Breaking the Rules 2009

MICHAEL GARRY

When does a product need a new bar code?

Normally, the answer to that question is fairly straightforward. When a major new ingredient is added — the introduction of Banana Nut Cheerios, for example — the new formulation receives its own UPC bar code, including the unique 12-digit Global Trade Item Number (GTIN) encoded in the bar code.

But what if the changes made to a product are more subtle? What if an item's packaging is modified for a holiday? Or a small change is made to its net content? Or a bonus pack is created that offers more of the same product at the same price?

A comprehensive set of voluntary guidelines, called the GTIN Allocation Rules, have been created by GS1 US, the bar code standards body based in Lawrenceville, N.J. These rules tell manufacturers when a change in a product should be accompanied by a new bar code and GTIN, and GS1 US is available to help manufacturers correctly apply the rules. The answer to all of the above changes is that a new GTIN should be issued for these products.

In the past few years, a number of business trends have triggered an increase in packaging and content changes. For example, the increased cost of petroleum and raw goods has led many manufacturers to reduce the net content of products in order to keep prices stable, while sustainability initiatives have resulted in packaging and ingredient downsizing. Manufacturers have also stepped up acquisitions of other manufacturers and brands. According to the GTIN Allocation Rules, these changes may require manufacturers to update their GTINs. Yet manufacturers are often failing to do so.

“As a general rule, [despite] the dramatic changes in the business environment, we're seeing fewer companies following GTIN rules than ever before,” said Greg Zwanziger, director of ecommerce business development for Supervalu, Minneapolis, in a panel discussion on GTIN Allocation Rules at the U Connect conference in Orlando, Fla., earlier this month. He declined to name specific manufacturers failing to follow the rules.

GTIN allocation may seem like an arcane bit of retail administration, but manufacturers that fail to adhere to the rules — out of inertia or to save administrative costs — can cause significant disruptions that have major cost ramifications for retailers, both in the store and in the distribution process. “It can impact parts of the supply chain as well as the end consumer,” said Zwanziger. “We're very passionate about it.”

At U Connect, Zwanziger discussed a number of situations that call for GTIN changes with three other executives of major food distributors: Kristin Andersen, business-to-business manager, Wegmans Food Markets; Bruce Hawkins, senior technical expert, Wal-Mart Stores; and Beckey James, EC manager, McLane Co.

INVOICING PROBLEMS

Items modified for a seasonal reason — such as chocolate given special wrapping for Easter — require a new GTIN. If these products are not given a GTIN, “we may order the wrong product and we may have the wrong price tag on the shelf,” said Andersen. This could also lead to “invoicing problems and disruptions in our accounting office,” she added.

Separate GTINs are also necessary for distinguishing between seasonal and regular goods in the warehouse. “When the season is over, what do I have in the [warehouse] slot?” commented James. “Do I still have Halloween candy, Christmas candy or regular stock? If it doesn't have a different GTIN, it's not going to have a different slot.”

Zwanziger pointed out that not distinguishing between normal and seasonal items can result in out-of-stocks when the wrong item is shipped to the store.

A change in the net content of an item always requires a new GTIN. That may seem obvious when, say, a 3-liter bottle of root beer is introduced, since it's 50% larger than the 2-liter version. But even small changes in content must be accompanied by a new GTIN, said Zwanziger, who added that Supervalu won't process items with new net content unless a new GTIN is issued.

Even modest net content changes of 5% to 10% can impact truckload weight calculations, Zwanziger said. “You may think you have a truckload that weighs 40,000 pounds when in reality it weighs 35,000 pounds.”

Automated distribution centers are also sensitive to changes in content, Zwanziger noted. Unrecognized changes in case dimensions and weights “can make automated distribution systems stop working,” he said.

Net content must be accurately reflected on shelf tags, but without a change in the GTIN, “we won't know if the old product is gone and the new product is in, and won't have the right shelf tag,” said Andersen. Inaccurate shelf tags can subject retailers to fines, she added.

Bonus packs, in which net content increases take place without a change in the retail price, need a new GTIN as well. For one thing, because of their greater size, bonus packs can have shelf-space implications. Bonus packs that expand vertically don't take up more space, but those that expand horizontally do, Hawkins observed, adding, “As long as we know the change is coming through, we're OK.”

As a wholesaler, Supervalu is responsible for shipping bonus packs only to retailers that request them. Without new GTINs, “we couldn't manage that process and would get unhappy retailers,” Zwanziger said. McLane needs different GTINs on bonus packs “so stores don't end up having regular packs and bonus packs on the shelf at the same time,” said James.

Separate GTINs on bonus packs also enable retailers to determine their sales performance, said Andersen. “If we don't have separate GTINs, we can't as a merchant deliver good data back to manufacturers so they can decide whether they want to do the bonus pack again.”

TOO LENIENT?

When a product's packaging alone changes by more than 20% in dimensions or weight, a new GTIN is required. “This affects planograms and what can fit on the shelf,” said Zwanziger.

Wegmans' Andersen asked whether 20% was too lenient in this allocation rule. “If you have a 10% change, and then later a 15% change [to original package], now you have had a 35% change in dimensions or weight and still no new GTIN,” she said. Wal-Mart flags any packaging change of more than 4%, said Hawkins.

At Supervalu, the consensus among supply chain and category management executives is that the minimum packaging change requiring a new GTIN should be 5%, said Zwanziger. “It can cause tremendous distribution and transportation issues if the change is more than 5%.”

James suggested that in the absence of a new GTIN, packaging changes should be communicated by manufacturers via data synchronization.

Different groupings of the same item — such as packages of three pens and of five pens — require different GTINs to avoid ordering and planograming problems, said Zwanziger.

A package that contains an assortment of flavors, such as a box of cupcakes, needs a new GTIN when the assortment changes. “Flavors will impact the order quantity, so we need to be able to distinguish [assortments],” said Andersen.

A seasonal change in flavor doesn't require a GTIN change, but a manufacturer may want to issue one anyway, said Zwanziger. If the manufacturer and retail buyers want to track the seasonal flavor's sales history, “you may need to change the GTIN.”

Zwanziger pointed out that a manufacturer needs to wait a minimum of four years after discontinuing an item before its GTIN can be used on another item. “We see challenges when somebody accidentally reuses a GTIN” before the four-year time lapse, he said. “That can cause significant problems when you're looking at an item's sales history.”

EDUCATING BUYERS

Hawkins observed that sometimes retail buyers ask manufacturers not to change a GTIN because it would affect the way the buyers track sales history. “There are legitimate issues to discuss, but by not following the rules, there are also some serious disruptions,” he said.

Wal-Mart has an internal administrative team that works with its buyers on understanding GTIN rules. James said she is the “gatekeeper” at McLane for GTIN issues and she encouraged manufacturers to have their own internal GTIN gatekeeper.

Wegmans tries to educate its buyers about the reasons for GTIN changes, said Andersen. “We hope to see more acceptance.” In the event that the GTIN Allocation Rules are not followed, “we try to do manual work-arounds so as not to have disruptions.”

No New GTIN Needed

There are numerous instances in which a minor change in a product does not require its manufacturer to get a new bar code and GTIN. Here are some examples:

• Promotional information placed on the package, focusing on a particular event.
• Promotion of a trial pack, which is attached to the primary item, as long as it doesn't impact shelf management.
• Minor artwork changes in the packaging.
• A minor formulation change.
• A minor packaging material change.
• A free item contained inside the package.
• A price label attached to the item.