The supply chains of the modern era are those that are based on speed, scalability, and collaboration. When it comes to the food supply chain, the participants are distinct and independent. These include the growers, traders, storage facilities, logistics companies, processors, and the eventual customers. The liability keeps shifting with every step of the supply chain.
The question when something goes wrong, whether it is an issue with quality, a dispute over deliveries, or a compliance audit, is not what has been moved, but rather who was responsible at the time. This is what a chain of custody system does.
A chain of custody process offers a clear, traceable, and verifiable process for documenting ownership, control, and movement of products throughout all the supply chain cycles. This also helps in ensuring that the ownership of the products is not history; rather, it is recorded in the day-to-day operations.
This handbook describes what a chain of custody system is, the process that occurs as part of the chain of custody process, how a reliable chain of custody procedure is defined for an organisation, and the reasons why chain of custody software has become a critical requirement in new supply chain systems with multiple participants.
What is a Chain of Custody System?
A chain of custody process is a structured methodology that enables documentation and confirmation of the change in custody of the item, from point of origin to delivery at the destination. This is done through creation of change in custody documentation each time the item changes custody. This documentation includes the following:
- Who transferred custody and who received it,
- When and where the transfer was made,
- The quantity, batch or grade involved, and
- The business or operational context of the handover.
In contrast to basic tracking mechanisms that simply address the issue of movement, the use of a chain of custody system is intended for purposes of establishment of responsibility. This assists organisations in being able to conclusively determine answers to pivotal questions like ‘who was responsible for that particular inventory at any particular time?’; ‘on what contractual and/or obligatory requirement was that inventory held?’; and ‘what disposition was made of it while within the control of that particular party?’
In instances where such answers can’t be reliably provided, traceability is compromised and the chain of custody is therefore broken.
Importance of the Chain of Custody System in the Supply Chain Today
Current supply chains do not consist of linear processes. Products can change hands several times, yet still be in the same storage, inventory from different suppliers can also be held in the same storage and exercises in handling and logistics can also be subcontracted. These can make up bona fide gaps in property, control, and responsibility.
A chain of custody system is imperative as it assists organisations in the following ways:
- Decrease conflicts concerning volume, quality, and timeliness of delivery
- Meet food safety and export regulations and requirements.
- Act quickly in the case of audits, product recalls, or investigations
- Support sustainability/ESG reporting with credible, verifiable information
- Establish trust with buyers & partners
As regulatory pressure and customer demand rise, “proven custody” is fast becoming as critical a consideration as “physical distribution,” at least in this particular sector.
Chain of Custody: A Step-by-Step Process
The process of chain of custody are the methods whereby accountability of the items will be tracked and maintained as they move along in the chain. Though methods of labeling and documentation will depend on the industry involved, the overall intended task is one that provides evidence of continuous tracking in terms of accountability as items are handled through the chain.
In complex supply chains, especially in the agricultural, food, or commodities sectors, this procedure isn’t linear. Ownership, physical possession, and accountability typically occur independently. An effective chain of custody procedure integrates these components in a single, traceable conduit.
Step 1: Origin and Initial Recording
The chain of custody process starts at the point of origin. It can be a farm, aggregation point, storage facility, processing point, and production facility. It is here that the first record of custody is created. It is on this record that all other records depend. Typical information that would be gathered at the source would include the following:
- the source location and facility,
- the date and time of receipt or production,
- the amount and quality or grade characteristics, and
- the identity of the initial owner or custodian.
Such first entry information is important because it is what the whole chain hinges on. The problem that may be encountered when obtaining origin information that is not full, not consistent, and not timely is that every entry that happens subsequently becomes increasingly harder to trace. The most basic entry problems that may render an origin chain of custody invalid are often encountered during an origin audit.
Step 2: Custody Transfers Between Parties
When the goods are moved across the supply chain, the custody of the goods is transferred from one organisation to another. The transfer of custody does not only happen when the goods are physically moved from one place to another. It may happen when the goods are sold without moving from the same warehouse to another warehouse. It may also happen when the inventory is handed over to a logistics provider. Even when the goods are moved from a warehouse owned by different organisations.
Each transfer of custody shall specifically establish:
- who had the responsibility before the transfer,
- who took responsibility after the transfer,
- when and where the handover took place, and
- under circumstances of what kind of commercial/operational activity the transfer occurred.
In the case of multi-party supply chains, such reconciliations may take place several times before the final stage of delivery. Otherwise, where such reconciliations are not systematically documented at each stage of the transaction, accountability becomes ambiguous.
Step 3: Storage, Handling, and Transformation
The storage, handling, and processing in a chain of custody process can be very complex in nature. The goods can be stored for a long time, handled by third-party handlers, or processed in a way that can alter their form or quantity. During these phases:
- inventory may be commingled with the inventory of other ownership,
- may vary in respect to processing, shrinkage, or wastage, and
- Quality attributes can be updated based on inspection, grading, and/or tests.
A good chain of custody procedure will record these changes accurately and attribute them to the responsible party as they happened. Without the attribute link in the chain of custody procedure, organizations are left with explanations as to where losses, quality issues, or discrepancies occurred, often after several weeks or months.
Step 4: Transport And Delivery
Transportation adds to this with temporary custody transfers with transportation companies or logistics companies. The chain of custody process is complete when the goods are delivered to their final destination, against contracts, receipts, and stock statements. It might help to remind that a complete chain of custody record will then be available to provide supporting data from which an invoice, audit, compliance, or claim can be verified.
Global Chain of Custody Models
Chain models vary from industry to industry based on handling, warehousing, and regulating the product flow. Chain models help in handling product custody physically and virtually, based on industry nature or regulating bodies in a specific industry. Below are some of these models:
Identity Preserved Model
Within the identity preserved model, all units within the consignment remain identifiable throughout the distribution chain. This is the most traceable model. Such models are usually mandatory for high-priced products. This model is considered the most costly.
Segregated Model
The segregated model enables mixing of certified goods with other certified goods, while also ensuring that the certified goods are not mixed with non-certified materials. Such a model is, therefore, best suited for certified agricultural supply chains.
Mass Balance Model
In the mass balance concept, both input and output are measured in terms of quantities, rather than being separated. This concept works in scenarios where exact separation of substances or materials is not possible but still requires accountability.
Book and Claim Model
The book and claim approach segregates claims of sustainability/certification from the actual flow of commodities. The claims are traded separately from the commodities. This approach becomes attractive when traceability of commodities through physical means is not feasible.
The selection of models is based on regulatory issues, customer needs, complexity, and cost aspects.
Challenges in Manual Chain of Custody Procedures
As supply chains become ever more complex, manual chain-of-custody processes have difficulty keeping pace. Manual approaches using paper-based records, spreadsheets, and tools that can be manageable in small transactions, but become problematic as volumes and ever-growing networks escalate.
Data Silos and Fragmentation
Information on custody may be disparate and scattered across a variety of systems, ranging from paper documents to computer systems, so creating a centralized and accurate understanding of responsibility from a custody standpoint can be challenging in a supply chain operation.
Errors and Delayed Recording
The greater the likelihood of human error in manually entering the data, the less traceability and the lower the accuracy of the custody record.
Restricted Visibility
Without a central management system, organizations do not have real-time visibility of attribute accountability in inventory at any point in time.
Audits & Disputes Challenges
The preparation for audits and the settlement of any dispute becomes cumbersome when the records of custody are physically collated and reconciled.
As the operation grows in size, such problems grow. Without a digital and systemically driven approach, the increasingly problematic task of maintaining the clear and provable chain of custody becomes even harder.
How Chain of Custody Software Works in Practice
In complex supply chains, maintaining an accurate chain of custody through manual processes is increasingly impractical. Chain of custody software addresses this by embedding custody tracking directly into day-to-day operational workflows, rather than treating it as a separate compliance activity. Instead of relying on post-event documentation, custody events are captured as transactions occur, ensuring continuity and accuracy across the supply chain.
Real-Time Recording of Transactions & Movements
The latest custody chain management systems are also capable of tracking changes in custody in real time, as when goods are purchased, transported, warehoused, or delivered to their consignees. The effect is that any custody information recorded is not based on subsequent recreation but relates to what is actually happening on the ground.
Stock-Based Custody System
One of the salient features of effective chain of custody software solutions is their capacity to connect custody to inventory. Instead of accounting for custody in isolated documents, the software solutions connect custody documents to actual inventory positions. This enables organisations to identify whose custody of the inventory a particular quantity rests with at any given time, even when such inventories are kept in joint custody facilities, as well as when they are allocated to multiple contracts.
Multi-Party Collaboration with Controlled Access
Supply chains are complex systems that involve multiple independent actors, who all have different levels in the chain. The chain of custody software facilitates interaction among these actors while keeping control via role-based security access. Different actors are only able to see and edit information pertaining to their role.
Automations for Reconciliation Reports
When items flow through the supply chain, there might be variances in the contracts, inventory, or shipments. This requires reconciliation, which can be automated by Chain of Custody software, which constantly compares the recorded custody transactions to the inventory updates or shipments made in terms of the contract obligations.
Faster, More Accurate Audits
As custody data is collected on an ongoing basis and stored in an organized manner, audits become quicker and more accurate. Rather than piecing together records post facto, organisations can furnish auditors with an accurate record of custody activities. All in all, it reduces the time involved in preparing for audits and the associated risk of non-compliance.
Through the integration of custody tracking into the normal workflow, the chain of custody solution optimizes traceability, making it a proactive process as opposed to a reactive one. In this way, the risk level decreases with improved visibility and accountability.
Chain of Custody in Agricultural Supply Chains
Agricultural supply chains continue to be some of the most challenging environments in terms of managing a chain of custody. Agricultural products are typically shipped in bulk rather than in unit form, warehoused in multi-user facilities, shipped over distance, and have varying degrees of quality. Agricultural products can also cross country borders, which brings a whole range of export regulations to be observed.
A system for chain of custody supports farming enterprises in dealing with complexity by allowing origin, quality, and liability to be traced from beginning to end through a supply chain. This is especially important in cases where handling, custody, or title has been shared among different parties in a supply chain or other network of custody.
In agricultural terms, custody arrangements will frequently have to be monitored in conjunction with:
- fluctuating inventory levels,
- changing quality grades,
- aggregation and disaggregation of stocks, and
- contracts executed before physical delivery is complete.
It is here where the relevance of platforms such as Agrichain lies. Agrichain links growers, traders, warehousers, freight carriers, and buyers into a single chain of custody solution and thus ensures chain of custody data is tied to real activity rather than just unconnected pieces of paper. The above solution focuses on the supply chain and ensures the data related to chain of custody is in sync with the commercial world.
Best Practices to Implement the Chain of Custody System
Effective implementation of the chain of custody process requires an approach that involves more than the right technological tools. This requires aligning processes, partners, and data throughout the chain.Companies that are successful, implement the best practices mentioned below:
Identify and Map the Complete Chain of Ownership and Touch Points:
The starting point is to understand the entire supply chain by highlighting the points at which custody transfers happen. This is not only in cases of physical transcription, but also when ownership is transferred, warehousing, and logistics. This is to make sure that there are no custody transfers missed.
Standardize Processes Among Partners
Consistency is important in supply chains involving multiple parties. Having consistency in the recording, verification, and approval of custody events eliminates uncertainty, ensuring all parties abide by the same terms, especially in dealings involving third parties, such as storage companies or logistics companies.
Digitize Early to Resist the Forces of Time
It would increase the chances of having missing or inaccurate information if digitization is delayed. It would be easier for the supply chain to obtain the right information if digitization for the purpose of monitoring the custody of goods is adopted early.
Sync Custody Information with Inventory & Contracts
A chain of custody is most effective if it is closely integrated with inventory control and obligations. By integrating these factors, one can ensure that the records of custody are accurately reflecting not only the physical inventory but also the business obligations.
Review and Update Processes on a Regular Basis
Supply chains are constantly evolving, and chain of custody systems need to adapt to these changes. Periodic updates will serve as an opportunity for the organisation to identify areas that require improvement, thereby removing bottlenecks that might be created by changes in the number of transactions, parties, or regulatory matters.
By adhering to these principles, organisations are able to establish a system of chain of custody that is not only compliant but also scalable.
Conclusion
Chain of custody systems are no longer mere regulatory obligations. They are now integral to the business operations that enable and support the ideals of transparency and trust in the modern supply chain. To reduce risk and increase efficiency, there has to be a clear understanding and enforcement of what takes place in a chain of custody, in addition to software scalability in the area of chain of custody.
FAQS:
How does a chain of custody system work?
A chain of custody system is a systematic approach for recording, tracing, and validating how assets change hands in the supply chain. A chain of custody system maintains a record of every change of custody, right from point of origin to point of final delivery, in order to confirm how assets have passed through various hands at any point in time.
What is the chain of custody process?
Chain of custody process: This refers to the series or procedures involved in the tracking of the custody of a product as it passes along the supply chains or supply web. The procedures involve, but are not limited to, recording the point of origin, transfer of custody, storage, handling, transportation, and verification at the end. The purpose here is to create an unbroken trail or trail of responsibility.
What are the 5 stages of SCM?
The five core stages of Supply Chain Management (SCM) are:
- Planning – forecasting demand and aligning supply
- Sourcing – procuring raw materials or products
- Production – converting inputs into finished goods
- Delivery – logistics, warehousing, and distribution
- Returns – handling returns, recalls, or excess stock
A chain of custody system operates across all five stages by ensuring responsibility and traceability are maintained throughout.
