The Birth of Scanning

The summer of 1974 produced two historical events — the resignation of President Nixon as a result of the Watergate scandal, and the debut of bar-code scanning at three supermarkets. Marsh Supermarkets installed a prototype NCR system at a store in Troy, Ohio, on June 26th, while IBM installed production scanning systems at a Steinberg store in Montreal and a Pathmark supermarket in South Plainfield, N.J., a month later. This was the culmination of three years of effort by the grocery industry to develop a Universal Product Code (UPC) that could be scanned by a new generation of computerized POS systems.

In 1972, the year of the Watergate break-in, the grocery industry, led by the Super Market Institute (one of the Food Marketing Institute’s predecessor organizations) and the Grocery Manufacturers Association, hired the McKinsey Co. to spearhead development of the UPC for the grocery industry. I represented Pathmark at one of the early meetings in Washington, D.C., and was impressed with the scope of the project and the ambitious time frame.

THE START OF PROJECT IAMBIC

Late in 1972, IBM approached Pathmark about partnering in a joint study, called Project IAMBIC (Information and Management Because IBM Came) to assess the benefits of scanning, especially the “soft benefits” that could be derived by having POS data. Project IAMBIC had nine full time members in an off-site supermarket “think tank” dubbed IAMBIC Towers, a modest one-story building that would never be confused with Bell Labs and was located in an industrial section of Rahway, N.J. It was there that the team spent the next year researching topics like checkstand design, direct-store delivery (DSD) receiving, labor scheduling, time and attendance, front-end miss-rings and computer assisted ordering (CAO). The goal was to explore all the applications that might become possible with computer power at store level. I was Pathmark’s store operations representative on the project and worked with Bob Zumwalt of IBM to develop CAO specifications.

The research portion of the project concluded with the publication of a 15-module document outlining the issues and benefits associated with each project. One recommendation was a requirement for a portable scanning device for data entry anywhere in the store (more than 20 years before the first radio-frequency guns became available). In 1973 IBM’s bar-code design proposal was chosen over seven others. In early 1974 IBM officially announced their 3660 Supermarket System and we started to see the first source-marked UPCs hit the shelves.

After a few false starts that resulted in lost time, IBM and Pathmark agreed to a second phase of IAMBIC with a goal of live checkout in the South Plainfield store in 3 months. Industry leaders convinced Pathmark’s reluctant but visionary Chief Executive Officer Milton Perlmutter that it was very important for a major supermarket to install scanners as soon as possible to maintain industry momentum. If no one did, the grocery manufacturers might start to lose interest and delay source marking.

MISSION IMPOSSIBLE?

There were many challenges getting the South Plainfield store ready for scanning. New checkstands had to be designed and installed and we learned a lot about “clean power” and back-up generators that were needed to support the sensitive computer equipment. The two biggest challenges we faced were how to produce and apply 250,000 UPC labels per week and how to maintain an Item/UPC Price file for over 10,000 SKU’s. In June 1974 we found only 12 source-marked UPCs from leading-edge suppliers such as Wrigley, Kraft, Kellogg and Penley Clothespins of West Paris, Maine, the leading supplier of clothesline accessories.

The key to running the first scanner store was to be innovative, adaptive and a great problem solver. Store Manager Bob Williams was a talented, savvy veteran with a keen instinct for how technology could be applied to the supermarket environment. He never got flustered and always maintained a good sense of humor, no matter how tough things got. It is hard to describe how difficult it was to produce and apply bar-code stickers to every item in the store. We were faced with frequent breakdowns of the label-making equipment and label-supply problems that required many early morning trips to Newark Airport to pick up emergency shipments of labels for that day’s work. The night stocking crew had to hand-apply UPC labels to each item and then apply price labels with a label gun.

“Mission Impossible” was a popular TV show at the time and each episode began with Mr. Phelps (played by Peter Graves) getting a tape-recorded message from his superiors that was hidden in a public phone booth. One night, Bob Williams hid a tape recorder in the phone booth outside the store and left a message on the night manager’s time card to retrieve the recorder and play his assignments for that evening, which included individual messages for each night- crew clerk. The crew liked it so much that they wanted a new message every night. On another occasion, he attached a UPC to a live lobster and showed a cashier training class how lobsters could now be scanned. When one of the trainees said she would be afraid to hold a lobster, Bob explained that these lobsters were specially trained to crawl across the scanner and fall into the shopping bag, thereby saving the cost of a special lobster bag.

Richard Nixon resigned on August 9, 1974, and the first live checkout happened several days later. To keep things moving, we worked 15 hours a day, seven days a week for three months. By early October, the worst problems were behind us and the store was starting to run more smoothly. We arranged trips to the Steinberg and Marsh stores to see how they were doing, and found they were expending much more labor producing the labels and maintaining the price file. We had come up with an innovative approach for producing Version E UPC’s from the Pathmark SKU number, which greatly reduced file maintenance and label production time. It was a neat trick in 1974 but within two years there wasn’t a need to produce massive amounts of in-store bar codes as source marking progressed.

GOING FOR THE BENEFITS

Once we got out of survival mode, the next step was to go for the benefits. Checkout productivity rose quickly. The store reduced service-desk hours by having checks cashed at the register (no credit cards in those days) and selling carton cigarettes at an end fixture, using the system to monitor shrink. We also reduced bookkeeping hours by not physically counting coupons and other measures made possible by the system.

An unplanned benefit occurred when we noticed a new electronic produce scale during a trip to Hobart’s regional office and got Hobart executive Jim Megin to give us 12 scales to test in South Plainfield.  The scales were designed for the West Coast market and Hobart wasn’t even trying to market them to East Coast supermarkets, where produce weighing was being done in the produce department. Because the scales were free, they were installed without all of the normal approvals from upper management. I don’t remember if Hobart ever got paid for them, but in the next three years Pathmark bought over 2,000 units and thousands more were sold to other East Coast supermarkets that followed Pathmark’s lead.

After just one quarter, store profits exceeded pre-installation profits as the scan benefits exceeded the high cost of in-store marking and file maintenance. Sales and shrink were also better than expected.

Customer acceptance was a key concern throughout the project, and fortunately the results were positive. Store sales grew at a good rate and market research surveys were favorable.  There was television coverage, a press conference and numerous newspaper articles. Industry executives from all over the world visited South Plainfield, which was the most accessible of the three scanning sites that existed in 1974, being located in the Metro New York market. We had so many visitors wanting tours that it actually became difficult to accommodate all the requests. We still had to run the store and concentrate on achieving the projected objectives.

The most controversial issue we faced price removal. In 1974 every item on the shelf had a price sticker on it and scanners had the potential to eliminate the labor it took to price mark. Many states passed preemptive mandatory pricing laws before the first scanners were ever installed. We prepared the store for price removal and lobbied hard to get top management’s approval, but in the end they were under strong pressure from consumer groups, state officials and union leaders. This led to a more subtle form of price removal focusing on end displays, promo items and some selected fast movers. The issue of price removal in supermarkets would not be settled for many years.

The last formal event in Project IAMBIC was a limited test of CAO in January 1975. As far as we know, this was the first time that scan-movement data was used to calculate a perpetual inventory and generate orders. The test showed that the concepts and algorithms we developed with IBM’s Zumwalt actually worked, but it would be another decade before enough computer power existed at store level for Pathmark to roll out a CAO system. Even today, 38 years later, many supermarkets do not have a CAO system with perpetual inventory.

THE LEGACY of IAMBIC

Project IAMBIC proved the technology worked and the customer acceptance was good. It also proved that the benefits envisioned by the team were real and on target, although some, like CAO and RF guns, would have to wait until technology caught up.

The biggest problem was lack of source marking, and it took three to five years before it reached the levels needed to justify scanning. Many retailers waited and bought upgradeable electronic cash register (ECR) systems, but if no one had installed the early scanners, source- marking momentum might have slowed. The South Plainfield store showed scanning was for real and those who visited saw a high-volume store running smoothly with the technology of the future. It helped give other retailers confidence to move ahead with their pilots and keep the momentum going.

I think the North American grocery industry deserves a lot of credit for developing the UPC. SMI and GMA worked with the POS vendors to make this vision a reality in just three years. This was in marked contrast to the mass merchants and drug stores that pursued other coding schemes unsuccessfully for years before finally adopting the UPC. IBMers George Laurer and Joe Woodland deserve major credit for their roles in designing the UPC. What started out as a North American grocery symbol is now the worldwide UPC for all classes of retail.

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Many now-retired individuals from IBM and Pathmark played key roles in the events that happened 38 years ago. Dr. Henry Steele was the IBM project manager and Steve Smith the account manager, while Richard Mitchell and Joe Lugiano worked on the front line in South Plainfield supporting Bob Williams and myself. Many evenings we would sit in Richard’s camper in the parking lot and spend the last hour of the day writing up item file maintenance sheets that Joe would drop off at Pathmark’s headquarters to be key punched.

YEARS LATER

Pathmark flourished for the next decade, completing the scanner rollout in 1984 along with a full store CAO Pilot. It had the highest average store sales in the industry when a hostile-takeover attempt in 1987 created a crushing debt load from which it never recovered.

In 1989, I arranged for Pathmark to give the original computer from South Plainfield to IBM after 15 years of service, and Joe Lugiano restored it for display in IBM’s POS museum in Raleigh, N.C.  Joe and I personally oversaw its removal from South Plainfield and reminisced about the events that happened in 1974 – such as on Christmas Eve when a generator service person showed up to do routine preventative maintenance and put the entire front end down during one of the busiest times of the year.

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The South Plainfield store closed in 2002, thereby removing the last physical link to Project IAMBIC. In 2004 there was a 30th anniversary reunion of members from both companies who worked at South Plainfield in 1974. Sadly, three key members -- Richard Mitchell, Bob Williams and Joe Lugiano -- had passed away by then, but their wives travelled long distances to attend. IAMBIC was part of retail history and an experience that none of the participants will ever forget.

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