A recent policy announced by Walmart has Consumer Packaged Goods companies across the country scrambling for solutions that will bring them into compliance. Not only does the new policy rule out ink-jet printing on cases for the 14-digit Global Trade Item Number (GTIN) and the barcode symbol representing that number, but it also stipulates that all four sides of a corrugated case must carry trade item information. The announcement does not include Sam’s Club stores. And in Walmart stores it pertains only to food items, including frozen foods but excluding fresh meat, fish, poultry, and produce.
Aside from e-mail correspondence between Walmart and its CPG suppliers, the only real documentation that has been issued is a PowerPoint presentation dated February 16 2016 that’s titled “Walmart’s Case Labeling Standards and Expectations.” It was this PowerPoint that was used by Sarah Alderson, Walmart Senior Buyer Frozen Foods, in a March 16 online presentation and Q&A. Among the requirements spelled out in the PowerPoint are some that haven’t ruffled too many feathers, including these:
• Walmart Department Number must be printed.
• Case Pack quantity must be printed as well as a space where Walmart store associates can manually note any change in case contents. For example, the associate would write the number 4 in this space if he or she has removed two items from a case that originally held 6.
• Temperature rhetoric like “Keep Frozen” must be included.
• If a case is retail-ready (i.e., it’s perforated or otherwise designed so that a store associate won’t need a tool to open it and place it on a store shelf), “PDQ” must be printed on the top flap to indicate this.
But alongside these relatively innocuous requirements are two others that are causing real consternation (for simplicity’s sake let’s call them Requirement A and Requirement B):
Requirement A. 14-digit Global Trade Identification Number (GTIN) must be printed flexo. Ink jet is not in compliance.
Requirement B. All four sides of the case require item information.
We’ll get to Requirement B shortly. As for Requirement A, it’s driven by Walmart’s claim that GTIN barcodes that are ink-jet printed are too often so illegible that they can’t be scanned by store associates wielding hand-held scanners. When a barcode is unscannable, electronic data transmission both within Walmart and with its outside trading partners is compromised. That means Walmart’s inventory and stock replenishment records must be updated in some way that is not automatic. The time spent on this essentially manual activity is time wasted, says Walmart. Flexo printing would eliminate this waste of time.
Why the fuss?
So why does a ban on ink-jet printing of GTIN codes on cases have CPG companies up in arms? Because ink-jet printing is a key element of the late-stage customization strategy that CPG companies rely on to keep corrugated inventories to a minimum. Suppose, for example, that ABC Yogurt Company makes the same 6-oz yogurt product in grape, cherry, pineapple, peach, and strawberry varieties. The identical case can be used for all five varieties. The firm’s corrugated supplier uses a flexo press to print the ABC Yogurt logo on all of the cases. Because the artwork is the same for all the cases, it means large orders, long runs, and fewer printing plate costs. All of this maximizes efficiency and reduces overall cost. And the flavor variations? They get ink-jet printed on ABC Yogurt’s packaging lines along with the GTIN that is specific to each flavor variety, as well as lot and date code info. It’s late-stage customization at its best.
With ink-jet printing of GTIN no longer in compliance and only flexo-printed GTIN allowed, it means that ABC Yogurt will no longer be able to use ink-jet printing to customize its cases with flavor varieties. Instead, it will have to have its corrugated supplier flexo-print five different cases—one each for grape, cherry, pineapple, peach, and strawberry varieties—where it now prints just one. That will shorten case-printing runs, add to the number of printing plates required, increase inventory complexity fivefold, and drive up costs. It will also greatly increase the likelihood of packaging obsolescence, which will result in more corrugated cases going to the landfill—so much for sustainable packaging.
Also adding to the potential for waste, say some observers, is that some CPG companies simply won’t have room inside their facilities to store all the extra cases they will have to keep. So they’ll store some of their corrugated outside. But corrugated cases are not meant to withstand the temperature and humidity fluctuations that come with outside storage. This could lead to damaged inventory having to be thrown out. Or, just as bad from an efficiency standpoint, compromised cases will reach the automated case erecting and case packing equipment in the plant, resulting in downtime due to jams.
To gauge the potential impact of Requirement A and Requirement B, Packaging World conducted a survey of CPG companies. Naturally, we asked how much the flexo-only requirement would cost. As shown in Figure 1, 40% of respondents indicated that this requirement would bring them a cost increase of up to 10%, 24% said up to 20%, and 13% said costs would rise by more than 30%.
Verbatim comments were also solicited in the survey, and one respondent, a maker of salsa in four flavors, wrote as follows: “I am a small company trying to grow with Walmart. I order all my [packaging] supplies in large numbers to keep the cost down. This does not help!” Another respondent said it would mean having to inventory preprinted cases for 150 different model numbers. A third said “Maybe Wally World should train their employees,” and a fourth said, “Walmart needs better scanners.”
Worth noting where this last comment on scanners is concerned is that Walmart announced last June that by October 2015, it would replace outdated Telxon hand-held scanning/ordering devices with new Zebra MC 40 units having greater functionality. Sources indicate that the replacement process is still underway.
One more verbatim comment should be included here, if for no other reason then simply for how thoughtfully and thoroughly it catalogs the difficulties Walmart is foisting upon its suppliers: “We will have to change from generic cases that can be used for hundreds of SKUs to individually printed cases. This means more print plates will be required (which have to be purchased, stored, and maintained), shorter runs at our corrugated supplier, more change overs between short runs at their location, increased inventory of otherwise identical cases, and more warehouse space to store all the SKU-specific cases. This will be true before it ever leaves the supplier’s location. By changing to individually printed cases, we will need to buy many more print plates, which will increase our budgets; we will need to store more SKU-specific cases in-house, which will increase our on-site inventory as well as space requirements to store the material; we will have more case packer change overs, which will be required for each SKU, which will create more downtime; there will also be added QA resources required for incoming inspection due to the increase in the number of print variations in our plants. I’m sure there are more unintended consequences that we have not yet identified.”
Walmart’s beef is legit
Regardless of how much the ban on ink-jet printed GTIN will increase costs for CPG companies, and regardless of the displeasure that echoes in the verbatim comments we received in our survey, many knowledgeable observers are quick to agree that some of the criticism leveled by Walmart is perfectly justified. Yes, they agree, there are a lot of bad ink-jet printed barcodes on corrugated out there. Among those in agreement is Rick Fox, the president of Fox IV Technologies, a supplier of print-and-apply labeling solutions.
“Can ink jet systems print in-spec barcodes in a manufacturing environment?” asks Fox. “Certainly, and ink-jet equipment OEMs can provide great samples. But it means nothing if Walmart associates are having a problem, and I know for a fact from research I’ve done in the field that they absolutely do have a legitimate problem. Why do you think Woolworth’s of Australia, which is essentially the Walmart of Australia, hasn’t permitted ink-jet case coding of GTIN for nearly 15 years now? I would argue that where the Walmart issue is concerned, the breakdown is not in the ink-jet equipment, it’s in the CPG company’s use of it.”
Our survey respondents seem to agree with Fox’s argument. A look at Figure 2 shows that nearly half of respondents believe that the CPG company’s failure to properly maintain ink-jet print heads is most often the reason why Walmart has problems with ink-jet-printed barcodes. This verbatim comment by one survey respondent sums it up nicely: “More often than not it is an operational issue that is easily correctable (i.e. align conveyor rails). Proper operator Q.C. checks can reduce the possibility of poorly printed cases leaving the plant to almost zero. If nothing else this should be a wake up call to manufacturing managers everywhere to take case code dating seriously.”
While we’re on Figure 2, note that only 6% of survey respondents believe that CPG companies skimping on ink was behind Walmart’s problems with ink-jet printing on cases. Still, this anecdote from Fox bears repeating. He says he once toured a packaging line where ink-jet printing of GTIN codes on cases was merrily humming along. Accompanying him was the CPG company’s barcode guru, who tweaked the case printer slightly so that each printed case exiting the printer was as crisply and legibly printed as ever a case could be. As the two men walked away from the machine, the guru assured Fox that in short order someone with a profit-and-loss glint in his eye would dial back the amount of ink being delivered to the printing system in an effort to cut costs. Why? “Margins are so slim at these CPG companies that this kind of cost cutting is widespread, even though it’s one of the factors leading to the Walmart problem that needs to be addressed today,” says Fox.
Another observer from the ink-jet supplier side is Rob Schneider, owner of Case Printing Solutions. “These restrictive requirements from Walmart are creating a firestorm in the case-coding businesses,” says Schneider. But like Fox, he agrees wholeheartedly that Walmart has a legitimate beef.
“CPG companies using ink-jet have neglected to provide consistent, readable bar codes to their retail partners,” says Schneider. “I have seen bad barcodes and poor practices time and again. Lack of training, bad setup, and poor maintenance of ink-jet systems are among the problems. In the light of such quality issues, Walmart has decided to throw the baby out with the bath water. But they didn’t have to, because the problems they are encountering can be easily fixed.”
Schneider maintains that ink-jet can and should meet quality standards, insisting that there’s no need to throw out an entire technology, one with millions already invested, that is greatly preferred by CPG manufacturers of all stripes. But those manufacturers, says Schneider, need to pay better attention and need to initiate in-house training in things like printer setup, case alignment, proper selection of industrial inks, and better maintenance protocols.
“I have seen production lines where the alignment was so far off that the barcodes faded into oblivion,” says Schneider. “Many production workers have no idea about what to look for in barcode readability. Poor inks also affect barcode quality when they don’t provide contrast and edge quality, or when they clog nozzles.”
Schneider also believes that CPG companies must commit themselves to end-of-line barcode readability verification testing. “The production team needs to validate and report that their codes are done properly,” he says.
Another perspective on problems inside the CPG companies comes from Tom Schneider, President of Global Packaging Management and a 35-year veteran of the coding and marking business. “Part of the problem,” he says, “is that maintenance department budgets and capital purchase budgets are controlled separately within those large organizations. Often, one of them is trying to save money on one of those budgets, which creates a natural failure point within the company. If they took the time to talk to each other, a significant part of the problem would evaporate. But as a result of the disconnect, companies like Walmart are now driving everyone’s costs up even more.”
Getting back to in-plant verification, survey respondents also think it’s a good idea (Figure 3). But more than one source we talked to worries about what happens in the distribution chain once the case exits the end-of-packaging-line verification system.
“When you print on kraft, sometimes it absorbs the ink over time so that the code that looked great when it was printed looks faded by the time it reaches the retailer who needs to scan it,” says Mark Green, Manager of Global Engineering at Abbott Nutrition.
Ron Sasine of Hudson Windsor, packaging industry consultant and former head of packaging at Walmart, agrees that in-plant verification at the CPG company is no silver bullet. “You can verify in the plant all you want, but if the codes are not being verified at the point of loading onto the truck that takes the case to the Walmart store, then the code—in terms of scannability—is still not what was verified further up the supply chain.”
Referring again to Figure 3, a sizable number of respondents, 31%, indicated that Walmart could achieve their aims by increasing the financial penalty already in place for unreadable codes on cases. But Sasine doesn’t agree.
“Keep in mind the whole objective here,” he points out, “which is to speed up the rate at which product comes out of the back of the store and gets put on shelves. If store associates now have to record each failed code and communicate that failure to the suppler for indemnification, you’ve just slowed them down even further. While the penalty might be a motivational factor in getting suppliers to improve code quality, documenting and enforcing the penalty would be an additional drag on the store associate’s efficiency.”
One aspect of the Walmart mandate that is a bone of contention revolves around the question of who they consulted as the mandate was written. Walmart insists that both producers of corrugated and the CPG companies who supply Walmart were consulted. But who in the CPG company was consulted is an important question, because what may be at work here is some element of the Stockholm Syndrome, the psychological phenomenon in which hostages express empathy and sympathy with their captors almost to the point of identifying with those captors. Remember, many CPG companies doing business with Walmart maintain an office in Bentonville, AR, where Walmart is headquartered, to ensure that when it comes to their product, Walmart’s every need is met as immediately and efficiently as possible. Not only does this CPG person, typically someone in sales, know very little about packaging lines or the realities of case coding, he or she may actually grow to be more aligned with Walmart than with his or her own company. Call it “the Bentonville syndrome,” if you will. At any rate, if it was these Bentonville-based CPG salespeople whom Walmart consulted as it started talking about this mandate, that would help explain why Walmart didn’t encounter much resistance from its supplier base and decided its case-coding policy was a good idea. Had Walmart’s people been talking with a CPG company’s packaging engineer, say some observers, they might have learned at a very early stage how difficult and expensive it would be to eliminate online ink-jet printing.
Four-side case printing
Now let’s move on to Requirement B. It represents a big change because most CPG companies print item information on no more than two sides. In addition to requiring that GTIN be flexo-printed on all four sides by the corrugated supplier, it will also mean that on the CPG company’s packaging line, where important variable information such as lot and date code can still be ink-jet printed, it will require bump-and-turn stations on case conveying lines and probably additional ink-jet printing systems, too. As Figure 4 shows, 42% of respondents say it will increase their costs up to 10%, and 11% say the increase will be more than 30%. No wonder a whopping 91% feel that printing on two sides is enough, as Figure 5 shows. Said one respondent, “By what rationale should that increased cost (along with a steady stream of other demands) be simply absorbed? I’m all for letting Walmart increase their efficiency, but why should it come at the expense of ours?” Said another, “Every shipping case will have to be turned around by 90 degrees after printing two sides. This will slow the line speed and we’ll have to purchase two more print heads.” A similar comment came from this respondent: “Printing on all four sides will require additional conveying equipment, which will increase costs and maintenance and will increase size of the packaging line’s footprint.”
A recurring verbatim comment we got with this survey question ran along these lines: “This new Walmart policy isn’t so bad because we’re not using ink-jet for GTIN in the first place. We put GTIN on our corrugated cases with a print-and-apply label system.” But print-and-apply labeling equipment typically deploys thermal-transfer printing, not flexo. So the survey respondents who commented in this fashion must not have noticed that Requirement A says GTIN must be flexo-printed, which rules out print-and-apply labels. And if there were any doubt, Walmart Senior Buyer Alderson made it crystal clear in the March 16 online PowerPoint presentation and Q&A that labels for GTIN are not in compliance because they may rub off.
And when does Walmart want this standard to become the new normal? A Packaging Engineering Manager at one CPG company says that the first his company’s Bentonville-based sales guys heard of it was in a March 15 email that included this deadline: all new artwork for 25 SKUs by March 24. “That could never happen,” says the engineer, who prefers not to be identified. “For one thing it would mean throwing out inventory we already have in place.”
He says he and his colleagues in sales quickly convened a call to identify among themselves everything that did not comply. “We then put them into three buckets: easy to change, not so easy, and very difficult. Our sales guys have taken that to Walmart and are going to let me know what they learn.”
Sasine predicts that this kind of back and forth is likely in a number of cases.
“It’s a question of how individual Walmart buyers will work with their specific set of suppliers to get the guidelines implemented. Not that they’re positioning this as something that can be in any way bypassed, because they’ve made it clear that this is nonnegotiable. But individual buyers will likely view this requirement as it fits the needs of suppliers in their category. They’ll probably take into account such things as how many cases already in inventory are designed for online ink-jet coding, or how much capital investment is needed where new machinery or line modifications are required.”
A number of people interviewed for this story wonder if this mandate will go the way of Walmart’s announcement about a decade ago requiring that its suppliers tag pallets and cases of goods with RFID tags. We all know what happened to that mandate. Pushback from suppliers, questions about cost, and Walmart’s own internal technical problems caused Walmart to back away from its RFID requirement.
But as this story goes to press, Bentonville seems dead serious about implementing their standards for case coding. Considering what they are saying in the sidebar on page 60, it would be unwise for anyone on either the supply side or the buying side to think that these standards will go away. Sasine puts it this way.
“The reality is that ink-jet printing equipment—either because it’s not the latest technology or due to operator error or humidity or other environmental conditions that cause problems or because the verification technology being deployed is not positioned at the most meaningful point of the value chain—is beneath the standard that Walmart finds acceptable. They think what they’re asking for, a uniform standard that is for everybody in the business, is perfectly reasonable. There’s room for discussion about how they get to that standard and how it’s implemented. But from my point of view the CPG companies are going to have to, at the bare minimum, improve what they’re currently doing.”
Who will eat the cost? Seems unlikely it will be Walmart. Their goal, as always, is to bring consumers savings. They made this clear in the conclusion of the e-mail they sent to the CPG companies when they first announced this plan: “We’d like to thank you for working with us towards a common goal of helping people save money so that they can live better.”
Their felicitous tone, however, didn’t exactly make the heart sing when it reached one packaging engineering manager, who had this to say: “I don’t know who they think is saving money, but it’s sure not us.”
We wanted to include a Walmart perspective in this story, so we sent our survey results to Walmart’s John Forrest Ales, Director of Corporate Communications, along with a few additional questions about MCLSE (Master Case Labeling Standards and Expectations). Walmart elected to answer by way of email. Questions and answers follow.
1. Who at Walmart is driving MCLSE? Did Walmart communicate directly with the CPG community to gauge the impact of MCLSE before announcing MCLSE? Are there packaging professionals or experts or engineers inside Walmart who were asked about the impact this would have?
We know change can be hard and we believe in working together with suppliers to serve our customers. That’s why we consulted suppliers of various volumes and processes to help guide this process. Our suppliers told us the impact of low-quality barcodes—from slowing the pace at which products reach store shelves to creating inaccurate inventory counts—affects their bottom line, hurts retailers, and ultimately impacts customers. With such strong and consistent agreement that a solution was needed, we chose to lead by finding a smart way to increase efficiency for everyone for the long term.
2. Is the February 16 PowerPoint the only place where MCLSE is spelled out?
We have communicated the change to suppliers and have a team dedicated to answering questions. Suppliers can email our team or reach out to their buyer with any questions or concerns.
3. Let’s look at Survey Questions 1-5. What is your reaction to the results?
Your survey reinforces what suppliers told us. They agree that the reliable barcodes are a challenge for the retail industry and that suppliers have a responsibility to provide quality barcodes. We’re proactively working with our suppliers to find a long-term solution.
4. Why not allow thermal-transfer-printed labels?
The reason we chose flexo is because it is proven to work.
5. Why not simply increase the financial penalty charged to CPG companies whose ink-jet-coded cases are causing problems?
A financial penalty doesn’t fix the systemic problem that suppliers agree needs to be solved. We believe this is the most efficient and best long-term solution.
6. Why not simply mandate that your CPG companies install in-plant verification technology like this: www.rjs1.com?
We’ve spoken with our suppliers and made the best decision for our business and our customers.
7. Do you have plans for enforcement of MCLSE? Is there a deadline for when enforcement will begin?
We are working out the details of enforcement with our suppliers. Most of our suppliers are already working to meet our expectations.
8. Any chance of Walmart softening its position?
The decision we made is based on feedback from our suppliers and is the best, most efficient way to track our inventory and allow us to help our customers get the products they want.
9. Why select food as the category to implement this policy? Is it logical to assume other categories will be added?
Our packaged food suppliers told us that poor barcode integrity is impacting their business, adding unnecessary cost within the supply chain, and ultimately hurting customers. We’ll watch other categories and make the best decision for our customers. PW
Survey responses were collected via online survey, emailed to Packaging World subscribers on Monday, April 4, 2016. Out of the total 430 completed responses, survey results reflect 397 verified CPG/food/bev/pharma brand owners, after having filtered out 33 respondents who self-identified as materials/machinery suppliers or distributors.