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Bad bar codes provoke retailer penalties

Herman Goelitz Candy, Hormel Foods and 3M strive for bar-code readability to satisfy retailers.

Manufacturers like Herman Goelitz Candy and Hormel Foods know their products (seen at left, below, and above) must readily scan
Manufacturers like Herman Goelitz Candy and Hormel Foods know their products (seen at left, below, and above) must readily scan

The worst time to find out that the Universal Product Code (UPC) symbol on a product’s packaging will not scan is at the customer’s checkout or point-of-sale (POS). For that product to then be sold, the cashier must attempt a rescan, enter the UPC digits manually or stop the checkout process altogether to do a price check. These extra steps can be costly in many ways.

Retailers such as Walgreens, Costco, Kmart, Home Depot, Wal-Mart and Target rely on bar-code information to streamline operating efficiency and data collection. When bar codes do not perform as expected, retailers take swift action.

“More retailers are dependent on bar-code readability because of the overall business impact,” says Bob Krafft, special projects manager (and former purchasing manager) at Herman Goelitz Candy Co., the Fairfield, CA, makers of Jelly Belly® candies. “They aren’t willing to deal with bar codes that don’t scan well.”

Programs that monitor scan rates and the efficiency of store checkers, track sales and evaluate promotion effectiveness are gaining favor with retailers who need to squeeze out every ounce of efficiency to remain competitive. With these systems in place, noncompliant bar codes are easy to catch, and retribution by retailers is not only speedy but also costly.

Nightmare on retail row

The exposure felt by product manufacturers due to noncompliant bar codes is hard-hitting and most widely felt in the forms of fines and penalties levied by retailers who demand compensation. Such penalties are referred to as Automatic Cost Recovery (ACR), for reduced POS and backroom productivity. ACR claims can range from 15% of the total sale value to a flat fee of $25ꯠ or more per occurrence. “Retailers can fine you, and if you want their business, you pay,” notes Krafft.

“There is always the threat of charge-backs or deductions,” explains Jill Buss, package engineering manager at 3M, St. Paul, MN. Buss adds that another effective threat is the loss of future business (in the form of contract nonrenewals), and therefore market share. In many cases this is a bigger concern than a direct financial loss because a company’s future earning potential is at stake.

At the other end of the spectrum is the possibility of product recall, sometimes resulting in product shortages on the shelf. In one instance, Austin, MN-based Hormel Foods incurred the cost of printing and applying stick-on UPC symbols to existing inventory so as not to lose distribution of the product, though some sales were lost or delayed. “Fortunately for us, the retailer was quite willing to work with us to find a solution,” observes David Goettsch, market research analyst at Hormel.

Probably the most difficult “cost” to pinpoint is the effect of noncompliant bar codes on customer relations. A recurring bar-code problem could become the “straw that breaks the camel’s back,” eventually resulting in cancellation of a lucrative contract. The cancellation may not be easily traceable to a nonscanning bar code, but it may be part of the problem nonetheless.

The mysterious monster

What makes identifying bad bar codes so difficult is that, unlike package size, color or graphics, it is almost impossible to determine visually if a UPC symbol will scan correctly. “Bar-code attributes are not straightforward compared to other types of requirements that people have,” notes 3M’s Buss.

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