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Track the history of retail over the last 50 years, and the UPC barcode has been present at many of the major steps.
After a successful pilot at Kroger in the 1970s, it played a key role in modernizing supermarkets after grocers came together to standardize the way products were tracked. As big box stores came into vogue, the product codes helped to power the massive network of stores and logistics that led Walmart to take its place as the largest retailer.
With the rise of ecommerce, products were dispersed to more far-flung locations, and supply chains became more complex. The importance of ensuring accuracy of an order and tracking where a product ends up only increased. In turn, barcodes continue to played an outsized role, from the supply chain to checkout.
Each phase of development added to both the number of products in circulation, and the number of organizations moving them. Yet each item still gets a different UPC – unique in the world but universally recognized as a product identifier. Along the way, more types of available barcodes have been added, while their design and makeup evolved as technology allowed.
Behind it all, there’s an organization working to ensure that collaboration continues across industries, and apply standards across all barcodes. GS1 US is the American organization that provides unique barcodes to brands and retailers, and a link to the global network that makes these tags truly universal.
At the same time, GS1 US is working on what’s next.
“It was a breakthrough technology in the 1970s,” Melanie Nuce, GS1’s SVP of innovation and partnerships, said of the UPC. “What we’re poised for now is, what are the next round of breakthroughs to drive these digital experiences?”
With an initiative called Sunrise 2027, it is set to usher in a transition from linear, one-dimensional barcodes, to more data-rich two-dimensional barcodes on product packaging. Alongside brands and retailers, GS1 US is also exploring how products and approaches to solving business challenges will evolve as digital and physical approaches blend.
The Current recently spoke to Nuce about the evolution of the barcode, its role in the ecommerce landscape and how the pandemic-era focus on QR codes and supply chain helped point to where it’s heading. This interview has been edited for length and clarity.
The Current: Shoppers have likely seen UPC barcodes, but might not know that there are standards behind those tags. In general, can you explain what UPC codes are, and the standards that come with them?
Melanie Nuce: The UPC is the actual barcode manifestation of a standard that we call the Global Trade Item Number. The Global Trade Item Number is a unique identifier. it’s unambiguous, it’s interoperable, it’s globally unique and you can expect a consistent experience when you interact with that number all over the world. GSI barcodes are scanned over six billion times a day, so the UPC is the bars and spaces that make a product go beep and give you the right price experience as a consumer at checkout. But the number behind that actually facilitates the entire supply chain for that product from its birth until it gets to checkout. Those numbers are governed by a standards organization to ensure they’re unique. We will assign a prefix to a brand owner and GS1 Japan will assign a prefix to a brand owner in Japan and as part of that 116 member federation we’re responsible for the implementation of the standard here in the United States.
If you’re buying online, I’m not sure the typical consumer realizes that a lot of scanning is still going on in the background. Did I pick the right item? Is this going to the right customer?
The notion of unique identity, moving things through a supply chain, and then at the end it’s about consumer safety, all of that is predicated upon by all rights something that was very unexpected. The form of the UPC we have today wasn’t even the initial form. It was supposed to be a circle. The originators thought we will need no more than 100,000 identifiers in the future of the world. They may not have even perceived that then that would translate to barcodes on cases, barcodes on pallets, RFID for non-line-of-sight reading of moving through a supply chain. We even have standards that govern the ID of conveners – the semi-trailers, and the actual pallet the product sits on. You have to have unique identifiers for the assets then move products.
It wasn’t just about giving benefits to the retailer to ensure price accuracy. It gives benefit to the supplier around analytics. If a nine-ounce bag of potato chips carries the same barcode no matter where I’ve sold it, then I can aggregate a lot of performance data coming back to me, as different retail partners report on the sale of items or what’s sitting on the shelf. That’s what helps companies make a lot of research and development decisions on the product side.
TC: Over 50 years, GS1 has had a front row seat to changes in retail. One thing that stands out is the emergence of ecommerce. How has your work with brands and retailers changed as online shopping rises?
MN: When you’re talking about how something I want manifests to a physical object that shows up to my doorstep, that means somebody has to know that’s the right thing, they have to get that to me, they have to charge me the right price for it. Where people may think you don’t need a barcode because nothing’s crossing a register, it’s actually still going through a very similar supply chain process.
With ecommerce it opened up a customer in Oregon being able to order from a retailer in Florida, because now I’ve got inventory that I can expose to you. Even if you would never walk into my store, I can make that available to you. Standards play an even more critical role in ecommerce in that, the expectation of a consumer is I can get anything, anytime, anywhere based on my preference and my shopping habits. From a retail perspective, that means I have to make those things available to them in those venues.
GS1 isn’t about just a UPC barcode. The premise of GSI’s standards are, identify things unambiguously in an interoperable way, and then capture information about them. The most important thing about the UPC is that it’s machine readable, so you need machine readability in order to drive automation. If you’ve visited a fulfillment center or a warehouse of any type, there’s a lot of barcode technology behind the automation that happens in moving things where they need to go efficiently. Then I have to share that information. The information’s no good to me if I’m just a brand and I’m holding it all. I need to tell my retail partner or even my consumer the features and benefits, the ingredients, the use and care, and the warranty. The consumer wants a very rich data experience and all of the data needs to be tied to something that’s uniquely identified.
For us the bridge has actually been a very natural one. We’ve built over time. If you think 50 years ago it all started with the UPC barcode, now GS1 has a whole suite of standards that support identification, data capture and sharing.
TC: The last decade brought the DTC revolution. Now, we see many digitally-born brands transitioning to add in-store sales to their retail mix, as well. Can you break down when in that process they’ll need a UPC code, and how they get started?
MN: We used to deal in bulk. We were about shipping cartons, cases and pallets of stuff. Now we’re dealing in eaches, and you have an explosion of small and micro brands that have been able to take advantage of ecommerce platforms and the notion of seller marketplaces and anything being available to anyone.
Now we also offer small and microbrands the ability to license GS1 identifiers in singles. We used to be a capacity model. When you think about the 1970s and those companies that came together, at the time those were either huge national or multinational brands. That’s one whole set of people with a set of needs that can drive a great agenda, but now the majority of new market entrants, based on US Census data, are these longtail, tiny companies making 2-3 different widgets. They need access to the standard, as well. At the end of the day, whether I’m big or small, being able to track my product through its lifecycle, gain data about its performance and then make intelligent business decisions about it – all of that is predicated on unique identification and the use of standards to intermediate that data between myself and partners. Even in an online context, it’s not so often that I’ve got a manufacturing plant in my backyard and a shipping facility in my garage. I’m going through partners to have that done and partners have to communicate and standards become a great mediator for communication that can be done accurately and efficiently.
Melanie Nuce. (Photo courtesy of GS1)
With direct-to-consumer we’ve seen a huge opportunity, but it tends to be correlated with an increase in revenue leads to an increase in complexity that then leads to an increased need for streamlining how I can track and measure performance. I don’t know whether I’m just going to sell on Shopify today. I don’t know whether I’m going to add Amazon, Walmart Marketplace, Target+, Macy’s. If I’m going to start selling into other avenues, the ability to connect my data is so critical.
The other one is around complex fulfillment. What we’ve seen is that a business may start with one product and one outlet, then as they scale their business and they’re going into other avenues, they realize the complexity of fulfillment is not to be underestimated. Just like we have the UPC barcode that’s designed for the retail point of sale, we also have standards that govern the identification of cartons, of pallets and all of the parties in a supply chain.
TC: Among many macro challenges, supply chain is still top-of-mind for brands and retailers as they face delayed shipments and availability issues. Being a supply chain standards organization, what solutions are you seeing that work well?
MN: Probably one of the most esoteric GS1 standards is called Electronic Product Code Information Services. (EPCIS). We developed this standard at the same time as RFID was experiencing its first entree into the market. If you think about a UPC and a UPC identifies a class of items, say a nine-ounce bag of regular potato chips brand X. There would be a different UPC for sour cream -flavored, a different UPC for the 16-ounce bag and a different UPC for brand Y. They all have unique identifiers, but every bag of that same type of potato chip from that brand carries the same UPC. That works fine when you just need to know the price for point of sale, but when you need to get into things like inventory management, rotating stock, dealing with expired products, managing product recalls and engaging a consumer for a specific experience, you need a deeper dataset. RFID was the initial way we did this, and it took off most notably in apparel.
That notion of getting to a more granular level of uniqueness is critical as we try to move forward with better management of product. I think this is where you’re seeing two things:
Greater investment in traceability applications. Part of what we implemented in EPCIS is, it’s an event data messaging standard. You can take your global trade item number, global location numbers your shipping information down to a very discrete level and you can share that with partners. The way we’re seeing that manifest today is most primarily in pharmaceuticals.
In consumer packaged goods, we’re seeing that the use of this kind of traceability leads to better engagement with the consumer. I can now give that product to a consumer, and have them respond back to me. You can see it in brand loyalty. Most of us know we have a shopper card, it’s on file with our retailer, we build up some sort of loyalty which means we get targeted promotions. Based on our preference data, they can offer better options for product purchasing. When you have out of stocks, the more you know about what you have and where it is, the more you can support things like intelligent substitution.
The flipside of that is it increases consumer engagement. Once I bring that product into my home, there’s information about the product that I may want to know. Apps are driving this experience today. If you want to know the provenance of this item – who made this product. If it’s seafood, who caught this product? In the tuna industry, I want to know, where did this fish come from and based on information available on the package this can be located, but it’s only because companies are capturing that at the right point in the supply chain and then carrying that down.
I think we’ve still got a long way to go. We all remember toilet paper [shortages] at the beginning of the pandemic, and now the latest crisis is with baby formula. I think the combination of the phygital experience between ecommerce and stores can be a way to bridge that gap, and, two, if it’s a data gap, I have to have the data and standards are really a way to facilitate that.
TC: After the pandemic, we know shoppers have more fully formed digital habits, even as we are seeing return to stores. Amid this more blended environment, where are UPC codes heading in the next five years? You alluded to 2-D barcodes. How do they differ from the UPC codes we see today?
MN: A UPC serves a great purpose and you can read that with an app using a mobile phone. In order for a consumer to engage with that product, it’s likely to require something more on a product than a UPC.
With a 2-D barcode, most commonly the data matrix or the QR code, you basically have a data string inside them, just like a UPC does. On the UPC barcode, you see the data string. In the US, it’s 12 digits. You can type in that number and find out what that product is, but that’s pretty much all you can do. With a 2-D barcode, most commonly the QR code or the data matrix, there are two things that can happen. One, I can see all of the data that’s in that barcode, which is much richer data than is in that dataset than just the UPC. If I wanted to know the expiration date, I could create a software program and scan that and tell me the expiration date. I can also direct the consumer to the web.
GS1's logo for Sunrise 2027. (Courtesy photo)
Most consumers wouldn’t know the difference between one 2D barcode versus another. You hope as an industry that they shouldn’t know the difference. The goal is to give them a frictionless experience. But I can’t necessarily do that today with just a UPC because it doesn’t have a native connected technology. A piece of software has to read my number and do something with me. The notion of two-dimensional barcodes has democratized consumer access to data because they natively embed a web URL that says, take me here. And whoever created that 2-dimensional code creates where you’re going to land when you scan that code.
Pre-pandemic I feel that we had a lot of skepticism around two-dimensional barcodes, consumers weren’t that into it in the United States, while other countries were. Countries like Colombia and China had great adoption of two-dimensional barcodes by consumers long before we did. Brands and retailers also said, the point of sale’s not broke, so we don’t need to fix it. But we were missing such an opportunity.
A UPC can only carry an identifier of the product, it cannot carry an expiration date, it cannot carry a serial number. A two-dimensional barcode can do those things. With a UPC, you can’t just pick up your phone, take a picture of a UPC and have anything exciting happen. If you pick up your phone, now both Android and iOS devices can scan a QR code natively. That can lead to a myriad of experiences. With new recipes, if you’re buying a particular product within a store, just a native scan of a product can take you to a product detail page that can tell you when this product was manufactured, where it was harvested from if it is produce, but then also how do I engage with you on a loyalty basis.
Brands are always interested in, how do I build a relationship with a consumer? If the majority of my products are going through some sort of wholesale channel, online or in-store, how do I build a relationship with the consumer, how do I gain insights to make more effective decisions about product assortment or supply chain planning? It’s this idea of connecting a product to the internet.
At GS1US we call it Sunrise 2027, it’s the idea that when we sunrised UPC codes 50 years ago, now we’re working to sunrise the notion of a two-dimensional barcode. It’s not because we need to fix the point of sale. The point of sale will still work, and that’s an important principle. But it’s going to enhance use cases for my supply chain, use cases for in-store, and use cases for the consumer post-purchase, which is a lot of where the history never went. It never went beyond the scan. Now I think people more than ever want to connect with consumers in their home environment, so that’s where we’re seeing the technology evolve, as well.
To close out, Nuce shared three areas of retail innovation that she and her team are exploring:
- Augmented and virtual reality: With more capabilities for virtual try-on and furniture emerging, it’s becoming more important to ensure the product matches what’s being shown. “Unique identification is what ensures an accurate experience,” Nuce said.
- Metaverse: In the metaverse, an outfit worn in real life could also appear on someone’s avatar in a virtual world. It will be necessary to ensure they can be tracked across both settings. “Standards are a great way to ensure that there’s a connectedness between what’s happening virtually and what’s happening physically.”
- NFTs: With nonfungible tokens (NFTs) built around the idea of scarcity and verification of items, it’s important to have an identifier that verifies a digital item is unique.
Trending in Operations
The opening of a new Market Fulfillment Center highlights Walmart's plan to build a local, automated logistics network.
Walmart may never build a fulfillment operation with a footprint that rivals the sprawling network of Amazon, but it is still in position to build a similar engine of business growth from the bowels of the supply chain. That’s because the world’s largest retailer has a head start in one key area that the ecommerce leader currently lacks.
As executives at Walmart are known to repeat often, 90% of the U.S. population lives within 10 miles of a Walmart store. These brick-and-mortar behemoths provide built-in proximity that can not only provide convenience for consumers who are looking to easily shop in person, but also to the retailer as it seeks to ship digital orders out.
As Walmart emerges from two years of building ecommerce capabilities during the pandemic, it is now taking steps to make its digital business a cornerstone of future growth, and profitability.
Those plans include building new facilities throughout the supply chain, but the retailer is continuing to keep the store at the center of ecommerce.
The latest example arrived this week. Walmart said it is opening a new store-based fulfillment center in its hometown of Bentonville, Arkansas.
From Walmart’s news release:
The Market Fulfillment Center (MFC) is built within the store and is powered by a proprietary storage and retrieval system – named Alphabot. Walmart believes fulfillment through digitization and connecting its store and supply chain assets end to end will transform fulfillment. And along with it, customer satisfaction and associate opportunity.
While this is only Walmart’s second MFC, it points at the logistics model that the retailer is building. Rather than massive standalone fulfillment centers in each locality, Walmart is creating a network that includes stores, distribution centers and a fewer number of strategically located (and increasingly automated) fulfillment centers.
Walmart already has big box stores that resemble large warehouse facilities. Now, it is putting them to work as supply chain nodes. This makes sense, since Walmart’s sizable ecommerce growth is being driven by pickup and delivery. Those two fulfillment options are largely local, and originate at stores. So it's a massive strategic advantage to be located with 10 miles of the bulk of the U.S. population. Additionally, Walmart has a sizable grocery business, so it benefits from being able to colocate items within a store, rather than splitting inventory between in-store and ecommerce.
While combining a store and fulfillment center is a matter of space and real estate, Walmart said that technology is critical to making it all work. The Alphabot system detailed above is a key part of the retailer’s recently-revealed plans to have 65% of stores serviced by automation by 2026.
Alphabot is key to automating fulfillment. (Courtesy photo)
The shift to in-store fulfillment is designed to increase efficiency and help Walmart better serve customers. The company said that MFCs will help Walmart deliver more orders in a day, and increase accuracy. In the end, it will also increase delivery speed. As it continues to add fulfillment centers, the retailer has said that it can reach 95% of the U.S. population with next- or two-day shipping. By adding stores into the mix, it can offer same-day delivery to 80% of the U.S. population.
But for Walmart, the investment in automation is also an opportunity to draw on a new engine of growth. The retailer has said that unit cost averages could improve by 20% as a result of the automation initiatives it is implementing, and store-based fulfillment model.
While the upfront investment is likely significant, it is making use of existing assets. In the end, building now can help improve margins going forward. On the company’s recent earnings call, CFO John David Rainey outlined the company’s thinking on the ability of supply chain to increase returns for investors:
The third building block of the model includes improving returns by scaling proven high-return investments in our supply chain that drive operating leverage and improve incremental margins. We're investing capital to optimize our distribution and fulfillment nodes with automation that we expect will drive a significant improvement in unit economics in the coming years. Our capital structure and cash flow generation are an advantage, and we're allocating capital responsibly with a bias towards increasing returns.
While Walmart’s fulfillment operation may look different than Amazon’s, the retailer appears to have learned the lesson that an investment in infrastructure can transform the supply chain from a cost center into a profit driver.