Coca-Cola, UCCnet Revamping Supply Chain

By Ted Kemp

A decision by Coca-Cola to conform to UCCnet marks a major endorsement of the product data standard, but Coca-Cola faces a number of challenges before it can fully implement the standard across its massive distribution network.

UCCnet, a product registry and subsidiary of the Uniform Code Council standards organization, said this month that Coke will begin implementing UCCnet's services in 2003. The beverage giant, which claims to have the world's largest distribution system, said it will use internal IT resources to integrate with retailers using UCCnet, first in North America and then globally.

The announcement is a serious endorsement of UCCnet. The world's largest beverage company, Coca-Cola sells drinks in almost 200 countries at a rate of more than 1 billion servings a day.

The agreement marks the latest in a string of endorsements for UCCnet. The Uniform Code Council and EAN International, its international counterpart, agreed in October to make UCCnet the central product data registry for international commerce. That followed endorsements from the Grocery Manufacturers of America and Food Marketing Institute, both major trade organizations. In August, UCC merged with RosettaNet, a developer of standards for e-business transactions.

UCCnet operates a central database that manufacturers and retailers use to insert and check product information stored in a standardized format. The non-profit is funded by members that pay annual fees between $1,500 and $400,000 based on their revenue. Its goal is to circumvent the costs and supply-chain headaches that arise when product information on purchase orders and invoices doesn't match up.

Mark Monaghan, director of UCCnet's Strategic Alliance Program, explained the problem that UCCnet aims to solve hypothetically: "If I'm talking about a Snickers bar that's this dimension, and you're on the other side taking orders and your system says it's this [other] dimension, and some trucker ships a half-empty truck because our systems mismatch, somebody's paying for that empty truck," he said.

A lot's at stake: AMR Research cited a study by A.T. Kearney in October that estimated $40 billion, or 3.5 percent of total retail sales, are lost annually because of supply-chain inefficiency. The study found that 30 percent of items in retail catalogs have data errors. Those errors cost between $60 and $80 each and consume 25 minutes of manual correction per stock-keeping unit (SKU).

Coca-Cola will tackle the problem by placing product data into UCCnet's central storehouse of product information. The data, which is stored for UCCnet by hosting vendor Digex, standardizes 63 item attributes per product including size, weight, color, and minimum order size. UCCnet tracks items by 14-digit Global Tracking Identification Numbers (GTINs), and UCCnet communicates with members via a secure Internet protocol called EDI-INT AS2.

Coca-Cola, which sells goods primarily through bottling companies, will have to find a way to make the UCCnet system work with its three-tier distribution system. Manufacturers using UCCnet can mark items as viewable by all UCCnet trading partners or only specific companies on the demand side.

But creating authorization for a company to access product information and then pass it along to the retail level is yet to be tested in UCCnet, according to project manager Mike Harris of viaLink, a vendor that assists companies such as Chicken of the Sea and Wise Foods with UCCnet compliance.

Coca-Cola declined to comment about its plans, saying it generally doesn't disclose information about its internal IT efforts. Harris said he believes Coke's three-tier system can be made to work with UCCnet. But another complication for Coca-Cola is that retailers decide in what quantities to sell Coke -- for example, as either six-packs or single cans. Currently, plastic six-pack rings don't have scannable codes, meaning beverage companies have no six-pack GTINs for entering into UCCnet, Harris said.

Some analysts downplay the significance of the Coke-UCCnet deal until more is known about UCCnet's effectiveness. Most of the companies that have signed on with UCCnet have yet to implement the standard, said Aberdeen Group supply chain analyst Bill Brandel.

"It's not that I'm skeptical about the support or the intent to implement UCCnet. My concern is that you don't have a whole lot in the way of actual implementations or proven ROI or best practices that would demonstrate the value of doing this," he said. "In other words, it really has to move from white board concept to actual implementation with results."

UCCnet currently stores information on only about 25,000 products, up from 15,000 in April. UCCnet's Monaghan said an upload from Procter & Gamble comprised a good portion of the growth. But he added that the 25,000 figure comes mostly from companies signed in the early part of this year and doesn't include the large number of companies signed since.

"People see that 25,000 items and they say, 'Well, that's not that many.' But that's 25,000 items that represent a big part of the 50 companies that were signed on six months ago. We've got 250 now. Ask that question in six months, and that number's going to be through the roof," Monaghan said.

Typically, UCCnet members upload data with the help of vendors such as IPNet Solutions that transport information to UCCnet via the EDI-INT AS2 protocol. Coke will have to add its GTINs to the directory itself, and Brandel said he doesn't expect it to be the last large company to consider doing so.

The biggest risk big companies face in altering their supply-chain operations is the time it takes to implement changes, Brandel said. He speculated that Coca-Cola has the resources to control its own fate rather than turning things over to a vendor and risking a prolonged implementation. "Business requirements or market environments may change between the time you plan to implement [a supply-chain realignment] and when you actually do it," he said.

Still, UCCnet continues to get a big push, especially from the big retailers. Wal-Mart wants its suppliers to use EDI-INT AS2 both as a way of connecting to UCCnet and of connecting to Wal-Mart itself. Wal-Mart's 100,000 mid-size suppliers face a one-year mandate to switch to the protocol.

Wal-Mart's motivation is at least partly monetary: EDI-INT AS2 allows the free transport of data over the Internet, unlike the Value-Added Networks (VANs) that charge for transmitting EDI transactions. An October AMR Research report said broad implementation of the EDI-INT AS2 protocol is likely the "death knell" for the VANs.

Though implementation of the UCCnet standard has been slower than expected, Yankee Group senior analyst Kosin Huang said it will gain momentum once it proves itself. "If suppliers and manufacturers see everybody else doing it, and they [find themselves] less competitive, then yeah, they'll do it," Huang said. "But it hasn't ramped up as quickly as expected."