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Is PTIToo Expensive And ‘Untenable’?
A Retailer Speaks Out

Jim Prevor’s Perishable Pundit, September 22, 2009

We’ve written a great deal about traceability. In one of our pieces, titled Is Produce Traceability Initiative Worth The investment, Gregory J. Fitz, President of Cleveland, Ohio-based Produce Packaging, Inc., pointed out severe doubts that the Produce Traceability Initiative was worth the cost for individual companies.

Now Dan Sutton, Director of Produce for Albertsons LLC, has written us a letter questioning whether it makes sense for the industry as a whole:

I am attaching a letter that was sent to me recently by three shippers in California. The letter has the logos of nine retailers and food service operations, who (based on the inclusion of their logo) fully support the PTI initiative. Since the letter was assumedly written and sent by a large buyer, the tone of the letter certainly seems to be intimidating. However, when you open the MS WORD document properties, you see that it was written by someone with the initials “glf” at the PMA.

This tactic to me seems disingenuous at best. The veiled threat of “do it now or the government will make us do it” is an artful attempt at twisting the arms of growers and convincing them to throw money at GS1. The government will only mandate GTINs if the “industry” requests and supports it, and so far the only support and discussion of GTINs seems to be coming from the PMA.

I guess my question is, Why? The costs to the industry for moving to a GTIN-driven system will easily run in excess of $100 million, and for what? The ROI on the purchase of GTIN numbers is ZERO. The ability to do trace-backs will be dependent upon a robust and industry-wide database, not on an expensive numerical license plate.

Growers can spend several thousand dollars on GTINs, but if the retailer or receiver does not have the database in place to handle a dynamic numbering system, the expenditure on the numbers is a waste of money. And then what of the growers who do not buy the numbers… will their product be less expensive?

There is no doubt that there needs to be standardization within the industry to aid traceability, but this can be done at far less cost than the extremely expensive and ill-advised PTI proposal. Transaction ID numbers could be generated and used in a database scheme that actually facilitates traceability at much less expense than does GTIN numbers, and steps 6 and 7 of the PTI are untenable.

In today’s environment, scanning each case in and out of a distribution center will slow the industry to a crawl. Pallets will need to be reconfigured, boxes will need to be redesigned to make the numbers visible for every case, voice selection software will need to be re-written, union contracts will need to be re-negotiated, Warehouse Management System software will need to be re-written and every single grower, shipper and receiver in the country will have to do this 100% correctly or the traceability effort will be short-circuited.

There needs to be a frank and open discussion on Produce traceability somewhere (perhaps via The Perishable Pundit?), growers are very uncomfortable buying GTINs because the government may come out and NOT require them, and nobody wants to waste money on something that is not required (ala the RFID program that was touted several years ago).

We need to have more opinions than just that of the PMA (who has absolutely zero financial risk in this game). The PMA needs to be figuring out how best to unite the industry and drive a cost-effective/reality-based solution to traceability, NOT layering on more costs that will provide a negative ROI and hamper the efficiency of the industry.

The attached letter by “glf” appears to me as a plea by the PMA to salvage their missed quota deadline for GTIN purchasers.

Hopefully, we as an industry can get past this expensive and wrong-minded initiative and move toward a better solution for traceability.

— Dan Sutton
Director of Produce
Albertsons LLC
Boise, Idaho

We thank Dan for this thoughtful and passionate letter. Whatever one’s opinion on the Produce Traceability Initiative, the easy response to such a program is to “go along” as least in name. There are no penalties for saying one endorses PTI and then not doing it. The produce person can always blame the board of directors or the CEO for not appropriating the funds.

It takes people of integrity to be willing to buck the flow and stand up and say what they think to be correct. If PTI is a good idea it will withstand the scrutiny of many skeptics. If it is not, the voices of those willing to subject the initiative to public scrutiny may save firms in the industry more than a small fortune.

So we thank Dan for speaking out.

Now the question is what does the industry do with this input?

There is no question that some of the supplier base is aggrieved. Although we all know that buyer influence is powerful at moving the supply base to act, there is a question as to whether it is proper for the associations to facilitate such an event.

Although Dan mentions PMA, the PTI is sponsored jointly by PMA, United and CPMA. Although things have changed now, traditionally, while United was busy on the Hill, PMA was doing technical standards such as PLU codes and so, Gary Fleming, PMA’s Vice President of Industry Technology, has been working on this for a long time.

In fact, if we ever need to buy Gary some monogrammed towels, we can now bet with some degree of safety that his middle initial is “L” and that he is the GLF whose initials appear as the “secret source” of the document.

We see no scandal in this. Gary is a PMA staff person and staff people write letters and, presumably, get sign-offs before they get sent-out under the names of the industry members serving on a particular committee or board. The truth is that Gary is both very knowledgeable and deeply committed. He has explained the gist of these issues in two pieces he did for us early on:

Guest Pundit — Traceability And The Need For A Common Language
Guest Pundit — Pairing The Global Language With Technology

Though staffers drafting letters and sending them out after circulating is common, in this case the shippers who passed letters onto Dan had a right to be perturbed at the associations. These nine big buyers whose logos are on the letterhead — HEB, Food Lion, Supervalu, Wegmans, Sysco, Kroger, Schnucks, Wal-Mart and Safeway — are not the Steering Committee of the Produce Traceability Initiative; they compose no board or committee at all — they are just a bunch of big buyers.

If they want to send communication to their vendors or potential vendors, they are certainly free to do so but it is not the place of the associations to do it for them. The shippers pay dues and are members of these associations. It is just not right to pluck out a few key members and send letters to the supplier base from them, especially when there is a kind of threatening implication to the letters.

Besides, why only one way communication from buyers to suppliers? Buyers that endorsed this initiative have timelines too. In fact the stages 6 and 7 of the Produce Traceability initiative that Dan calls “untenable” are heavily buyer-oriented responsibilities: Stage 6 requires the reading and storing of information on inbound cases and Stage 7 requires the reading and storing of information on outbound cases.

Although the deadlines for these are not immediate, with Stage 6 being due in 2011 and Stage 7 being due in 2012, these abilities are long lead-time items and everyone can get a reminder about what they have committed to do.

Aside from all this, we wonder if the letter even had its intended effect. What kind of letter is sent out with logos of companies but no signatures? It almost makes one think nobody wanted to sign it. And, who, precisely, from all these buying organizations, is standing behind the “support and endorsement” of the Produce Traceability Initiative?

We don’t doubt the sincerity of the produce folks who have signed these things in the past, but in almost all cases the produce team needs a lot of investment and technology help to actually implement the PTI. It would be more important to send out a notice that the boards of directors of these buying organizations have all approved the necessary funding to ensure the realization of the commitments made.

Dan doesn’t believe there is an advantage to using GTIN:

The costs to the industry for moving to a GTIN driven system will easily run in excess of $100 million, and for what? The ROI on the purchase of GTIN numbers is ZERO. The ability to do trace-backs will be dependent upon a robust and industry-wide database, not on an expensive numerical license plate.

Growers can spend several thousand dollars on GTINs, but if the retailer or receiver does not have the database in place to handle a dynamic numbering system, the expenditure on the numbers is a waste of money. And then what of the growers who do not buy the numbers, will their product be less expensive?

There is no doubt that there needs to be standardization within the industry to aid traceability, but this can be done at far less cost than the extremely expensive and ill-advised PTI proposal. Transaction ID numbers could be generated and used in a database scheme that actually facilitates traceability at much less expense than does GTIN numbers.

Dan is raising empirical questions that deserve thoughtful answers. Now we can say that when we ran the letter from Greg Fitz, we received a quick response from Jane Proctor, Vice President Policy & Issue Management, Canadian Produce Marketing Association, Dr. David Gombas, the Senior Vice President for Food Safety and Technology for the United Fresh Produce Association, and Gary Fleming from PMA. We included that response in a piece called Pundit’s Mailbag — Joint Response To Produce Traceability Cost Concerns. In that letter they dealt with the “Why GTIN?” question this way:

The PTI Steering Committee recognized that a globally-unique company number was a critical first-step for every company putting a brand and lot code onto a produce case. While any company can generate its own number, there must be a central authority to ensure that number remains unique; this is similar to how social security or tax ID numbers are unique. GS1, a not-for-profit international organization, was recognized as the best authority available. In the long run, creating such an authority ourselves would cost more.

Even a government-run authority would have huge start-up costs and would not necessarily obtain international acceptance. GS1 is already used by over 2 million companies in over 145 countries, is globally recognized, and gives us a running start.

Is this persuasive? Well much depends on the alternatives, and Dan is laying out for the industry an alternative vision, suggesting the use of “transaction ID” numbers in a ”database scheme” — are the advantages of the use of GTINs merely technologically beautiful or are there practical reasons to think GTINs are preferable?

Whatever is theoretically the best alternative, Dan is also raising questions about the practical nature of this initiative:

In today’s environment, scanning each case in and out of a distribution center will slow the industry to a crawl. Pallets will need to be reconfigured, boxes will need to be redesigned to make the numbers visible for every case, voice selection software will need to be re-written, union contracts will need to be re-negotiated, Warehouse Management System software will need to be re-written and every single grower, shipper and receiver in the country will have to do this 100% correctly or the traceability effort will be short-circuited.

These thoughts dovetail with our two basic concerns over PTI:

First, we have asked whether, in the end, retailers are actually going to do this. For all the reasons Dan outlines and more, this will be difficult and expensive, and the endorsement has not come in the form of public commitments by retail boards of directors in a way that would build confidence.

Second, even if it was done, we are not sure it would really do much. We keep going back to the Salmonella Saintpaul outbreak from the summer of 2008. That involved an awful lot of small Mexican restaurants, in many cases getting their produce from purveyors who bought off terminal markets. Even some of the large chain retailers bought some product at store level, and individual stores and restaurants are not required to do anything under PTI. As our first assessment of PTI we ran a piece titled Though Traceability Initiative Is a Big Win, Weak Links Still Exist, which included a letter sent to us by a wholesaler both knowledgeable and incisive. Here is what he said

Putting in a system to trace product gets more difficult the further down we go in the distribution chain. Stand on the floor on a busy Terminal Market and try and imagine where the product goes after it is sold by the Wholesaler. A customer known as “Ken, the guy with Red truck,” pays cash for a pallet of tomatoes. He takes the tomatoes to his garage where the boxes sit on the floor next to cleaning supplies, motor oil, and who know what else.

He and his kids (2 of whom just used the toilet without washing their hands) dump the tomatoes on a dirty tarp to sort them for color. The green ones sit in the garage for a few days to color up during which time one or two rodents snack on tomatoes. When they finally ripen, Ken delivers the tomatoes to some of the finest restaurants in town for all of us to enjoy.

Somehow I don’t think that Ken or even a legitimate small wholesaler or purveyor is interested in investing in a traceability system. They will have to be dragged kicking and screaming to the table. The problem is that the system is only as good as its weakest link, and unless Ken is a part of the system it doesn’t work.

So we have this big expense for the industry and, even if implemented, it won’t ensure the next outbreak is easily traceable.

This leaves two mega concerns — one of which Dan raises and the other he alludes to. Dan mentions this idea that the industry needs to implement the PTI or else the government will impose it, but Dan points out that if the industry can coalesce around a different standard, perhaps the industry could persuade government to adopt that standard and, quite possibly, we could. In other words, even if one accepts that industry action is the only alternative to government regulation, that doesn’t dictate the GTIN.

The other big concern is the degree to which doing all this will actually impact procurement practices. The capability to do all this scanning in and out doesn’t mean it will be used. If shippers who have not invested in becoming PTI-compliant are cheaper, that product will be appealing to many buyers.

We are no fans of intrusive government but the truth is that the industry traceability systems for the large firms that are part of this initiative worked well during the Salmonella Saintpaul problem. The biggest issue was that the epidemiology was lousy and the traceability worked; it just didn’t confirm the incorrect theory that CDC and FDA had settled upon. The second biggest issue was that FDA was not equipped — and is still not equipped — to handle records electronically. So all the computer data generated by the industry was requested to be printed out and FDA field staff spent hours faxing things back to headquarters for someone to figure out.

Of course, PTI will neither improve CDC’s epidemiology nor equip FDA to handle electronic records.

The vision is clear, enter 62 numbers into a computer and the FDA can instantly realize that 59 of those lots passed through the same repacker in Omaha — but we seem very far from this.

One problem that doesn’t seem to have really been anticipated is that years ago, when grocery firms were buying their GTINs, they were much cheaper. Now the price is higher and so produce is, in a sense, paying a disproportionately high percentage of what the food industry paid for GTIN. The associations have tried to negotiate here, but it seems success is limited.

Haunting this whole matter is that although one would think the government would go along with an industry initiative, it might not. That would mean a lot of people spent a lot of money for no purpose.

Of course, even if many believe Dan to be correct, many would surely think it too late to start a new standard. Although many have not bought GTINs, many have. Although many have not created 14-digit GTINs for every case configuration, some have.

Institutionally, it is hard to imagine getting everyone in a room to agree to another standard.

So far buyers have mostly extended deadlines. From one perspective, this is working with the supplier base. From another perspective, it is evidence that the buyers are not willing to pay a premium to constrain their supply chain to the firms meeting the PTI timeline.

PTI was certainly a politically astute thing to propose. Its existence defused some momentum toward congressional mandates. Yet, if there should be another outbreak and the industry is still giving extensions, we wouldn’t want to be Bryan Silbermann or Tom Stenzel explaining the situation to a Congressional committee.

If PTI is too expensive and is not going to happen, or not happen broadly enough to ensure traceability, we should face up to it and develop an alternative that will really work and can really be paid for.

Many thanks to Dan Sutton for being willing to take a stand and being willing to encourage a diversity of opinion to speak out on such a significant industry initiative./p>

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