Standards Opportunities

By Jim Prevor, Editor-in-Chief, Produce Business

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, the 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.