By Benjamin Brits
The cold chain, both locally and on an international level, holds many points of transfer and with this the associated risks throughout the line in providing the consumer a quality and safe product.
| This is the final article of the three-part series. The first and second parts of the series were published in the preceding issues of Cold Link Africa and can also be found online at www.coldlinkafrica.co.za |
The cold chain essentially requires various tools and technology to continually keep an eye over temperature-sensitive products making their way through the supply chain. Without suitable and timeous treatment, sub-optimal conditions arise with these goods, and this could ultimately result in damages – not only to goods – but a company’s reputation, customer loyalty and profitability.
Having had the opportunity to research and compile this feature series (which is by no means anywhere remotely near to a complete overview either) has given various insights into some pertinent challenges as well as ideas of how a business in the cold chain could reduce their risk exposure.
As a self-test to illustrate what could be involved in the global cold chain, a simple internet search of a few known elements related to this series generated anything from a few-to hundreds of millions of results. This is a direct indication of the vastness of systems, processing, logistics, storage, methodologies, and packaging aspects, to name but a few, that are involved where risks can present themselves. Not to mention the types of organisations and government departments that have dedicated divisions in control, research and development focused on this function.
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Given all of these elements, several technologies exist – and some have existed for some time already – from simple logging to facility monitoring, and even as far as disposable (or single use) devices. All of these solutions have made getting perishables from producer to consumer more efficient and better-controlled to ensure that risk is reduced or removed entirely.
Insurance risk-mitigation products and processes, although forming part of every business are therefore particularly important in the cold chain that deals with sensitive, and often costly perishable products that must be maintained under specific conditions to ensure they do not spoil (altogether or experience a shortened shelf life).
As we have indicated over this series, several avenues related to risk exposure directly impact insurance cover and premiums. With the movement of perishable goods being a significant portion of the chain, telematics and monitoring have increasingly become the norm to identify where things went wrong, and in pinpointing liability of failure. Further, with the big data generated, many doors in probabilities and predictions are on the horizon for all role players including the clients, third parties and even insurance providers themselves.
Although, primarily the movement of perishables get the most attention as it is known as the major cause of temperature fluctuations in the chain, so many industries can, and do already benefit through technology. These include:
- Pharmacies
- Hospitals and laboratories
- Pharmaceutical manufacturers
- Restaurants and hotels
- Abattoirs and food manufacturers
- Veterinary clinics and wholesalers
- Biological distributors (flowers)
- Refrigerated transport (road/rail/sea/air)
Technology developments over recent years
The advancements of technology, as with so many sectors, is in fact the crux of the matter when it comes to control, methodologies, best practices, and even policies such as what is seen in the insurance world today.
From a dot on a map and simple logging that had to be downloaded by a technician every so often, telematics and monitoring have come a long way from their inception and simple task execution to become a complex multi-platform and fully integrated business solution as the internet of things and the 4th industrial revolution has pretty much enabled connectivity to anything and everything.
As technology has evolved over the years it has been stated that the biggest challenge industries are actually facing at this point in time is not physical action, processes, or products themselves, but rather what information comes from data generation. As more and more data gets added to the world, interest grows more around technology. Vast information sets now exists and insurance companies have begun utilising this information to understand more about sector risks and where mitigation means could be implemented.
That being said, South African business is unfortunately notorious for being ‘scared of technology adoption’ and this in turn creates quite disparate sectors because the natural deployment of technology to create new ‘industry norms’ continues to be slow to change, for the most part. This inaction really comes down to the fact that there is still a widespread lack of understand around technology options, and thus business owners not being able to perceive a value. Adopting technology like a telematics or monitoring device is therefore only done ‘because the insurance company says they must’.
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There are of course many businesses reaping the maximum benefits that technology continues to offer and keep up to date with global trends. Here a further example of technology development over the years is advancement to machine learning (ML) and artificial intelligent (AI). As both AI and ML have grown, there are a number of things that can now happen ‘on the fly’. Here, snapshots of business operations, safety incident reporting, tracking, alerts, and even full communications platforms have been developed into real-time. This includes control room operations, in-cab two-way communications, smart devices, and handheld device apps amongst others.
Technology creates new possibilities
Now all this talk of technology may be very interesting, but what and how does it play a part in minimising risks in the cold chain? Well, technology has greatly widened the possibilities around creating not only safer operational conditions, but immediate control solutions and optimal efficiencies in various business divisions – even as far as enabling inter-business connection.
Logistics, as a major portion of the cold chain are the essential keys in ensuring the required temperatures are maintained, but further as road transport has surged over the last year, insurance companies have also increased their scope of interest in driver behaviour and road incidents – which also include delays, theft, and possible damages from looting (that was seen in mid-2021 in South Africa). Given that a refrigerated truck as we know, fully laden, holds a significant investment – both the asset and payload need to be handled as best possible.
Risk management in this sense can therefore include or be in the form of real time monitoring, visual elements, warnings or alerts around human-linked activities, equipment performance or plant status. In human-linked activity monitoring can be directly associated with any necessary corrective measures should a driver, for example, be speeding, braking harshly or even excessively using clutch control. Further, through the integration of visual element such as video feeds or dash cameras, risks can be advised, or solutions suggested and controlled from a remote location as and when required.
Equipment performance monitoring during transit or at a stationary plant at a storage facility can quickly identify if any element is not functioning optimally and if a failure has or may occur affecting any perishable goods. Further to this, adding real time location to goods in transit enables a far more information-rich scenario for the other service providers in the supply chain. For example, timing of deliveries, notice of delays and changing of routes to accommodate traffic build up, and so on all make it onto the list of why this technology assists in risk mitigation. It naturally makes sense that should a delivery in a truck with a critical refrigeration error, be able to salvage the payload by changing of routes to reach destination quicker – everyone wins.
Other than the obvious benefits, the incorporation of this technology can also build onto a company’s training and maintenance schedules by identifying trends or actions that lead to incidents. This could be applied to a number of divisions within a business and applications throughout. This information could also be linked to performance practices in the business risk strategy to remedy any risk with the correct and timeous solution.
Using technology to lower risk
The more data that is available through a supply chain, the bigger the picture view will be of a sector and the more reporting can be generated right down to an individual business level. The more incident data that exists in turn changes business dynamics from the typical reactive scenario (also a common business trait in South Africa) to a pro-active and predictive model. This fact then has a direct impact onto insurance risks. Other than that, new risks can be identified, possibly before they even come about in a system.
Effective cold chain monitoring, that leverages advanced IoT and 4IR technology, offers multiple benefits by helping companies and their partners to access and monitor real-time data to quickly detect product temperature variations and minimize damage by executing pro-active troubleshooting measures and improving business analysis, quality aspects and predictive solutions.
The nature of doing business nowadays does not happen in isolation and has in fact become quite complex. Companies become part of an interdependent system that involves both internal and external stakeholders. As the business environment therefore becomes increasingly interconnected (and volatile), business managers and owners must upkeep a comprehensive understanding of everyday risks and be prepared and equipped to manage these.
One of the major terms as an example that is widely used today is ‘business interruption’ that can occur due to several factors, ranging from property damage, erratic weather conditions, machinery breakdowns, labour disputes, and even so far as the latest fast-growing factor of cyberattacks. The effects of business interruption can come in the form of losses by reduced sales, increased cost of production or processing, or even the loss of a client experiencing an incident themselves.
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Technology today helps companies to equip themselves with many effective risk mitigation strategies based on the data generated that we mentioned earlier. These tools position a business to not only identify risks as they happen, but they also further offer sustainable strategies to ensure ongoing success.
It goes without saying that the best way to prevent a cold chain failure is to automatically monitor, record and report on every component that is part of a business or system be this a fridge, freezer, cool room, refrigerated truck or warehouse.
Technology could actually be said to go as far as ‘protecting’ billions of rands worth of medical vaccines, pharmaceutical products, raw materials, and food products that make their way across the globe through the application of automated daily logs, custom reports, e-mail and SMS communications, calibration management and even maintenance suggestions.
Unfortunately, one major challenge of the cold chain is that the impact of a failed system may not be evident immediately. Stock may be continually returned owing to poor quality or spoilage. Technology use, taking a step further, can benefit users and insurance providers to avoid unnecessary and length arguments over liability as it provides factual evidence of any variations beyond what would be determined as acceptable and pinpoint failures, so to speak. Habitual actions of third parties to the cold chain can also be identified. Investigations become much easier and consequences or financial implications can be directed to the sections where abuse or negligence occurred.
Another benefit of technology is in addressing costs – which are very high in cold supply chains. Measure and monitoring devices can calculate any plant or equipment efficiency and enables managers to identify opportunities for improvement on a holistic scale.
Monitoring and measuring ultimately continually re-enforces correct behaviour, adherence to set or essential protocols, and improves overall efficiency.
Challenges for telematics and monitoring
Because of the many different technologies and products involved, a significant challenge lies in getting all of the data generated to a single platform – while this is the race for many service providers currently both locally and globally. There are possibly only a handful of companies around the world that have the ability (and resources) to handle a single platform interface (such as Amazon).
South Africa is, frankly speaking, not at this level of sophistication owing to costs and most companies resorting to using third party providers who dedicate their function to these services, and where larger companies also invest billions of rands into their technologies over time. There is of course local aspiration to be able to provide a single platform, but resistance will naturally exist by the vast list of competitor products available to the end users. These circumstances are driving many original equipment manufacturers (OEM) to continue to develop their own fully integrated systems to eliminate dependence on such third-party devices, which in turn holds risks for those companies not keeping up with trends.
Another challenge in technology at this point in time is that a significant number of sensors and monitoring devices in the global context are battery operated which results in a shorter lifespan or single use application. They are also quite pricy from a local perspective and although internationally a culture of single use devices is common, it’s not so for South African companies who have to invest USD5, 200 times per shipment.
Yet another challenge is the network infrastructure (3G/GSM) which is the primary method of data transfer today that moved away from the older method of human involvement and downloading data from a device manually. The older method also held the potential for data to be manipulated and thus creating an environment of lack of trust around reported figures being accurate. Today it is safe to say that data gathered is relatively ‘tamper proofed’.
Another point to consider is that the overall dynamics in South Africa, and directly linked to insurance, is that real-time monitoring relies on connectivity which is directly linked to power supply that we know, has been, and will likely be a persisting challenge into the future. Every time one of the cellular providers have an outage, there’s a massive knock-on effect for the entire supply chain and therefore advances in cellular technology operation and efficiency in battery use is becoming more important too.
Future prospects of technology related to insurance
Doing business and insurance is an ever-evolving relationship. Although very ‘futuristic like’, the combination of AI and ML will change many sectors in the future – and this is already here now in many aspects as a multi approach to management means that risks can be navigated using the past, present, and future. Past meaning evaluation, present indicating real time decision making and future that by recognising patterns partnered with historical data will automatically predict the likelihood of an incident per facility, plantroom, piece of equipment and even a person. This will allow a new management protocol to be applied accordingly and how circumstances could be dealt with.
The combination of AI and ML going forward further holds the potential for systems of the future to suggest to managers or business owner’s the appropriate actions and measures to generate better operational efficiencies. With better pro-active systems and technology, a lot of third-party insurance claims would be eliminated because documented evidence can substantiate conditions etc. The cost benefit of this alone on the industry is significant and costs related to risks can in turn be reduced (under certain conditions).
Training is another potential avenue derived of technology. An example would be the AI and ML providing fleet drivers real time observations and guidance while on the job, thus uplifting the skill of the individual.
Automatic re-routing in cases of traffic and weather conditions may also be seen very near in the future or avoiding accident incidents causing costly delays. Optimised routing will add value back to the customer and the entire supply chain in fact.
From an alternate perspective, the viability of the insurance sector is wholly based on the ability to underwrite profitably. In order to tackle all of the existing and new challenges around risk, the use of data will therefore become more and more influential over time – affecting how policies and best practices will be identified and handled in future.
Several industry providers continue to work closely with insurance companies in terms of data transfer. Although this function is primarily intended to better the industry, each insurer has a different behavioural model, and uses this data to calculate the relevant risk factors. Because data can be generated into various reports, it has also become common that quarterly reviews will happen to evaluate incidents and the condition of plants or fleets at customers.
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The power of monitoring and tracking directly related to the cold chain have led global logistics giants to generate significant data volumes from as far back as ten years ago. Climate impacts have a significant effect on the global cold chain in terms of ocean patterns and weather conditions. Scientists will in future be able to gain a better understanding of what is happening “on the ground”. This could be in the region of around 10 000 inputs every day that can be fed into a global service to avoid such risks to supply chains generally.
Also, taking the changes that have occurred in the world over the last decade into account, insurance providers have been forced to alter business models to include the impacts of extreme weather-related risks and climate change that affects all classes of insurance.
With climate change playing an increasingly prominent role in weather-related damages in South Africa (and globally), it is crucial that the insurance industry becomes knowledgeable of developments in the climate and weather factors that play an active role in mitigating the risk it poses to the quantum and severity of short-term insurance claims in the region.
“Doing business and insurance is an ever-evolving relationship.”
Further, insurance companies, who have a great potential to influence outcomes, may also find it in the insurance industry’s best interests to promote and drive a green agenda that seeks to support their clients in transitioning to more sustainable, environmentally aware business models, for now and future generations.
Technology-use and data sets will be aiming to predict and mitigate any types of catastrophic losses in vulnerable areas by estimating frequency and severity before they even occur. This will aid insurers to prepare in terms of capital reserves, assessment arrangements, expertise and staff required to handle or manage claims.
The future for both technology devices and insurance will also involve creating a cost-effective environment where additional costs do not have to be passed onto the consumer – who is already under pressure.
What makes Africa unique (not just South Africa) in terms of technology related to risk management, is that this region is not orientated around large upfront capital investment, and this then allows opportunities for service providers to also generate rental models for all monitoring device types – tying into the global phenomenon of ‘product as a service’.
This holds a lot of benefits for both businesses and insurance providers – businesses have more affordable operational costs and insurance companies have clients more likely to implement technology to manage their risks and ensure correct and adequate monitoring of the cold chain. This model could also offer global services where African companies can participate anywhere in the world.
Use of quality products and service providers
What continued to come up throughout this series is the use of service and product suppliers that have not only good products but understand the dynamics of the industry very well – as each industry has its own nuances of course. This leads to believe that there is in fact an underlying challenge when it comes to sector specific dynamics.
South Africa, that has for example more telematics devices installed than what is found in Europe having such a large road transport sector for one (most recent estimate is in excess of two million delivery vehicles), makes the local expertise and data collection some of the best in the world. South Africa also ranks very highly in recovery of vehicles and stock related to crime syndicates making an additional case for world-classed expertise on a day-to-day operations point of view.
In South Africa, the cold chain has seen extensive growth over recent years and reports further indicate that growth will continue with double digit figures for the next five years – this opens up a significant local value for products and services and with that the opportunity to make use of quality providers. No one wants to see an industry under pressure owing to a lack of long-term vision or where unsuitable technology has to be replaced within a mere few years of supply. This too has direct implications towards insurances.
The biggest risk moving forward is said to be the risk that exists by not implementing the use of technology and then keeping up to par with global trends. It is a well-documented fact that once a business gets behind, they find it difficult to impossible to gain that ground back – not to mention the potential loss of market share to competitors who do. This is particularly important as trade and services today in the cold chain really need to be aligned to what is happening around the rest of the world as inter-continental trade will continue to grow within the perishable goods space.
There are of course business partners that would fit any particular model – be it that you prefer the personal attention of a smaller business or the research and development capacity of larger companies sticking to the forefront of trends. The use of service providers is also very dependent on the individual business model – should a company want to use a telematics device or install monitoring systems for the actual benefit of position in the market and the generation of data is naturally very different from purely executing this based on “insurance requirements” where it does not really matter if you use a quality product or the cheapest service as a tick box exercise.
The depth and breadth of service required must be directly linked to the expertise of the service provider, their reputation, and their knowledge of various laws or legislation related to maintaining the cold chain. There is today a lot more to it than just having a vehicle tracked on a map or making sure that temperature variations are within the required range. Technology not only allows a level of comfort through peace of mind around a multi-million-rand investments, but you also have the ability to know if something is going wrong and options on a clear action plan to remedy any challenges thus making sure the consumer gets a product at the right time, at the right temperature and at the right quality.
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Did you know?
The cold chain in foodstuffs vs pharma:
What are the commonalities and differences between the food and the pharma cold chain? Although both product types are sensitive to temperature, there are significant differences:
Food products are often ‘open’ and exposed to bacteria, chemicals, and humidity. They are therefore sensitive to various environmental parameters. Shelf-life of food products vary widely from a few days to many years depending on the product and the temperature range (frozen, fresh, or controlled). Therefore, the lengths and complexity of the supply chain has a great variance. Most food products are in fact much more sensitive to temperature than pharmaceuticals and must therefore have shorter supply chains. For example, freshly cut roses are produced in India and must reach the consumer in Europe within seven days before they fade and lose their commercial value. They are highly sensitive to temperature, start fading fast at temperature above 10°C and cannot be frozen at all.
Pharmaceutical products are “packaged” (at least as commercial product) and are therefore protected from bacteria, chemicals, and humidity. Most commercial pharmaceutical products have shelf-lives of 18 – 36 months and they are often less sensitive to temperature compared to food products. The big challenge with most pharmaceutical product is that the quality and level of degradation is not visible to the patient: you cannot see or smell if a vaccine has been frozen and has lost its efficacy (or might even have become harmful).
Sources:
- AON
- Elpro
- Cold Cubed
- Digital Matter
- Loadsure
- Marsh McLennan
- Maersk
- Smart Monitoring
- Tracker South Africa
- UNICEF
- World Health Organisation
- General Industry
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