Jan 21, 2003
WASHINGTON, DC — January 21, 2003 — Executives from food retail and manufacturing companies are calling for immediate action on implementing a system of global standards that will lead to faster transactions, reduced operating costs and improved performance, resulting in overall savings of as much as $50 billion per year. The comments came following the endorsement of a white paper, Global Technology Initiative: E-Commerce and Global Standards, January 2003, during a recent joint board meeting between the Food Marketing Institute (FMI) and Grocery Manufacturers of America (GMA).

“Electronic collaboration is a critical business priority, and establishing global standards are absolutely essential if we are to reduce supply chain costs and increase global trade,” noted FMI President and CEO Tim Hammonds. “More and more retailers of all sizes are sourcing on a global level, and they are increasing their sourcing opportunities. At the same time, suppliers are increasing their market span to bring their products to the attention of a wider audience. These processes need the support of universally accepted technology applications.”

“Today, the differences in many technologies that were allowed to proceed without the development of global standards demonstrate the difficulty of retrofitting such a standard,” said GMA President and CEO C. Manly Molpus. “Without global standards, companies will find it very costly and difficult to bring their products to new markets around the world.”

Industry leaders believe that global standards will benefit the industry by:

  • Eliminating costs associated with corrections caused by inaccurate information.
  • Improving response to consumer demands through improved sourcing opportunities.
  • Reducing dependence on the human involvement in non-value activities through automated processes.
  • Supporting food safety initiatives through better visibility, identification and traceability.
  • Improving trading partner relationships through better communication.
  • Increasing speed to shelf through reduced product introduction time.

Productivity improvements of 1 to 3 percent of supply chain costs can be gained, impacting the bottom line by 10 to 15 percent per year, according to the white paper. The improvement potential is comparable for both retailers and manufacturers, and the benefits apply for all sizes of companies.

Synchronization Leads to Savings

The white paper addresses the priorities of e-commerce, or electronic collaboration, commonly defined as the use of a continuous exchange of information between supply chain partners to increase the efficiency and effectiveness of their businesses. In practical terms this means continuous automated exchange of item information; transaction information, including pricing; and relevant supply chain data. All three of these elements are critical to establishing a foundation necessary for trading partners to share consumer insights and to collaborate on sales forecasts, future promotion plans and product development.

The document identifies key building blocks of the foundation:

  • Standardized data formats and information exchange processes that allow, suppliers and customers communicate one-on-one with different trading partners.
  • A single global registry and continuous data synchronization to ensure the unique registration of each item, party, or location in the industry. The registry would be managed through a governance process under the authority of an expanded EAN International with the services being delivered by UCCnet as endorsed by EAN International in October of 2002. EAN International would also be responsible for setting up global synchronization standards and for certifying participants for compliance with those standards through its Global Standards Management Process (GSMP).
  • Consolidation of trading exchanges to eliminate needless, and costly, duplication of services.

Each element of this foundation builds upon the others and must be developed in sequence to maintain the integrity of efficient and effective electronic trading.

Next-Generation Technologies Will Revolutionize Supply Chain Processes

The document emphasizes the importance of speeding the development of next-generation technologies, particularly an electronic product code (ePC) known as Radio Frequency Identification (RFID) technology. This, it states, “offers the potential for our industry to dramatically and fundamentally change the way business is done.”

RFID is the process of placing microchips containing unique codes on pallets, cases and even individual products, which, cost permitting, would allow them to be tracked in real time along their journey from manufacturer to distributor to retailer to customer.

The potential benefits of replacing the current product codes with ePC/RFID tags include:

  • Elimination of manual counting and recounting of products in CPG supply chains. Warehouses, trucks, backrooms, and shelves could contain readers that would automatically and continually track products and maintain true perpetual inventory data.
  • Continuous monitoring of product inventory at each point in the supply chain. This will virtually eliminate out-of-stocks by automatically calling for replenishment when preset inventory triggers are reached. This would also allow shrink to be measured and controlled on a real-time basis and would greatly enhance our ability to identify counterfeit products.
  • Quick location of products with precise accuracy in the event of a recall.
  • Replacement of conventional checkout systems with RFID systems that scan each customer’s basket without unloading it, then automatically billing the transaction according to the customer’s payment preference.

Demonstration of this technology is currently featured at the Auto-ID Center at the Massachusetts Institute of Technology (MIT) in Cambridge, MA, the driving force behind this effort; and at facilities in Cambridge, England; Adelaide, Australia; and soon in Japan and China.
Although RFID shows much promise, states the document, successful assimilation into industry supply chains will be greatly affected by the cost of the chips.

Proven Results Prompt Call for Action

Companies that are already actively using data synchronization are realizing the benefits afforded by the practice.

According to Danny Wegman, president of Rochester, NY-based Wegmans Food Markets, Inc., his company is on track to generate annual savings of at least $2 million as a result of a total one-time investment of little more than $1 million.

Manufacturers also anticipate considerable savings. According to Steve David, chief information officer and business to business officer at Procter & Gamble, P&G recouped its investment in the UCCnet the minute the company activated its new centralized product catalog. In the U.S. alone, P&G expects synchronization to eliminate 30,000 to 50,000 hours per year in unnecessary transcription work, reduce stock-out incidence by 10 percent and reduce the time required for new item introductions by at least 80 percent. The company expects minimum savings of $25 million per year.

“Once compatible international technology standards are established, the tracking of unique items, whether they are consumer products, cases or pallets, means a revolution in the way trading partners do business in the food industry,” Molpus said. “We must move ahead with the development of business applications and the education of key supply chain participants.”

“In order for the industry to move e-commerce forward, the key foundational elements identified in this position paper require aggressive executive leadership throughout the food distribution community,” added Hammonds. “We have a unique opportunity to adopt a single standard if we act now.”