If you are a retailer, a consumer goods manufacturer, a logistics consultant, software provider, or materials handling vendor – or anyone connected to those areas – this is an important column.

About a year ago, we first noted in a small piece some changes to carton labeling requirements for goods going to retail that could cause some real problems for manufacturers, and we would argue, ultimately, retailers and consumers.

More recently, Materials Handling Editor Cliff Holste was contacted by a reader at one consumer goods company that had similar concerns. That put some wheels in motion at Supply Chain Digest and Distribution Digest, and we have spent a lot of the last two weeks looking into this issue in-depth.

We are not going to wade into the whole compliance/chargeback debate, of which much could be said. I actually think if done smartly, compliance requirements and chargebacks can be good for both sides, and have even thought more manufacturers, in addition to retailers, should consider smart chargeback programs to speed supplier on-boarding and compliance with real supply chain needs.

This is instead related to specific, generally recent changes that some retailers – mostly in the soft goods area – are making to their compliance guides with regard to carton labeling. We have talked to a couple of manufacturers in detail, reviewed printed compliance guides at consumer goods vendors, and reviewed a number of such documents on-line. We have also spoken with a few consultants, and with Joe Andraski, CEO of VICS, which along with the GS1 organization develops related standards or “guidelines” for bar code labeling.

Problem 1: Several retailers, which include we believe Macy’s, Dick’s Sporting Goods, and a few others, are starting to prohibit any other bar code other than that found on the GS1-128 (formerly UCC-128) shipping label that they require. The GS1-128 is a serialized shipping container bar code that uniquely identifies each carton, and is widely used in retail for cross docking. A chargeback is leveled if any other bar code that is capable of being read by a scanner is on the box. While Macy’s gives the option of “defacing” the other bar codes by marking vertical lines in the white spaces, in practice, you need to cover it up (say with a blank label), or have no bar code to begin with. (See our video on this topic: Retail Carton Labeling Cause for Concern?)

This is a huge problem. First, Wal-Mart, Sears, Kmart, and others require a “case code” bar code, or ITF-14, which basically is the product UPC number plus a case pack identifier, on each carton. As a trip to most grocery stores or mass merchants will show you, that case code is often preprinted on cartons. If you happen to be a manufacturer selling to both Wal-Mart and Macy’s, you cannot have the bar required by the former when shipping to the latter, as just one example. The cost in terms of carrying multiple SKUs (one with the case code, one without) or special handling/processes would, of course, be significant for vendors faced with this scenario.

Even worse, the requirement to not have any other bar code on a case basically says the manufacturer cannot track the cartons internally before the GS1-128 is placed on the box during picking or further downstream in packing/shipping. Whether it is a ITF-14 or other internal SKU identifier, many manufacturers use such bar codes in manufacturing itself, as part of the DC receiving process, for pick confirmations, to trigger look-ups for automated print-and-apply of GS1-128 labels and much more. Many large scale, automated systems are based on such case identifiers.

Problem 2: A small, but increasing, number of retailers are moving away from the original “guidelines” for GS1-128 label placement, which used to be (and still is for most) on the right-hand side of the long dimension of the box, roughly an inch up from the bottom and three inches in from the carton edge. Some, such as SteinMart and a growing number of others, now want the GS1-128 in the lower left-hand side, or in the middle of the side (e.g., Bed, Bath and Beyond). Others now want the GS1-128 on the top of the box, or in the case of Rite Aid, it appears it wants a shipping label (not necessarily GS1-128) on the front (short side) of the box.

For years, many manufacturers sourced empty cartons with GS1-128 label “frames” in the bottom right to guide operators for label placement. By far, the majority of retailers still want the shipping label applied there.

But as other retailers move away from this standard, it can and will cause havoc in consumer goods DCs. First, even in a pick-by-label operation, operators would somehow have to know, perhaps by instructions on the label, where each individual GS1-128 needed to be placed for each customer. That would be very damaging to productivity, and fraught with operator error. Second, it will make the opportunity to use automated print-and-apply of these labels almost impossible, due to the cost and/or complexity of building a system with perhaps multiple applicators to handle different label placement for different retail customers.

Our columnist David Schneider, himself a former director of logistics for auto parts retailer Pep Boys and someone who implemented a sensible compliance program, told us he was recently working with a 3PL that caters to soft goods manufacturers, and which was looking at auto print-and-apply for GS1-128s. The company abandoned the initiative after seeing the trend towards variable label placement.

“We are moving from planet reasonableness to planet ridiculous-ness,” he told me, relative to these changing label requirements.

Sports retailers Hibbet (which runs a very good supply chain, as an aside) has it right. While it would prefer the GS1-128 on top, that requirement is waved if it would “DIVERT Hibbett shipments in the vendor warehouse, DELAY Hibbett shipments in the vendor warehouse, or REQUIRE ADDITIONAL HANDLING to our company.” (As noted in its compliance guide.)

The points Hibbett makes are key, and why not only manufacturers and retailers, but also technology vendors and consultants of all sorts need to pay attention: As the volume of these variable carton labeling requirements (no other bar codes, special placement) grows, even to as little as 20% of a manufacturer’s shipment volume, it may simply preclude the ability for manufacturers to automate a distribution center simply because the automated system cannot handle these varying label requirements.

Who, for example, could really batch pick if there could be no existing bar code for the scanners to read before the shipping label was applied? Even if you did batch pick by label, how could a picker efficiently and accurately put the label in one place for the first 5 cartons in the SKU batch, another place for the next 7, yet another for the next 3, etc.?  Can’t be done.

As many of you know, we are working on a major report on automated case picking, and we suddenly realized this labeling issue alone could become a huge barrier to these exciting new technologies.

Here is what one VP of logistics said to Holste: “All of this puts a higher level of risk in investing in automation, because you don’t know what tomorrow could bring to unravel it, all over labeling issues. Because DC managers can no longer bank on UCC [GS1] standards for carton labeling, you have to really consider the risks. You might pick up a new retail customer or have an existing one change their requirements that could make your existing system impractical or very costly.”

Here is my theory as to what has happened. In the 1990s, as the UCC-128 was rising, there was a strong emphasis on the “guidelines,” and pretty much everyone fell in line (even if all the formats were a bit different – that was manageable). GS1, VICS and others, including me, sort of assumed this was problem solved and moved on to other things. In the meantime, a new generation of industrial engineers and logistics managers joined the industry and developed retail conveyor and scanning systems, either unaware of the guidelines and history, or without really understanding the impact on vendors from going down a new path.

What are we doing here? (1) Calling attention to an incipient problem that could mushroom into something much worse for the industry, and hoping it spurs some action; (2) Recommending that GS1/VICS re-energize in this area and make sure retail members understand the guidelines and why they are needed, and the total supply chain cost of deviation; (3) Hoping that logistics executives between vendors and manufacturers can get together and come up with reasonable requirements – which would include the simple step, for example, of reconfiguring scanners to ignore other bar codes, at little cost, versus burdening suppliers with high costs for handling cartons and maybe even turning off/avoiding DC automation.

We have fact checked this at multiple levels, and feel very confident in what we present here, though note the requirements are very dynamic. I have sent a list of many examples to VICS. I believe they and/or GS1 will provide some response back to us on this. I also believe many vendors are feeling these pressures, but sort of in isolation, not knowing lots of others see the same creeping problem that we are trying to shed a little sunlight on.

Let’s consider the full impact of these developments and use some common sense so that costs are not raised for manufacturers, retailers and consumers. If we are missing some key point here, would love to hear it. And yes, maybe RFID solves it all eventually.

Are you seeing the same sort of changes in retail carton labeling standards? How big an issue is this? Are there good reasons for these newer retail changes? What is the best path to make a workable solution for both manufacturers and retailers? Let us know your thoughts at the Feedback button below.