January, 2006

Research Perspective and Comments & Analysis

Data Standards Barriers

Produce and floral marketers are drawn to the new, the trendy and the growth areas. What excites us less are barriers preventing us from seizing the opportunities for growth. They generate less attention and often get shorter shrift from senior management because they are less exciting. But they are no less critical.

Three elements are vital to maintaining a healthy produce or floral supply chain. The first is the products themselves. The second is getting the products moved from point A to point B. And the third is information about those products: where they came from, when and from whom they were received, where they are and who bought them.

I see two major areas where barriers exist between the industry’s increasing ability to grow products anywhere and our desire to have them consumed everywhere: The first centers on transportation, the second on sharing our product information. We’ll address the transportation barrier in another column.

Today, being a market leader is as much about what you know as what you grow. The past year has only reinforced that belief, particularly as food safety concerns rise.

The most fundamental cause of industry inefficiency is “bad or inconsistent data.” The end result is mis-shipments, invoice deductions, inaccurate inventory management and strained customer relations.

Knowledge based on better information will be the defining competitive factor for industry market leaders — both the information we have about a product’s attributes and benefits and the information we’ll share with our trading partners about its origin, growing conditions, quality, harvest or processing date, etc. Sharing that information through the supply chain is essential. And that sharing must be automated and must happen electronically using standard descriptions.

PMA created a Technology and Standards Council in 2005. Led by Jeff Patterson of BJ’s Wholesale Club and Alan Newton of Duda, the Council is helping PMA identify and provide solutions to the critical technology issues facing us. At its December meeting in Dallas, consensus was that our industry must get more companies to understand and use the appropriate data standards.

PMA’s recent research examines where the industry stands in using standards to identify products at three levels of packaging: pallet, case and item. The responses were measured against the standards prescribed by GS1 (the successor to the Uniform Code Council) for pallet and case levels. These are the de facto product identification standards used in North America and 102 other countries by more than 1.2 million companies.

At the pallet level, the survey included questions on the use of the SSCC-18 number used to identify pallets and a critical element in the efficient application of electronic commerce, traceability best practices, bar coding and radio frequency identification (RFID). At the case level, the survey asked about the use of the GTIN numbering standard, the key element in almost every identification initiative currently used in the food industry.

The results of the survey, which was conducted by Opinion Dynamics Corporation on PMA’s behalf and included grower/shippers and retailers of all sizes, reinforced my belief that we have a long way to go.

We did not attempt to differentiate respondents by company size so this is a snapshot across the industry. This was a baseline study of how many companies are — and are not — using the standard codes mentioned above. It does not show what percentage of industry volume is shipped using these standards.

Many companies need help adopting standards to improve the flow of information about their products. Without them, electronic commerce, traceability, bar coding, RFID and data synchronization cannot be effectively implemented. The lack of standards impacts how product is ordered, shipped and invoiced. This stops us from improving the downstream portion of our supply chain loop, never mind the upstream portion that might tell suppliers how their products fare in the marketplace.

While industry-leading companies are taking on this challenge, many others appear too confused or unaware of these standards. It does not matter whether you represent a multi-national conglomerate or a small family operation. The use of product identification standards can help you and your customers operate more efficiently and effectively.

The research also shows too many companies still using identification numbers that do not follow GS1 standards and so have only internal use and limited value. For example, a large number of companies do not even use case level bar coding. For some that do, the lack of standard practice forces them to bear the cost of using multiple solutions for different customers or suppliers and requires maintaining inefficient cross references. This redundancy is costing us money. We need to focus on incorporating standards as basic “building blocks” to create a viable flow of information between supply chain partners.

There is good news, however. Although a sizeable knowledge and awareness gap exists, there is a real desire among the companies surveyed to learn more about data standardization and its benefits. That is why PMA’s Technology and Standards Council will be working hard to provide the industry with a clearer picture of the business benefits flowing from data standardization.

Few will debate that data standardization is a critical element to an efficient supply chain. So why are we discussing the same issues we did 10 years ago? At the start, I suggested one reason: data standards aren’t the sexy, attention-getting subjects that grab us as marketers. Nevertheless, we have to adopt the technology tools now available with the same passion and focus with which we approach new products, new packaging or new markets.

Let’s make a focus on data standardization our No. 1 New Year’s resolution for 2006. Let’s knock down the barriers preventing us from realizing our goal to build a more efficient and profitable produce and floral supply chain.

Standards Opportunities

It is not precisely that industry standards are boring; it is more correct to say that individuals who select careers in sales and marketing tend to focus on the articulated needs of their customers.

Industry standards are very much a chicken-and-egg situation. Standards are very useful, reduce costs and expand marketing and procurement opportunities because they are, well, standardized. However, it is rare for any new “standard” to be widely used, so the benefits of being the first to use it are few.

Both the seller and the buyer, plus the consumer, benefit from driving costs out of the system. Packing, storage, shipping and receiving are all more efficient and less costly when done in a standardized fashion. But there is a problem: All of the advantages to buyer and seller only accrue if the standards are in widespread usage. In the absence of widespread adoption, any individual organization incurs costs and trouble to adopt a new standard without any benefit.

In the study of political economy, there is a model called “The tragedy of the commons.” In this example, a town is built around a green area owned in common and thus available to everyone without charge.

The example usually involves a community of grazing animals. Because use of the commons is free, everyone sends their flocks out to graze. This results in overgrazing, a shortage of grass, and renders the commons useless for grazing — so everybody loses.

The “tragedy” is this: Everyone, collectively, would be better off if they moderated their usage of the commons, perhaps grazing there every other month and giving the land a chance to recover. This would keep the land a viable resource for the community and make everyone richer. However, despite its obvious merit for the community, no individual would benefit by unilaterally taking this position.

Any individual who unilaterally decided to use the commons less, taking his animals to more distant and expensive grazing land, would simply find himself poorer as he incurred expenses his competitors didn’t. Indeed, by restraining from grazing on the commons, he would free up more free grazing land for his competitors.

This parable is applicable to our present situation in the produce trade. Everyone can benefit from standards, but each company individually benefits, in the short term, by avoiding the expense and trouble of pioneering standards. It is sometimes called “the bleeding edge.” PMA can serve a useful function as a kind of mediating structure between the various industry interests.

It is wonderful to have industry councils recommend standards and work through the issues involved in setting those standards. In the end, however, mere recommendation is not usually enough to set a standard. The hope of a standard getting established is not sufficient, generally speaking, to encourage businesses to spend real money and run real risks to move that standard forward.

Typically, you need an important buyer in the industry to require its suppliers to adopt a new standard. Radio frequency identification (RFID) is the latest and most prominent case in point. Wal-Mart and the Department of Defense are pushing hard on RFID, and it is this push, more than a committee report, that is leading to a new standard for the industry.

Yet thorough task forces operating on an industry-wide basis serve two vital roles: First, even if a particular organization will drive the implementation of standards, the standard still has to be set. And the process of dialogue with all industry segments makes it far more likely that a standard will be developed that will ultimately work for the whole trade. Otherwise, even large buyers have idiosyncratic interests and may develop a great standard for retail, for example, but not be thinking about foodservice. Perhaps it will work domestically but cause problems with export and import. So, multiple heads really can be better than one when standards are being set.

Second, and probably even more important, big buyers ordering suppliers around is not a way of building goodwill. Business people and especially proud independent farmers and family-owned companies do not take well to being ordered about. They may put up with it, since their livelihood is at stake, but thoughtful buyers realize they would like suppliers on their team, not seething with hatred toward their master.

And here is the perfect place for a trade association to step in. For the big companies pushing for change, it is far better to let an industry task force make intelligent recommendations and have those endorsed by a trade group. Then, as the big buyers ask their suppliers to standardize, they are not put in the role of bullies demanding that suppliers spend their money.

As we look at the next generation of issues that need to be standardized, our industry lucks out because Bryan Silbermann is the president of PMA. Long before he obtained his current position, Bryan cut his eyeteeth at PMA establishing standards for the trade. In fact, though it would probably be unfair to say that one person brought the industry PLU and UPC codes, if we were to name one person who was responsible for bringing these innovations to produce, it would be Bryan. It takes an unusual mix of technical competency and political savvy to make it happen, and with the industry on the threshold of so much change, this may be a case where the man and the moment can truly meet.

It is important they do. It is all fine and dandy to give speeches saying we have to listen to the consumer and need to drive costs out of the system. It is another thing entirely to make the structural changes in the way the trade operates to facilitate the achievement of these goals. It sounds like just another committee, but more is riding on Jeff Patterson of BJ’s, Alan Newton of Duda and the whole Technology and Standards Council at PMA than is readily apparent.