Wal-Mart’s new CEO is making some tough decisions. He sent out this memo to associates at headquarters:
To: All Home Office Associates
From: Mike Duke, president and CEO, Wal-Mart Stores, Inc.
Date: February 10, 2009
RE: Organizational Changes
Dear Home Office associates:
As the new fiscal year begins, we find ourselves living in unprecedented times, and I am reminded every day of how our company is uniquely positioned to help Americans weather the economic storm. We know that millions of working men and women are relying on our low prices more than ever before, and we must continue to be an advocate for them.
Starting today, and over the next few weeks, you will be hearing from your leaders about some important changes designed to align our staffing and organizational structure to increase operational efficiencies, support our strategic growth plans and help reduce our overall costs. Some of these changes will involve reductions in Home Office positions while others will create additional management jobs elsewhere. And, as part of our overall store growth plan, we will continue to add thousands of jobs in our stores and clubs this year.
We expect the changes to impact approximately 700-800 Home Office positions including merchandising, real estate, marketing and support divisions in Walmart U.S., Sam’s Club merchandising and some corporate functions. The restructuring will not impact store and club operations.
We do not make these decisions lightly, and every individual decision was carefully considered. We recognize this is a difficult development for the members of our Wal-Mart family who will be leaving the company. While the number of associates that will be impacted by the restructuring is very small compared to the 2.2 million associates we have worldwide, I can assure you that we will treat them with care and dignity and help support them during their transition, consistent with our basic beliefs and respect for the individual.
If there is one constant in our organization, it is change. We are committed to our purpose of helping people save money so they can live better and we will continue to take appropriate steps to further align our support structure with our business plans. We must also challenge costs in every corner of the company in order to keep our business strong today and well into the future.
We care about our associates, especially during times like these. Thank you for everything you have done and will do to serve our customers and help make our company better.
Both present and former employees of Wal-Mart tell us that Mike Duke is a man of exceptional integrity. Some have wondered if he has the personal charisma to lead an organization that was within recent memory inspired by leaders such as Sam Walton and David Glass.
Although we doubt we will be seeing Mr. Duke do the hula down Wall Street, we actually detect something in this memo that shows Duke swims in a stream with direct links to Sam Walton:
“We know that millions of working men and women are relying on our low prices more than ever before, and we must continue to be an advocate for them.”
This notion ties directly into the wellspring of Wal-Mart values that it fundamentally is the buying agent for the consumer.
Great leaders often change the mood of their organizations with decisive acts early in their terms. Ronald Reagan, for example, was forever defined by his willingness to fire the striking PATCO air traffic controllers.
The buzz in Bentonville is that Wal-Mart wants to reduce home office staff by 10%. That would be about 1,400 jobs. The expectation is that attrition will take care of half the reduction and the layoffs will handle the rest.
Wal-Mart has been doing relatively well in this recession. Between attrition and the opportunity to retrain and transfer people to other parts of its far-flung operations — and considering the not-insubstantial cost that big companies incur for severance and other support of laid off personnel — we suspect that the financial goals of the layoff could have been achieved in other ways.
So we see this as Mike Duke communicating to the 2.2 million Wal-Mart associates about the core values.
And, in this case, the core that Mike Duke wants to emphasize is the culture that consumers could get a great deal because the company relentlessly seeks to reduce costs so that margins could be minimized.
Sam’s Club New Headquarters
Our sense is that Wal-Mart has gotten away from this. On our last trip to Bentonville, we were shown a new building that Wal-Mart just bought for Sam’s Club. It is the 4th largest commercial building in Arkansas. All we could think of was that it was a pretty spiffy place and there is no way in the world that Sam Walton would have bought that building.
As we walked through the new model stores, we saw all this expensive cardboard signage that someone thinks is communicating a marketing message, but we saw this as additional expense. In departments such as bakery, we started to note expensive ovens with glass cut-outs to create theatre and we wondered how much additional margin was required to pay for this stuff. The aisle where bargains were traditionally emphasized was stripped clean of product and promotion. It looked as if Wal-Mart had decided it wanted to become more like Target.
Of course, the irony here is that Target is doing horribly in this recession, and the retailer desperately wants to become more like Wal-Mart. Cheap chic at Tarjétis an indulgence many don’t want to pay for in this economy.
Wal-Mart had a few years in the wilderness. It tried ads in Vogue and things like that to fix a corporate culture that was deemed “broken.”
Fortunately for Wal-Mart, consumers didn’t pay much attention so it still had its value reputation when the recession hit.
Now, perhaps, the non-charismatic leader is showing the kind of internal guidance that often turns out to be enormously inspiring: An understanding and insistence on adherence to core values.
So for the same reason Sam Walton had executives bunk together when traveling on business, maybe Mike Duke is saying headquarters can take a haircut. It is an example to the 2,199,250 other employees as to what the priority is.
We suspect Mike Duke may turn out to be an exceptional leader, and this tough decision is the first step in a reassertion of values almost lost.
Since its founding, the Pundit been honored to play a role on the faculty of the United Fresh/Cornell University Produce Executive Development Program. It is really an incredible program. Set on the Ivy League campus of Cornell University in Ithaca, New York, the setting requires a trek for many in the industry. Yet our experience with the program is that this very remoteness is crucial to the value the program provides.
Many of our industry events are amenable to multi-tasking, but this one requires a commitment. It is five nights in which one has to put aside the day-to-day concerns to focus on the strategic issues involved in running a business.
This turns out to be a value all in itself. Obviously we could point out that the superstar team of Cornell professors, from psychology to accounting, delivers a mind-expanding course of instruction. We could mention that the time at Cornell — with structured events such as classes, trips and dinners mixed with informal time with one’s classmates — creates a networking experience far beyond anything you can get at a trade show or quick conference.
Yet we think that the most valuable point of attending this conference is that one is compelled to disassociate oneself from the press of the day-to-day and, instead, focus on where one wants to be in a year or two or five or ten or thirty.
It is always easy to say that current problems are too pressing to allow for a focus on long term goals, but our experience is that companies and individuals both only get past the pressing problems, past the tactical issues, by focusing on strategic positioning. If you haven’t signed up, we recommend it highly and if you can’t go yourself, send a worthy associate. In either case, you can register here.
Like a great symphony performed under an exceptional conductor, though the core of the program is stable; each year’s iteration is a unique variation on the theme. This year, one of the special aspects of the program is that we are bringing in both Bruce Peterson and Bruce Knobeloch.
These two gentlemen offer unusual perspectives. Bruce Peterson was responsible for developing Wal-Mart’s produce program and then served as CEO of Naturipe Farms. Bruce Knobeloch, a distant relative of baseball’s famed Chuck Knobeloch, was Director of Produce for Schnuck Markets and then worked as Vice President of Marketing for River Ranch Fresh Foods. So these two gentlemen have sat on both sides of the desk.
What have they learned in this journey? And how can the insights they have gained become valuable tools in your own strategic arsenal? Come to Cornell and find out.
We did think it would be nice if we could offer a sneak peak into the insight that will be gained by participating in the program. So we asked Pundit Investigator and Special Projects Editor Mira Slott to speak with Bruce Peterson:
President, Peterson Insights
former President/CEO of Naturipe Farms
and Senior Vice President of
Perishables for Wal-Mart Stores
Q: Long before the spinach E. coli crisis, you had predicted food safety would consume the produce industry. Then in June of 2007, we had a fascinating interview after you left Wal-Mart and were on a mission to drive transformation of the industry’s trace-back and recall capabilities. At that time, you pointed to four key issues paramount for the industry to focus on: traceability, immigration, transportation and water utilization.
Much has transpired since then. You brought your retail savvy to the supplier side to lead Naturipe in tackling new challenges and opportunities. Now as you begin a new chapter in your life, what lessons have you learned from both retailer and supplier perspectives that can help the industry prosper?
A: It’s kind of rare for retailers to go to the supplier side, and when they do, they’re usually not that successful.
Q: Why is that?
A: Retailers are from Mars and producers are from Venus. [Editors Note: Read more about the analogy here]. One of the biggest problems is how differently growers go about thinking about their business and retailers go about thinking about their business. It’s not like one way is right or wrong. The two groups process problems from different lenses, and come up with different solutions based on how they approach answering the question.
There has always been distrust between buyers and sellers. It’s a contentious relationship; us versus them. Both sides are guilty of fostering that environment. Because of that, it is often difficult to come to mutually acceptable solutions. The buyer is fighting for the lowest price, and the supplier is trying to get the highest price. One of the biggest problems common to both is they are guilty of short-term thinking. Whatever is going on in the market clouds the decision, which may result in a long-term negative impact, whatever the perceived short-term gain.
Q: Here you are arguing that it behooves the industry to act on these overriding issues that impact long-term survival. Doesn’t this retailer/supplier dynamic stifle progress on that front?
A: Look at the area of traceability. Because suppliers have been burned in the past — where retailers said they were going to do something and they didn’t do it — they are reluctant to begin an intense capital-improvement program for fear of it being leveraged against something on the other side.
Food safety is another excellent example. Suppliers are loath to invest heavily in more stringent food safety requirements, when buyers refuse to limit their buying to those that step up to the plate.
Q: When you joined Naturipe, I would think instinctively it was beneficial to have the retail knowledge and perspective in which to strategize and innovate…
A: It’s not so much knowledge as perspective. I know how retailers think through issues and how suppliers think through issues. I’m aware of the stumbling blocks and have been on both sides of the aisle, so have the advantage of operating from different vantage points. At Naturipe, I was able to apply a number of business techniques, particularly gained through my experience at Wal-Mart, to the supplier side to manage business in a different way. It was a great experience.
A lot of times retailers who go over to the supplier side don’t listen particularly well; they are used to telling suppliers what to do. Retailers have to listen to producers because they have legitimate challenges in the business.
Q: Producers would argue that if they are squeezed too tight, they’ll go out of business and that certainly won’t be in the best interest of retailers… How do you respond to that?
A: Suppliers aren’t always totally honest with themselves in facing up to their business obligations either. If it costs too much to produce to meet market demand, the answer is to stop growing that way and re-think production strategy. There are ways to change your business model.
Q: Doesn’t the current economic crisis and instability in the market intensify the challenges for everyone across the supply chain?
A: The first problem is availability of money. Farmers have to go to the bank to get money to produce crops. When money tightens down, it can be tough. If a company is highly leveraged, it’s a bad deal, but if a company is fairly liquid it’s in great shape now.
The second problem is because there is so much pressure on retail margins for 2009, sales are soft, and as expenses climb, margin is going to have to expand to cover the expenses. There will be more pressure on the supplier to come down on price.
Q: How do you assess the industry’s efforts in the four areas you targeted 18 months ago, and how have these priorities evolved or changed? What are the key issues paramount for the industry to focus on going forward?
A: I’ll talk traceability first. I’m so pleased PMA, United and CPMA particularly took leadership roles in shoring up the Produce Traceability Initiative (PTI), and Kathy Green of Food Lion, who chaired the group, was outstanding.
Two key things were accomplished: broad sections of the industry recognized a common nomenclature was important for identifying produce, using the GTIN, and within that barcode certain things had to be common to everyone at the case and pallet level. That’s a big move forward. People have to recognize in our industry it’s not that traceability doesn’t exist within certain companies, but to look horizontally is complex because there are so many different ways of moving product across the supply chain. Once there was consensus for common identification and agreement upon what it looked like, participating organizations agreed on a time frame to adopt it. I was so pleased leadership of that group came to that point of view.
Q: Is the industry moving at a fast enough speed, with FDA feeling the heat to restore its reputation and the government wanting to get on top of food safety?
A: FDA wants to look at best practices in terms of technologies, and it is aware and acknowledges the industry’s traceability initiatives have gotten us to where we are now, but FDA wants to do this outside trade organizations. I was encouraging the produce industry to take a political role — to go to the FDA and make sure the government doesn’t do anything that doesn’t make sense. The FDA often has no clue what this industry needs.
While I’m really pleased with what the produce industry has done with the Produce Traceability Initiative, I don’t think we can come to the conclusion that because the industry has done this the FDA won’t come to its own conclusions. I‘m still concerned government will poke its nose in it.
The other thing about the produce traceability initiative I thought was so cool… it didn’t claim to be a single solution, it exposed the big challenges, and there are plans on how to overcome those challenges. It just takes time.
Q: Doesn’t the current peanut butter salmonella outbreak put those challenges in a new light? Proliferating recalls reaching such a divergent range of companies and product lines week after week seems to demonstrate the lack of trace-forward capabilities in the packaged foods arena. Perhaps in a warped sense, does this vindicate the produce industry, which has been vilified in its traceability preparedness?
A: The peanut butter crisis speaks to the same problem produce has. Remember, the peanut butter problem wasn’t with retail jars of Skippy and Jiff. It was ingredient raw material sold to processors to put between crackers or baked in cookies. That goes to show you the problems when you have a situation where product is not easily identified, and the package or container it’s shipped in is disposed of quickly. The manufacturer of the peanut paste, in five gallon buckets or whatever the configuration, sells to a Kraft, which puts it in a mixing drum and throws the package away. This just reinforces the challenges.
Back to the FDA… does everything in produce need to be packaged? At least in packaged form it’s a unit easily measured. The more time it takes in pinpointing the source the more difficult to control the outbreak. The spinach outbreak is a great example. Look how long the spinach crisis was going on.
Q: But trace-back is only one part of the equation. In the peanut butter outbreak, FDA investigators effectively traced back the source of the problem to a particular Georgia plant, now under intense investigation for possible criminal behavior, yet the trace-forward process is still ongoing with widespread recalls involving hundreds of companies.
A: I’ve always said traceability has three components: identification, isolation and communication. First identify the tainted peanut butter, and then isolate it. It was not retail packages. Eliminating peanut butter jars was huge. People are still buying peanut butter. This is peanut paste that got into crackers. In a broad sense, the problem was well communicated; people get it.
Q: In this instance, the FDA was quick to alert the public with a detailed list of products not involved. In the spinach crisis and again in the Salmonella Saintpaul crisis, one could argue the opposite occurred. FDA created consumer fear and confusion by putting a lingering mysterious cloud over whole categories, even in states and regions not in production during the time of the outbreak.
A: In the case of spinach, it went on for months and months, consumers refused to buy spinach. And the problem metastasized to other bagged salads and neighboring categories, even sales of canned and frozen spinach declined.
In the Salmonella Saintpaul crisis mass confusion occurred. A lot of produce items were suspect… tomatoes, maybe, then peppers. It shut down whole industries. In the peanut butter outbreak, FDA was definitive.
Q: So, will this PTI agreement on paper turn into a reality? Alas, good retailer intentions don’t always translate to meaningful action.
A: The industry has made great progress in coming up with traceability solutions. Another caveat on the producer side… PTI got statements from retailers that said they are going to do this. Wal-Mart and a couple other major chains are sending letters out to suppliers now. Suppliers are saying talk is cheap, but it’s going to cost quite a bit on the retailer and shipper side and there’s a little wait-and-see out there in regards to whether the retailers are going to follow through with this.
There are two key challenges with respect to the Produce Traceability Initiative. The government is still looking now and the industry has to manage the situation. Buy-side participants of PTI have agreed to timelines and have to reinforce their commitment to those timelines to the supplier side, emphasizing that even in the current economic environment they, the buy-side in the end will invest the capital to make it happen. That will encourage suppliers to make investments on their side as well. With the instability in the economy, this could be an issue.
Are there still challenges? Yes. During the first time we talked about traceability, it was a big elephant. How do you eat an elephant? One bite at a time. This is a journey. I can’t say we’ve arrived. We’re still talking case and pallet level. The industry can only get so far. If people think about food borne illness, most go unreported. If a consumer gets really sick or dies, it changes everything.
An ingredient sent out in bulk mutates to further units distributed through the supply chain. Data management becomes the next challenge. Where and how do you tap into data bases? This is a big push at the FDA, where all data has to be electronic. I’m not sure if I agree or disagree. If data is electronically based, it’s easier to get information but transforming the whole produce industry is an expensive proposition.
Q: Is this what you were talking about earlier when you pointed to FDA working on its own technology-based solutions?
A: Yes. The industry needs to get a handle on what the government is looking to do. FDA views industry self regulation as the fox guarding the hen house, intuitively skeptical of the industry to self govern. But with traceability and the PTI, the industry is in a whole different place than it was 18 months ago.
Q: Back in 2007, you singled out water shortages as the potential death knell of the industry, yet the issue seems to be mingled within corporate sustainability, which has become the buzzword these days. Has your priority list of critical issues broadened?
A: I wish people would be talking more about water than gasoline. Nothing has changed my mind. Water is not high on people’s radar, which is unfortunate. Already we have drought-stricken areas in the U.S., with increasing problems in California right now. You hear about Colorado River management. As needs for water in various forms continue to grow, agriculture falls in the pecking order. Water accessibility for agriculture is one of the biggest concerns.
Major municipalities are buying water rights from farmers. They say, stay on your land, we’re not trying to buy your crops, we want to buy your water rights, offering gigantic sums of money. Today this doesn’t seem to be a big problem. Now you have a municipality in charge of how much water the farmer is allowed to use on their land.
Look at San Antonio, a city growing like crazy. If you go through periods of droughts, states like California and Texas are becoming vulnerable. All other sustainability issues are secondary to that one. Last I looked, I don’t have to drive my car, but if I don’t have a lot of water I’m in trouble. If you project out 20 years, what are water needs for agriculture and where is that water going to come from? It’s a very long-term look at things.
Q: Is this problem exacerbated by global warming?
A: In defense of Al Gore, if we don’t change behavior today, 30 to 40 years from now we’ll be strapping people with problems they won’t be able to resolve. The industry has been doing the same things with land irrigation they’ve done for 30 to 40 years. This is probably not smart. And combine that with the fact that many farmers have sold their water rights. Who will be making those decisions in the future?
I read a report on water usage while at Wal-Mart. It referred to a study that showed if water consumption in Salinas Valley continued in the same way, in 40 years it would have no water. It’s a strong conclusion, but whether you believe it or not, even if it is just directionally correct, the implications are gigantic. Water is an issue that is not getting near enough attention in the produce community.
What do we do today in recognition of a problem 20 to 30 years from now? If it remains business-as-usual, it’s going to become a crisis, not just in the U.S. This is a global issue. One third of the world population is not readily accessible to potable water.
Q: At the risk of overwhelming our readers with the challenges ahead, let’s move on to your third key area of concern, immigration.
A: Immigration is still a major political problem. The new administration will deal with it differently than the former one, but how I don’t know. Will the industry be able to get the labor it needs to harvest and bring crops to market as it had done for all these years?
Q: For awhile, the immigration debate had reached a fever pitch, but now the economy seems to be taking center stage above all else…
A: Exactly. Politically, “it’s the economy, stupid.” We’re talking about spending a trillion dollars and no one knows if it’s a good thing. Unemployment is up, people are losing their homes. But no one is talking about these other issues. We have 10 million illegal immigrants in the U.S. What do you do about this? The ability for someone to legally immigrate to the U.S is daunting. The process is not an easy one, and maybe it shouldn’t be, but I hear horror stories from people wanting to get in.
Some see the solution is to put a giant fence around them. Yet there is a big difference between people coming under an approved program to legally pick crops and illegal immigration. There needs to be an amnesty period for people to come in and register, and to get our arms around it. Then we have to get into a process where people can enter the country to work here.
Part of the problem — and people don’t want to own up to it — is that immigrating to the U.S. to work, or coming temporarily to work, is not an easy thing. There should be a robust process, but the difficulties and red-tape that goes along with the existing programs is simply ridiculous.
Just because a person is in the country illegally doesn’t mean he or she is committing crimes. This is such a sensitive issue in Arizona, New Mexico, Texas and California, and so much produce is grown in those places. There has not been meaningful change, but economic problems of the country have taken over.
Q: I don’t see much movement in transforming the industry’s transportation system either… certainly fuel costs have taken a rollercoaster ride since you highlighted this as a critical issue years ago. What is your assessment now?
A: Transportation has not changed materially at all. Last year’s prices didn’t help the situation. Because of the energy pinch from April 2008 to September 2008, fuel prices went up astronomically and independent trucking companies, with maybe 20 trucks involved, couldn’t afford to stay in business and got out. Now we have fewer and fewer trucking companies.
Truck drivers would rather walk on broken glass than haul produce. Often they must make multiple stops, need to arrange labor to unload, deal with pallet issues and claims situations. With frozen food, they can drive up, unload the pallet, and be gone in 15 minutes. This was a problem more than 18 months ago. The fundamental problems haven’t changed and now there are fewer trucking companies, fewer drivers, and fuel costs are ultimately going to continue to escalate once the economy turns around. Unless the industry finds alternative ways to move significant amounts of produce, it’s going to be in dire straights.
Q: Scattered efforts have been underway for quite some time to reinvent the industry’s historic railway delivery system, yet logistics and financial issues have not allowed such efforts to meaningfully increase the share of produce transported via rail. Still is that the ultimate way to go?
A: I’ll guess 95 percent of produce moves via trucks or tractor trailers. If there are fewer trucks it’s going to be more expensive. We need alternatives. The industry is not doing a whole lot about that. We have to get major grower/shippers and retailers together and talk about how you address this logistics issue. Most distribution centers today don’t have rail heads in them.
If I was on a terminal market, I’d look at how I could be instrumental in this issue. Chicago or New York could bring in rail cars, a hub-and-spoke scenario. There is no data being gathered on what the situation will be. How many trucks will be available for produce distribution? Every produce company thinks they can call a trucking company and it will be able to haul their peaches. Is any task force out there working on this?
Q: Your eye-opening thoughts regarding traceability, water shortages, immigration and transportation implore action across the supply chain. It’s a lot to take in. What advice would you like to leave our readers?
A: These four areas are going to dramatically change how this industry operates, and either we wait until they become such a problem that we react to them, or we start to build an understanding of what the industry will look like. I’m thrilled with what the traceability task force did; for the first time they looked at the issue from all distribution channels, even knowing it will take seven years to do this.
Nobody can think sitting back and doing nothing will solve the problem. We have to take similar actions in the other three areas. Does Lake Mead have less or more water? Is the population of Los Angeles getting smaller or bigger? The Great Lakes have a lot of water, but who’s moving to Detroit?
Q: I remember back in the late 70s early 80s in California, restaurants stopped automatically serving water and the customer had to ask to get a glass, but that didn’t last long…
A: I lived in Michigan in the late 70s early 80s, and I remember a lot of talk of how the West and South wanted to tap into the Great Lakes water. There was a big debate going on because of many drought-stricken areas.
I get concerned about the industry because there is not meaningful conversation in three of the four issues. These are major threats to the economic viability of the produce industry, not tomorrow but down the road. These problems are so significant. We can’t wait until San Antonio is turning off water to five farms before we do something about this.
Water shortages get me fired up. People can live the rest of their lives and not eat some particular produce item but they can’t go without water to drink. When you look at places like Southern California, most of the water comes from someplace outside the area because they don’t have the ability to get a lot of water locally. There needs to be some projection.
You don’t have a produce industry if you don’t have water, labor and transportation.
All of these issues are going to dramatically impact the produce industry. How it impacts us is really up to us. We’re very fortunate as an industry today; we still have choices we can make, and it’s the thoughtful choices we make that will determine our survival.
As always Bruce is intriguing. The Pundit has done much work on sustainability, and we can say that in the most sophisticated circles there is a sense that there has been over-focus on carbon to the exclusion of much else and, especially, water.
There is a severe water shortage today under present political and economic arrangements. This is not so much a physical water shortage, after all in Saudi Arabia they utilize desalination technology for urban and industrial water thus freeing up other supplies for agricultural use. So, for a price, we can produce all the water we want. Unfortunately the challenge today is the political issue regarding the allocation of inexpensive water and a political roadblock regarding the building of desalination plants, aqueducts, etc.
Traceability has been another important focus here at the Pundit, and we agree with Bruce that much has been done. Yet we also hear in Bruce’s words the influence of his time as a grower/shipper and note his admonition to the buy-side to “reinforce their commitments” to the vendor community.
Immigration is also going to be a big issue again, though we think the trade’s problem is less a lack of internal cooperation than a difficulty in relating to the interests and concerns of those outside the industry.
Transportation is one area the industry simply must do a better job on. Bryan Silbermann, President of PMA, and the Pundit had an exchange in Pundit sister publication PRODUCE BUSINESS, reporting on PMA’s task force and the best practices document that came out of it.
Unfortunately the report was just a series of recommendations and it did not propose any substantive changes that would make the produce industry a more attractive industry to do business with. For example, there was no proposal to change the rather unfair treatment the PACA Trust represents to truckers.
Bruce also questioned whether any task forces were out there working on a data bank to determine future transportation need. Perhaps United Fresh will take up that call with its new Supply Chain Logistics and Technology Program, headed up by Dan Vache, who we mentioned here.
These are all fascinating issues, and what is distinctive about the United/Cornell program is that these issues are treated as realities and guideposts of the environment in which business will get done. The program is designed to help each executive know how to process information in such a way that these realities become the opportunities and obstacles that define the parameters within which one builds the strategic future of one’s business. Participants will leave Cornell thinking both that they have gained insight into the business environment and insight on how to use the new perspective to the strategic advantage of their organizations.
The Pundit will be on the faculty this year as well. We can’t wait to get to the United/Cornell program ourselves, and we hope you will decide to register as well. We look forward to seeing you. Please click here to sign up today.
This is in regards to your January 29, 2009 story, Is Produce Traceability Initiative Worth the Investment? in which you ran a letter addressed to Dr. David Gombas from Greg Fritz.
We are glad that Greg raised his questions, and while Dr. Gombas contacted Greg directly, CPMA, PMA and United Fresh wanted to share our joint response with the rest of the industry.
As we expand from the initial 40-some companies that support the Produce Traceability Initiative (PTI) to a broader industry effort, it is fully expected that there will be questions, doubts and concerns such as those that Greg expressed. As the primary promoters of the produce traceability initiative, CPMA, PMA and United Fresh must work to address industry concerns through open dialogue and consistent messaging. It is important that all three organizations speak as one voice when discussing the PTI.
We won’t pretend that implementing the PTI will be simple or that the PTI Steering Committee has all the answers. The PTI Action Plan set the policies, but achieving the PTI milestones will take time and effort. The easier things are at the beginning of the plan, the toughest at the end. In between, the industry is going to have to work together to find good answers. There are dozens of solution-providers — traceability companies — already looking at the PTI action plan, determining whether their system complies and can make produce companies’ compliance easier. The Steering Committee has assigned five subgroups to identify implementation problems and develop “best practices” and a “tool kit” of workable solutions. Early adopters of the Action Plan will find the issues first and will be the first to recommend solutions that work in their systems.
The “sticker shock” of obtaining a GS1 company prefix is one we are working on, and we recognize that no matter the cost, it will always be more of a burden to some than to others. 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.
Regarding the concern about additional hardware, software and upgrade costs, as Greg points out, some companies already have good lot-coding and record-keeping systems in place. The PTI requirements were kept simple and flexible with the intent to be compatible with multiple existing systems. If you review the PTI Action Plan, it states that every case must be labeled with a 14-digit Global Trade Item Number (GTIN), which identifies who the brand owner is and what is inside the case. This number would be used in lieu of your proprietary number used for the same identification purpose. The Action Plan states that every case also must be labeled with a lot number that you assign, which some companies are already doing in their current systems. And each case must be labeled with the GTIN and lot number in human readable and GS1-128 barcode format. Depending upon how much of a change is required to existing hardware and software to make this happen, companies may be able to adapt to the PTI format faster and easier than others.
But why even do this as an industry? As Greg notes, good performers already have internal traceability systems in place that are compliant with the law. The problem is that not everyone’s system is effective, and too often these systems don’t work well together. If your inventory control/traceability system uses your company name and an 8-digit numerical lot code, and your customer’s system uses a numerical company code and 12-digit alphabetic lot codes, their system can’t talk to your system. So, they end up translating your codes into their codes and that’s where the “prone to error” occurs or, worse, it can become too burdensome to even do and traceability can be lost.
In addition, if you require more information than what your customer is able to store, they will not be able to provide you the information needed for you to effectively trace the product. Selecting one language and one set of standards removes the need for translation of these two critical pieces of information — identity of the product and its lot code. It will also ensure that the information necessary for traceback is at minimum used by ALL trading partners, regardless of their proprietary systems.
The costs associated with implementing the Produce Traceability Initiative will vary by company depending on the number of products, case configurations and existing hardware and software currently in use. The acceptance of the PTI will have a positive impact for our industry when the critical mass of handlers reaches each milestone. When a recall does hit the perishable market, the ability to have an industry-wide traceability system will limit the impact to the specific commodity group and market as a whole.
The PTI took great pains to utilize what is already being used by most companies in the industry: case numbers and lot numbers, barcodes and internal traceability systems. All of these are needed to capture this vital information and store it electronically for quick and easy access in the event of a recall. The biggest change for most companies is accessing all of this information via computer.
In the end, what is most important is that every business that decides to implement the PTI believes that it makes good business sense. For some that investment will make sense sooner rather than later. For others more time and continual learning will be needed. In the meantime, keep the questions coming, so that the active members of the PTI can continue to address industry concerns.
— Jane Proctor
Canadian Produce Marketing Association
— Gary Fleming
Produce Marketing Association
— Dr. David Gombas
United Fresh Produce Association
It is a happy coincidence that we run this letter from the three national associations that have shepherded this initiative on the same day we run an interview with Bruce Peterson. For it was Bruce’s insight, expressed in an earlier interview with the Pundit, that whatever efforts might be made to make produce safer, there would still be intermittent outbreaks and, as such, the food safety challenges the industry faced needed to be addressed with an eye toward limiting the scope and damage of any recalls or government action. It was out of this insight that the industry focus on traceability arose.
We have praised the outcome of the Produce Traceability Initiative, even while acknowledging it was not a panacea.
We are skeptical that companies on the buy-side will, in the end, constrain their supply chain to those in conformance with the PTI requirements and, even if they do, large parts of the industry operate in a netherworld far from these association initiatives and the mandates of big corporate buyers.
That the industry is still seeking an answer for how to hook some local purveyor into a traceability system is without doubt. It also is true that the initiative didn’t address a core fact in produce marketing — consumers don’t typically buy cases, so much like the last mile problem with fiber optics, where high speed Internet can traverse the world and then has to slow to the speed of copper because that is the only entry to the house. So the PTI, even if fully implemented, loses its integrity once that case of bulk produce is intermingled with other produce in a retail store, restaurant or consumer refrigerator.
Still we thought the outcome a good one because it at least established a goal post. Many of the choices, as this letter indicates, are essentially arbitrary. Should you write out your company name or have a number that represents the company, it almost doesn’t matter. By having an industry standard, we can add value. The simple fact of declaring either one of those options the standard facilitates industry communication and thus increases the return on the investment in implementing the standard.
Although there are many costs to migrating to this standard, the standard is a no-brainer if you are starting a new company or building a greenfield facility. So, gradually, we hope the industry will migrate to these standards.
Shortly after we ran the letter from Greg Fritz, we heard from Greg once more:
Thanks for addressing my letter. United Fresh has been very responsive to it, and Dr. Gombas has asked me to participate in the PTI process.
What I didn’t say in my letter that perhaps I should have is that I would wholeheartedly support the PTI effort, given the assumption of a level playing field. If, as in your example, “Ken” has to pay for the fees, systems, and record-keeping that Produce Packaging will have to pay for, then that’s fair, and good for the industry. However, if the small, “local,” or “seasonal” boys get a pass (or an “exemption” from the government), then it’s no longer fair, and not a significant benefit to the public.
I’ll try to make this message known as I get into this more.
— Gregory J. Fritz
Produce Packaging, Inc.
Our “Ken” example went as follows:
Here is a letter we ran in a piece entitled, Though Traceability Initiative Is a Big Win, Weak Links Still Exist:
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.
We think Greg’s comment, combined with the example, points to the real issue and, in a sense, so does who signed the letter from the three associations: Jane Proctor is the Vice President, Policy & Issue Management at the Canadian Produce Marketing Association, Gary Fleming is Vice President of Industry Technology and Standards at the Produce Marketing Association, and David Gombas is Senior Vice President Food Safety & Technology at United Fresh Produce Association.
These are vitally important jobs. In our coverage of Traceability, we were proud to include these pieces by Gary Fleming:
Guest Pundit: Traceability — A Forgotten Piece Of Food Safety
Guest Pundit — Traceability And The Need For A Common Language
Guest Pundit — Pairing The Global Language With Technology
And this letter from Jane Proctor:
Pundit’s Mailbag — CPMA & PMA To Lead Industry Closer To Global Traceability
We have thought so highly of the contributions Dr. Gombas has made to the industry we gave him an award.
Without a doubt, continuing technical issues will keep this triumvirate busy for the foreseeable future.
Yet, in the end this is not really a technical difficulty.
Whether the standards detailed in the Produce Traceability Initiative actually come to be industry standards depends crucially on the procurement decisions of five companies. If Wal-Mart, Kroger, Safeway, Supervalu and Sysco actually come to the point where they reject any produce that does not meet the standards of the PTI, then these standards will become the lingua franca of produce traceability.
If the buying organizations demand these standards — unless something else is cheaper — then the standards will be adopted slowly, if at all.
Greg Fritz really just told the truth that dare not speak its name.
Our association triumvirate gave the most practical and real life advice one could hope for in recommending this:
“…what is most important is that every business that decides to implement the PTI believes that it makes good business sense. For some, that investment will make sense sooner rather than later. For others, more time and continual learning will be needed.”
Though this is exactly the correct advice for each individual company, the problem is that while each individual company is “learning,” the industry problem remains unsolved.
We thank Jane Proctor, Gary Fleming and Dr. David Gombas, along with CPMA, PMA and United, for their diligence in developing the Produce Traceability Initiative and their generosity in responding to Greg Fritz. We thank Greg for not being afraid to express legitimate concerns.