Increasingly over the past decade, retailers and manufacturers have found reasons to overcome their sometimes adversarial relationship and collaborate on areas of mutual concern. Thus, we have seen the development of CPFR (collaborative planning forecasting and replenishment) and the rising interest in data synchronization.
One area where retailers and manufacturers have had far less success in forming collaborative deals is source tagging of EAS (electronic article surveillance) tags, which has been a highly contentious, emotional area.
By agreeing to place EAS tags on products at the source -- or manufacturing plant -- suppliers can make it far more feasible for retailers to use the tags to deter theft in stores. Without source tagging, retailers struggle with the labor costs associated with applying tags to products, and typically resort to putting high-theft products behind cases where their sales are curtailed.
Yet, suppliers have tended to resist source tagging for several reasons. One is the cost of the tags and the process; another is the complexity of dealing with the two distinct tagging technologies prevalent in the marketplace, from Checkpoint Systems, Thorofare, N.J., and ADT (formerly Sensormatic), Boca Raton, Fla.
Still, manufacturers have a clear long-term interest in helping retailers prevent theft and making sure the end-consumer pays for the merchandise, as well as a short-term interest in tracking shelf inventory, which is thrown off by theft.
There now appears to be new hope for source tagging. One factor is the growing interest in a different type of tag -- the RFID (radio frequency identification) tag -- which can be also be used for theft prevention, as well as inventory tracking and other functions. Long-term, manufacturers will probably source tag RFID tags on individual items, though for the near term the focus is on tagging pallets and cases.
More immediately, source tagging's prospects have been helped through the efforts of a cross-industry group called the Industry Loss Reduction Team. The ILRT, whose "de facto chairman" has been Jack DeAlmo, vice president, store replenishment and inventory management, CVS, Woonsocket, R.I., includes representation from such retailers as Rite Aid, Kroger and Wal-Mart, and from such manufacturers as Procter & Gamble, Johnson & Johnson and Pfizer. (See box, this page.)
ILRT had its genesis at a meeting in Chicago in July 2001 that included CVS, Walgreens and several CPG companies. The larger group was formed, and it released its first report on suggested guidelines for source tagging last May. The report is available at www.nacds.com (type ILRT into search engine).
While ILRT has been spearheaded by a range of CPG retailers and manufacturers, there is a significant food-retail component. Another key participant, Charles R. Kibler, group vice president, loss prevention, Rite Aid, told SN that Albertsons was involved in ILRT activities. According to DeAlmo, H.E. Butt Grocery has expressed interest in joining the group, and supports its approach. ILRT "is not exclusionary," said DeAlmo. "It has to be workable for any channel." (H-E-B and Albertsons did not respond to a request for comment.)
Certainly many food retailers have invested in EAS technology in their stores, complete with tagged products and EAS portals that set off an alarm when active tags are detected, and thus have a stake in source tagging and efforts to advance it.
"ILRT was formed to address the shared frustration going on since the 1980s with the whole area of source tagging and how to make progress with it," DeAlmo said at an RF Inventory Management Conference, sponsored by Checkpoint last month at Caesar's Palace in Las Vegas. ILRT's goal, he added, is to "work together to solve the issues in a way that makes sense for everyone involved and benefits the consumer." The group looks at source tagging as more of a "supply chain issue" than as just a loss prevention problem.
ILRT's measured approach, he said, is the antithesis of how retailers have viewed source tagging in the past -- that manufacturers should "just do it," said DeAlmo. ILRT "opens up a clear path for manufacturers and retailers to follow that measures progress as you go."
The Top 250 List
Probably ILRT's biggest accomplishment was gaining a consensus on the top 250 high-loss stockkeeping units for which tagging or some other strategy could provide a theft deterrent, and publishing that list in the online report. The list includes such products as Excedrin from Bristol Meyers, Kodak film, Eveready batteries and P&G's Crest Whitestrips.
ILRT's report also includes an "ROI model" with which manufacturers can quantitatively determine whether source tagging can be economically justified for a given product. It also offers a myriad of best-practices suggestions to help both retailers and manufacturers rationally address shoplifting with EAS and other approaches.
DeAlmo told SN that to this point, ILRT's efforts have not been actively marketed or publicized, though that strategy is being reevaluated, especially since response to the initial report over the summer was less than expected. ILRT is planning its next meeting, he said, adding that meetings will probably take place at major industry events, supplemented by working team meetings. Though a founder of the group, DeAlmo himself is focusing more these days on RFID and areas other than loss prevention.
Despite the disappointing amount of response, DeAlmo noted that a number of NACDS manufacturers who were sent ILRT's report responded favorably. "No one said they won't use it," he said. For manufacturers seeking an approach to source tagging, ILRT guidelines gives them that direction, he said.
Moreover, the endorsement of the guidelines by a critical mass of such major ILRT retail participants as CVS, Kroger and Wal-Mart should be persuasive to many manufacturers, he added. "We are telling our trading partners, 'We endorse this approach, and we want you to get on board with it."' However, the guidelines do not represent a binding standard, he stressed.
Kibler said he thought Wal-Mart's presence has gotten vendors' attention. "It's not just Rite Aid -- we've got the 800-pound gorilla," he observed.
Already, many of the manufacturers directly participating in ILRT "are now making major inroads in their internal guidelines," said DeAlmo. "In the past, their answer [to theft prevention] was either 'no' or they had no position."
Within CVS, DeAlmo said, his loss-prevention executives have told him that "we're making significant headway [on the top 250 high-loss items] with the manufacturers on the ILRT -- companies we never made headway with before." That includes source tagging some SKUs, or finalizing policy on source tagging. CVS uses EAS technology from ADT.
Rite Aid's Kibler said the manufacturer response to ILRT's report has "not been overwhelming, but very promising." Rite Aid, which has more than 1,200 of its warehouse items source tagged, got "less than 10 items" from P&G source tagged, compared to none a year ago. "I have to think [ILRT] had some impact on that." Rite Aid uses Checkpoint technology.
ADT has been seeing a decided upturn in source tagging, said Lee Pernice, retail marketing manager, ADT. According to Pernice, around three billion ADT labels were source tagged across channels between September 2002 and October 2003, a 23% increase over the previous 12-month period.
Kibler noted that Rite Aid has been able to strike source tagging deals with packaging companies for such products as ink-jet printer cartridges, and the company also points manufacturers to packaging companies who will source tag.
Though Boston-based Gillette was a participant in ILRT, the company is taking a more guarded view of source tagging and EAS in general. "EAS is one solution. But how effective depends on the deployment store by store," said Paul Fox, spokesman for Gillette. "To hold it up as the solution is a mistake." Gillette, which does some source tagging of products, prefers to "work closely with a retailer to develop a root-cause analysis" of stock loss, he added. The company is also working on anti-theft fixtures that make it more difficult to remove large quantities of item, but easy to remove one item to buy.
Part of ILRT's strategy behind identifying 250 high-loss SKUs was to demonstrate to manufacturers that the list is not as long as they feared, DeAlmo explained.
Yet, he sees the list as a starting point for applying theft-prevention strategies, whether tagging or something else, to new products. "We need them to think about it during brand development, and come to market with protected products," he said. Taking this approach, the issue could be resolved in "one to two years, " DeAlmo said, adding that he is already seeing progress in this area.
ILRT's approach includes addressing the many ticklish issues surrounding source tagging, such as tag cost-sharing between retailers and manufacturers. "Anyone who doesn't think cost sharing is a reality is fooling themselves," said DeAlmo. CVS, he added, is in "sharing relationships" with manufacturers, not always in costs, but in some tangible exchange of value.
Another concern is that manufacturers have been putting tags from both EAS vendors on items, creating the potential for false alarms. DeAlmo said the issue has been overblown. In most cases, the consumer does not travel far with a tagged product, and retailers are able to deactivate active tags that do come in from other stores. "The reality is that multi-tagging needs to be an option for manufacturers," he said.
Fractional tagging of certain SKUs -- placing tags on a designated fraction of items rather than on all -- may also be appropriate, especially if the cost of tagging all items outweighs the benefit. ILRT's ROI model, to which retailers can contribute loss data, can help determine those economics, he noted. Kibler said ILRT's approach is for retailers to accept fractional tagging rather than no tagging at all.
However, at the Checkpoint meeting in Las Vegas, a representative of a large grocery chain was quite adamant about his chain's preference for 100% tagging, if possible. "We need all retailers to come together and ask for 100% source tagging, not fractional tagging," he said. Source tagging promises to remain a topic over which disagreements will flourish.
Members of ILRT
Retailers: CVS, Kmart, Kroger, Rite Aid, Target, Walgreens, Wal-Mart
Manufacturers: GlaxoSmithKline, Johnson & Johnson Sales & Logistics Co., Kodak (U.S. Region of the Consumer Imaging Division), Novartis, Pfizer, Procter & Gamble, Unilever, Wyeth Consumer Healthcare
