The digitization in the wake of Industry 4.0 offers small and medium-sized enterprises (SME) the opportunity to improve processes and products [1]. In this regard, gapless traceability represents a crucial element but is usually introduced by SMEs only due to extrinsic motivation [2]. Insufficient funding, lack of expertise and a poor market overview hinder implementation [3]. In order to improve realization, SMEs need to gain insight into the advantages offered by a traceability system [4]. Especially the potential regarding the usage of collected data within the continuous improvement process (CIP) provides the opportunity to implement product and process optimizations more effectively and efficiently. Consequently, this paper presents a concept, which shows how traceability can support and supplement the CIP. In this context, the granularity of information in a traceability system is relevant since the amount of data required for tracking and tracing a uniquely identifiable unit scales with the level of detail [5] [6]. The paper is structured as follows: After an introduction a summary of the state of the art comprising features of a traceability system, a definition of traceability granularity and commonly used Auto-ID systems is described. Section 3 matches the features of a traceability system with stages of the PDCA-cycle (Plan – Do – Check – Act) via waste sources and point out how the traceability system can be advantageous for each of its individual phases. How the granularity of traceability information influences the performance and the benefits of the CIP is demonstrated in Section 4. In addition, benefits of a traceability system in a production context are highlighted. Section 5 specifies the preferences of commonly used automatic identification systems and their typical use case regarding derivable traceability information in relation to the granularity of a system. Finally, future developments are discussed.