I was not able to post any blog entries in June as it was an unusually busy month for me.  In some respects I expected to be busy as I had planned some vacation time.  However, I also had a few unexpected events that kept me out of the office.  In the early part of the month, I had the pleasure of contracting a fairly nasty stomach illness, which kept me confined to my bedroom (and bathroom) for about 48 hours.  I had just suffered from a stomach virus in late March so my initial assumption that I had caught another strain.  Although the illness was not pleasant, my bigger concern was that I was going to pass on the stomach virus to my 18 month old son and my wife who was six months pregnant.  However, my illness proved not to be contagious as my son and wife never became sick.  As I read the newspapers over the following week it occurred to me that perhaps my illness was not a stomach virus, but salmonella poisoning instead. 

The US has been the victim of a fairly serious outbreak of salmonella in raw tomatoes throughout the past two months.  The latest reports from the Centers for Disease Control have identified 810 salmonella cases in 36 states linked to raw materials.   The tomato salmonella outbreak is the largest fresh produce contamination issue in US history.  In early June, many of the top food service establishments such as McDonalds, Burger King and Chipotle all stopped serving tomatoes for a short period of time.  Grocery retailers suspended sales of tomatoes as well.  One of the unfortunate consequences of food safety issues is that an entire product category is often penalized for problems that may be isolated to a particular SKU.  Regulators, retailers, distributors and manufacturers have learned to be overly cautious in the case of public food safety matters.  No retailer or manufacturer wants their brand name tarnished by a series of public health issues.  Such was the case with tomatoes in the US throughout the early part of June.  For example, Roma tomatoes were identified to be the source of the poisoning.  Cherry, grape and other variants of tomatoes were not affected.  Public health officials were able to isolate the geographic source of the outbreak as well.  Tomatoes harvested in California, Texas, Georgia and many other states were deemed to be safe for consumption.  Nonetheless, grocery and food service retailers were not discriminatory in efforts to remove tomatoes from their product lines.  The National Restaurant Association claims the salmonella outbreak has cost the industry $100 Million to date.

The source of the contamination has still yet to be identified.  Experts state that the root cause may never be determined.  Given the advanced technology and extensive resources in the US, I find it fascinating that after 60 days public health officials have not been able to pinpoint the source of the outbreak.  The Centers for Disease Control (CDC) seems to have the primary responsibility for researching the root causes of food safety issues.  The Wall Street Journal published an article titled “Anger Rises over Salmonella Probe” on the front page of yesterday’s newspaper.  Also on the front page was a story about how the US government is forcing UBS to divulge account holder information for several of its customers.  I thought the point of having a Swiss bank account was to keep the ownership information private!  In any event, I am pleased to see that the government has plenty resources to violate privacy rights and prosecute tax evaders even if they cannot resolve long-standing public health issues…

But let us suppose that the CDC had been able to quickly identify the source of the outbreak amongst the various tomato growers.  How quickly would the agricultural and retail community have been able to respond?  The easy part would be to contact the affected tomato farmers to request suspension of all future shipments.  The more challenging exercise would have been to pinpoint the location of all the contaminated tomatoes already stocked in various warehouses, grocery stores and food service establishments throughout the country.  Which types of supply chain applications and e-commerce technologies could be leveraged to rapidly identify and recall contaminated food products?

The retail industry has developed a set of standards for the traceability of food products.  The efforts have been led by the GS1 organization based in Brussels and its various member organizations throughout the world.  Specific traceability models have been developed for fresh produce products as well as beef, fish, wine and bananas.  More information can be found at www.gs1.org/traceability.  The food traceability processes depend upon a few key e-commerce technologies such as EDI, data synchronization, barcode labels and RFID.  Unfortunately, many of the underlying e-commerce technologies, particularly data synchronization, suffer from a lack of critical adoption by major retailers and agricultural product manufacturers.  As a result, the GS1 traceability models would be relatively ineffective in efforts to accelerate the recall of unsafe food products from the supply chain.

I find the lack of a technology infrastructure to rapidly isolate and recall unsafe food products somewhat disturbing.  What if the tomato salmonella outbreak was much broader in scope, affecting 8,000, 80,000 or perhaps even 800,000 people?   What if there was an intentional effort to sabotage the food supply (i.e. bioterrorism)?  How many lives would be impacted?  What economic impact would occur?  Should the retail industry and government regulators be more aggressive in efforts to promote food traceability technology?  More in a future post…

“May Contain Nuts” – No Longer Acceptable 

Today’s consumer is also more health-focused and socially conscious than ever.  And these educated consumers are demanding more information about products before they make purchasing decisions.  Consider the case of food.  Today’s health-conscious consumer wants to understand not just the brand, price and size of each SKU, but they also want to know:  

• Is it organic?  Have the ingredients been genetically engineered? 
• Is it locally grown?  If not, has it been imported from another country?  
• Is it carbon neutral?  Were environmentally friendly or recyclable packaging materials used?
• Is it fresh?  How long before its predicted expiration time frame?
• Is it safe for me?  Does it contain ingredients from common allergens such as nuts or shellfish?       
• Is it heart healthy?  How much cholesterol or sodium is included?
• Is it dietary?  How many grams of fat and carbohydrates are contained?
• Is it diabetic friendly?  How much sugar is contained? 

This growing selectivity of consumers is changing the landscape of food products forever.  The result is a proliferation of SKUs catered towards a range of different consumer segments based upon social responsibility (environmentalists, locavores, naturalists) and upon health characteristics (diabetes, food allergies or heart disease).  The grocery sector is migrating from the mass-market of the twentieth century towards a long tail of highly, specialized niche markets.  Retailers and brand owners must now market towards these new niche segments or risk extinction.  The challenge for category captains and retail merchandisers is being able to define an assortment that meets the specialized demands of today’s consumers.  Food manufacturers and retailers have responded by introducing new SKUs (e.g. diabetic -friendly, heart-healthy), redesigning store layouts (e.g. organics section, local produce aisle) and more detailed labeling (e.g. transfat content, allergen notices).  But further challenges exist, ones that can be directly solved through broader adoption of data synchronization.

100 Mile Diet National Bestseller in the US 

Information Hungry Consumers and Shifting Buying Behaviors 

Consumers are demanding more detailed information to make purchasing decisions.  In fact, studies by leading retailers have shown that the degree of product information available for a particular SKU will influence not only which brand consumers will purchase, but also which retailer they buy from.  Having detailed item attribute information represented on a product label or store shelf display is beneficial to consumers walking through a store, but is insufficient to satisfy the full needs of today’s multi-channel shopper.  What about the consumers who research recipes on a brand-owner’s web site or purchase groceries on-line for home delivery?  These shoppers expect complete item attribute data to be displayed at all steps of the decision making process.  The steps include not only the physical product labels but also home delivery storefronts, brand owner sites, in-store kiosks and newspaper advertisements.

Ocado - Popular British On-Line Shopping Web Site

Merchandise Managers Growing Appetite for Product Data 

Merchandisers must have ready access to detailed product attribute information as well.  For each SKU, there is an average of 200 data attributes that can be used to describe it - everything from brand name and packaging dimensions to ingredients and recycling instructions.  If you multiple the attributes per SKU by the number of products in the marketplace, you begin to appreciate the magnitude of the challenge.   Yes, the item attributes are displayed on the product label, but most merchandisers do not keep an inventory of products in their offices.  Nor do the retailers have the time or resources to search through file cabinets full of supplier product specification sheets or to navigate supplier web sites to find the information required.  Item attribute details must exist in merchandising systems in order for retail personnel to make decisions about which products to stock.  Highly automated, data synchronization processes are the only means of achieving any type of scale for managing product data. 

Retailers versus Suppliers – The Power Struggle 

Many of us who monitor and study the retail industry often debate whether the retailers or the consumer products companies have more power and influence over the supply chain.  Fifty years ago, the industry was dominated by large national brands which shaped consumer demand and drove retailer behavior.  Today, global retailers with multi-national footprints and large private label assortments have amassed considerable leverage over their suppliers.   But I believe that question of whether the retailer or supplier has more influence in the supply chain is becoming increasingly less relevant.  In today’s retail value chain it is the consumer that holds the greatest power.   And we see evidence of this phenomenon in IT investments.  Retailers continue to be more focused on customer-facing, store operations functions than internal-oriented, back office processes.  I believe the growing hunger of consumers for rich item data to perform purchasing decisions will shift data sync from a back office, cost reduction technique to a customer-facing differentiation strategy.  And this shift will ultimately be the catalyst that drives demand for data synchronization in the retail sector.

Steve Keifer

© Copyright 2008 GXS, Inc.  All Rights Reserved.

Earth Day and the Green Movement 

We will celebrate Earth Day later this week.  Unfortunately, I wasn’t able to enjoy much of the outside world today as we have been inundated with thunderstorms here in Washington DC.  Nothing like a good dose of acid rain to remind you of the need to proactively attack the environmental problems we are facing.  The customer service manager at the car dealership I purchased my last vehicle from told me that the Washington DC area suffers from some of the worst acid rain in the world.  I believe everything she said was truthful and in no way influenced by the desire to sell me an exterior paint sealant package…

Source: US Environmental Protection Agency 

Nonetheless there has been a tremendous groundswell of environmentalism sweeping the globe in the past 24 months.  What is fascinating to me is that the environmental problems such as the global warming and ozone depletion have been documented and publicized for over three decades.  Why in 2006 did we see such a surge in environmental responsibility around the world?  From my perspective, it was really the consumer population, not big business or national government, which is responsible for driving the change.  These days consumers are really the driving forces behind more and more policy initiatives particularly the recent wave of corporate social responsibility sweeping the Western hemisphere.  The green movement led me to start thinking about the challenges facing some of the supply chain initiatives being pursued around the world.  There are a number of noteworthy supply chain initiatives with strong business benefits that have yet to achieve significant adoption.  Some were created years ago, but still struggle to gain visibility and investment from corporate leaders.  Data synchronization is one that comes to mind.

Data Sync Movement 

For almost ten years now there has been a movement in the retail industry to standardize the process for exchanging product data between retailers and their suppliers.  Recent efforts have focused on utilizing XML and Internet based standards for product catalog exchange.  There are older EDI standards such as the ANSI X12 832 document and the EDIFACT PRICAT document, which provide a simple, cost-effective process for exchanging item and price information.  But like any process associated with EDI, these standards were deemed inadequate and the search for a new data sync standards framework was initiated.  Unfortunately, despite hundreds of millions of dollars in invested capital and hundreds of thousands of invested manhours, the industry still struggles with a lack of adoption.  Even in the most highly penetrated countries such as the UK and Australia, data sync adoption levels are between 10-20% of the overall retail community. 

Catalysts for Data Sync

Extensive business benefit studies have been conducted for data synchronization by the Grocery Manufacturers of America (GMA), Kurt Salmon Associates (KSA), AT Kearney, Accenture and other highly respected thought leaders.  Benefits such as accelerated new product introductions, fewer expected invoice deductions and higher perfect order fulfillment rates have been well established and quantified.  Furthermore, there have been several market forces in the recent years, which were believed to be catalysts that would drive data sync to a critical inflection point yielding mass adoption:

·  Standards efforts were unified at a global level by the GS1 organization which created a global product registry and Global Data Synchronization Network.

·  RFID technology, which depends upon clean and accurate product data, was mandated by large channel masters such as Wal-Mart and the US Department of Defense.

·  IBM, Oracle and SAP - three of the largest software vendors– have developed or acquired master data management suites, which require synchronization to populate product data repositories.

·  Several of the largest data pool providers have merged or consolidated including UCCnet and Transora, SINFOS and Agentrics as well as UDEX and GXS.

However, none of these catalysts has resulted in substantially higher adoption rates amongst retailers.  I believe that, much like in the environmental movement, it will be consumers and not businesses that will ultimately drive demand for data synchronization.  Retailers will be driven to data synchronization, not by back office efficiencies in accounting or receiving, but instead by the need to differentiate themselves to an increasingly information-driven consumer population.  More on this topic to follow shortly in an upcoming post…

Steve Keifer

© Copyright 2008 GXS, Inc.  All Rights Reserved.