework
  • P Marshall
Marshall, P. (2004), AquaTT Student Workshop: Traceability Module-Section 4, IFQC Ltd and AquaTT Ltd, Dundalk and Belfast. Cost-benefit evaluation framework