Pundit’s Mailbag — What IFCO Was Told About Wal-Mart’s RPC Decision… And What Was Not Said
Jim Prevor’s Perishable Pundit, September 22, 2011
A prominent industry consultant had asked us to weigh in on the motivations behind Wal-Mart’s move away from RPCs, particularly as this move seemed inimical to proclamations Wal-Mart had made regarding sustainability. We answered in a piece titled, Pundit’s Mailbag — Wal-Mart’s RPC Decision Is Part Of Its Bargain-Hunting Produce Procurement Strategy, and that piece brought several letters including these:
We appreciate both of these letters, and Andy Hamilton has clearly laid out the official story. We have no reason to think that it is not the story that he has been told by Wal-Mart. As far as it goes, it is almost surely an accurate explanation. However, as with many things there is a back story.
Bruce Peterson — then just starting the roll-out of Wal-Mart’s produce program — visited the United Kingdom in the early 1990’s, prior to Wal-Mart’s acquisition of ASDA. Bruce observed that RPCs were utilized by all the major UK retailers.
His interest was not so much the RPC itself, but the entire process by which they were deployed.
Basically Bruce was trying to think through four critical questions:
1. Were standardized display-ready boxes desirable?
2. If so, what should the standards be for display boxes?
3. What material should the boxes be composed of?
4. If plastic, could or should Wal-Mart’s US stores have a system-wide network of returnable/reusable assets?
Bruce had already been involved with CHEP in rental pallets, and CHEP was looking to move into this area as well.
The initial thinking as to why it would be a valuable system to use RPCs in a returnable/reusable system evolved over time. Initially, Bruce focused on the idea that Wal-Mart could realize labor and execution benefits through the use of RPCs.
Rather quickly, though, it become apparent that quality on display improved and shrink was reduced dramatically.
Ultimately, the whole concept of a "smart box" surfaced. Wayne McKnight and Michael McCartney played instrumental roles in that development and in advancing Bruce’s thoughts as to the potential for RPCs and an associated system.
It is a little known fact that it was through this initial work that the whole era of RFID emerged at Wal-Mart. Few realize that it was the produce division's journey into RPCs that brought Wal-Mart to RFID!
One only has to recount this little story to realize that it is implausible to think that a chain focused on such deep and long-term benefits such as labor, execution, quality, reduced shrink and, later, sustainability, would suddenly abandon such concerns simply because some executive wants to “message” to consumers more effectively about stone fruit, apples and citrus.
Obviously this type of messaging about orchard fruit is a relatively unimportant thing and, surely, the mighty Wal-Mart could figure out any number of ways to communicate with consumers besides altering its whole system of produce distribution.
We would submit that the key insight in understanding Wal-Mart’s willingness to change in this area has little to do with a sudden need for boxes to “message” on and a lot to do with a desire to be able to standardize procurement on the most common packaging so that Wal-Mart can more easily buy from the cheapest bidder.
We realize that Wal-Mart never said that, but as Dave Diver reminds us in talking about Max Brunk’s research class, when companies authorize their executives to speak, they do not always feel compelled to have them tell the whole story. Indeed the executives asked to speak often are not told the whole story themselves.
Max retired as Professor of Marketing at Cornell’s Department of Ag Economics in 1983. After his retirement, he wrote a column, called Agricultural Marketing, for our first issue of PRODUCE BUSINESS in 1985 and continued to write for many years. After Max “retired” from PRODUCE BUSINESS, his star pupil, Dave Diver, took over Max’s space.
There are a lot of people and publications to repeat what the press release said. Our job here at the Pundit is a bit more complex… to find the significance latent in actions and events. In this case, that is to say that we have a chain that today is consumed with getting a low F.O.B. It used to be a chain consumed with maximizing sales and profits by offering consumers a deal, while evaluating the total supply chain costs including impact on quality, impact on out-of-stocks, etc.
It is only a shift in those concerns that adequately explains the direction in which Wal-Mart has decided to move.
Many thanks to both Dave Diver and Andy Hamilton for their important letters.
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