Understanding UCCnet, Part II
After attending the Hardlines Technology Forum in April 2004, I realized that a major restructuring of the behind-the-scenes processes used by mass market retailers was already well underway, but I didn’t know how quickly it would launch. When we received word late last year that some of the largest retailers of green goods would be implementing those processes in 2005 and that the vast majority of our industry was unprepared, I began working on this series of articles. “Understanding UCCnet,” which started last month, attempts to familiarize you with this new operating system.
Last month’s article gave an in-depth explanation of UCCnet, its components and how they function (to take a look at that article, use the LearnMore link at the end of this article to search for related articles), plus I’ve included a brief refresher on UCCnet basics in the next few paragraphs. The main purpose of this piece, however, is to discuss some of the problems our industry might have while implementing a system such as UCCnet.
At the risk of sounding like we are asking for special treatment
our industry is not like any of the other departments at a home improvement store, and lest you point to produce at a mass discounter, plants are more unlike produce than you would imagine. Green goods is a very unique subcategory, with its own forecasting models, ordering systems and inventory management. Just because a process works in the rest of the store does not mean it will work in the garden center. And the more I learn about UCCnet and radio frequency identification (RFID), the more I wonder if it’s not one of those “great in theory” situations. The theory of automating receiving, inventory management and payment processing is very appealing, and I’m sure it works great for faucets or razors, but I’ve got my doubts about automating flowers.
A Quick Refresher
Even though it sounds completely foreign, the basics of UCCnet are not that complicated. Essentially, UCCnet is a neutral standards organization that provides an Internet-based supply chain management data registry service for e-commerce. This Á registry acts as a global sourcebook where suppliers can register information about their products and share that information with retailers. With UCCnet you can share an astonishing amount of information with selected organizations, anything from pot size to retail price to ship date to suggested retail placement.
To publish information on UCCnet’s GLOBALregistry, suppliers gather product information and assign a unique 14-digit global trading item number (GTIN) to each product. Because products may be shipped in many ways, a unique GTIN is required for all packaging levels of a product (e.g., 6-inch geranium, 4-inch geranium, 606 flat of geraniums, etc.) Once a product has been added to the UCCnet GLOBALregistry, the supplier decides which retailer(s) to publish the information to. And other than some back and forth to iron out any inconsistencies with the information, that’s it.
So what makes this system so interesting? If it is used to its capacity, UCCnet can practically eliminate paperwork. It will check-in merchandise, tell stockers where to place the merchandise, pay suppliers, keep track of all merchandise in inventory and reorder more merchandise when the inventory gets too low.
The other thing that makes UCCnet so appealing is that it is already in progress. Major retailers such as Wal-mart, Home Depot, Ace Hardware, Target and others have mandated the first wave of RFID compliant technologies, such as UCCnet, to be implemented by the first of this year.
But it’s a long way from paper towels and gum to geraniums and dracaena. In preparing for this article, I spoke with consultant Stan Pohmer from Pohmer Consulting Group about the possibility of this kind of technology making its way into our industry. According to Pohmer, a 25-year veteran of retail, including such big names as Target, “It’s definitely coming, and it’s not going to take five years.”
Running the Numbers
The first, most obvious objection that many suppliers, especially the small- to medium-size ones, have to UCCnet-type technologies is the cost. And while it’s not possible to provide a list of every element that every company will need or the cost of those systems, we can get some general ideas.
The entire UCCnet process is predicated on the use of RFID tags/transponders, very small devices that emit radio waves containing information about specific products. To maximize RFID technology, each pot would contain an RFID transponder in a thermal transfer label that can also be used for printing bar codes. According to RFID Journal, these transponders typically cost 40 cents or more each and would have to be placed on each pot. Additionally, an RFID tag, would need to be placed or included in the shipping container, either affixed to the cart or put in the box. These transponders can range from 20 cents for the simplest license plate tag purchased in high volume to several dollars for a transponder embedded in a plastic housing. In addition to the tags and transponders, you will need at least a couple of readers, depending on your in-house applications. Readers cost approximately $500-3,000 each, depending on their functionality.
Special software has been created to process all of the information generated by the RFID tags/transponders and transmit the useful parts of that data to your back-end system. Generically referred to as middleware, this software is a critical component of any RFID system. There are many middleware products on the market, and the cost of the software varies from vendor to vendor. Cost usually depends on the number of locations where it will be installed, the complexity of the application and many other factors. Forester Research put the cost of middleware at $183,000 for a $12 billion manufacturer looking to meet the RFID tagging requirements of a major retailer. Most companies in our industry are nowhere near the $12 billion range, but the report cautions a large up-front cost that does not continually decrease as the size of your company decreases.
The biggest implementation cost actually comes in personnel. Most companies will need to hire a systems integrator to install the readers, determine the right placement for tags and make sure they are feeding data to the middleware in the right format. RFID systems can be tricky to install, and creating accurate data to publish to the GLOBALregistry can be very time consuming. Additionally, you will need to invest in training for employees, particularly managers, warehouse operators, shipping personnel and IT staff. The costs can be significant. In a 2004 report, Forester Research estimated that it would cost a $12 billion consumer products manufacturer $128,000 for consulting and integration, $315,000 for the time of the internal project team and $80,000 for tag and reader testing. Again, expect some savings for a smaller company but not a whole lot.
Other costs specifically related to using the UCCnet GLOBALregistry include membership in the service and purchasing dedicated servers to host the information at your company. These costs will vary depending on the amount of information registered and the size of the server needed. It is anticipated that many of the above costs will decrease as the technology improves and is more widely adopted.
Who’s In Charge?
Yes, our industry does have a hang-up about putting our fate in someone else’s hands, but in this case, it might actually be justified.
The UCCnet GLOBALregistry has been designed to allow the retailer to make the most crucial decision in the process: at what level merchandise will be tracked. Some retailers want very specific information about what they are selling, and some only want general category information. In other words, the retailer will decide whether to track at 4-inch color, 4-inch begonia or 4-inch red begonia. And just to make things a little more interesting, every retailer will be able to individually decide at what level they want to track. Wal-mart could track at 4-inch color, while Depot could track at 4-inch begonia, and each product would need a different transponder because it would have a different GTIN (the product identification code).
I know you are probably already somewhat familiar with this problem from having to create individual barcodes for each retailer you serve. But it’s not quite the same. Remember those 40-cent transponders we talked about above? Kind of brings the problem to a whole new level, doesn’t it?
And what about all those GTINs? You’ll already have a deluge of information just by assigning a number to each crop you grow, in each of its possible formats. Imagine if you have to create multiple GTINs for each product? The amount of data you have to manage will start growing exponentially and will quickly grow out of control.
Can You Define Carton?
For now, let’s put aside our concerns about how many product codes we will have to track; after all, that’s really no different than what large companies that manufacture lots of different products, such as Procter & Gamble, will go through. Let’s focus on the issues that are exclusive to our industry; things like packaging.
The UCCnet system assumes a standardized product that can easily be quantified: a box of cereal or a pallet of paint. Because each unit is the same shape and size, the manufacturer will always know exactly how many units each package will contain. A 20×20-inch carton of Frosted Wheat, for example, will always contain x boxes of the cereal; a pallet of 1-gal. Behr paint will always contain y cans of the paint.
Can you tell me how many 4-inch petunias will fit on a cart? Better yet, how many 10-inch calibrachoa baskets will a cart hold? It depends, right? It depends on the crop, on the pot size and on the stage of maturity. Sure, you can fit a set number of flats on a cart, but how often do you load a cart full of white impatiens flats or mixed zinnia flats?
So if you can’t fill a cart with one single item, what do you do? Only allow full-cart orders? That will never work under pay-by-scan, especially for low-volume crops or colors. Send partially full carts? Not with the price of gas these days. Get smaller carts? If so, I’m going into the cart business. You certainly can’t mix carts or send varying numbers of crops on a cart. Remember those RFID tags that have to be affixed to the shipping container? Most often, they are produced off-site (think of our current system for printing plant tags) and pre-programmed with the descriptive information for a particular product. They can’t be changed because it rained, you had to hold your shipment two weeks and everything is over-grown or because you only have half a cart of pink geraniums and half a cart of white geraniums.
For all the talk of our products becoming a commodity, they never really will at least not in the fullest sense of the word because our product is just not the same from week to week or region to region or even grower to grower.
And Another Thing(s)
As described in the opening section, one of the main benefits a system like UCCnet can give is being able to automate the entire backoffice no more human error, no more out of stock, no more misdirected products. RFID tags will point the way. But again, a fully automated system like this is predicated on processes that do not work in green goods. Namely, perpetual inventory.
Perpetual inventory systems specify a set amount of product to keep in stock at all times. For example, a Home Depot might want to stock 100 of a certain type of hammer at all times. The plan allows for perhaps 10 to be on the shelf, two to be in transit to the cash register and 88 to be in the stock room. In a fully automated system, when the inventory drops below a set point, the system will automatically reorder.
Not a single part of perpetual inventory has been designed with our industry in mind. You can’t store plants in the back room until you need them on the shelf; you have to be a little more sophisticated when ordering green goods and get in only what will sell in a couple of days. And what about shrink? If all product is scanned into the UCCnet system via RFID tags when it enters the store, will someone also scan the shrink out of the system? If not, the system will think the product is still on the bench and not reorder. And ordering is a whole new problem. A good buyer knows the market, the product, the suppliers and the consumers. Good buyers will listen to their suppliers and take begonias over geraniums if one looks better than the other. A good buyer will expect a rush after two rainy spring weekends and order extra product. All an automated system knows is numbers; it can never take into account variables such as weather.
According to Pohmer, who was a tremendous help researching this article, “They are trying to turn what is an art into a science, and that doesn’t always work. Our industry is based on variables what looks good is what will sell and this system does not account for variables.”
Closing Thoughts
At the end of what has proven to be a very long but informative journey, I find myself very skeptical about the future of UCCnet-type technologies in our industry. Certainly there are some great uses for RFID technologies, such as cart tracking and internal inventory management, and several growers are already using them. Long term, in a global sense, I just don’t think you will ever be able to take the human variable out of growing and retailing plants, even if it means dealing with the inefficiencies. Our product is just too different to be boxed up and sent through a scanner.
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