Executive Overview

Guide to Bar Code, Common Forms and EC/EDI for Manufacturers and Distributors

This Executive Overview has been drawn from the complete "Guide to Bar Code, Common Forms and EC/EDI."  All references and section numbers have been left in place so that they may be referred to if necessary.

Introduction

Overview

The EAN.UCC System

CHA Standard Forms Requirements

Electronic Data Interchange (EDI)

1.  Introduction

If you have studied supply chains for more than a few years or even if you are a newcomer to the profession, you will observe an apparent dichotomy.  Simply put, to drive down carrying costs you want to reduce inventory levels.  However, if you want to make a profit you want to sell more product.  More sales with lower stock levels will mean more orders.  Therein lies the conflict; reduce costs by lowering inventory levels but increase costs because of procurement and handling.

Something has got to give and it has to be the cost to place an order, receive the goods, invoice and pay bills.  This is why a company must understand all the pieces of the puzzle and why all the pieces must work together. The front office activities (purchasing and accounting) at once cause and are caused by procurement, sales, logistics and material handling.  And all costs must be reduced. 

The technologies that can drive down those costs include bar code and electronic commerce (EC), especially the electronic data interchange (EDI) portion of EC.  Fundamentally, these technologies are forms of communication -- and communication requires standards.

This guide has been prepared for manufacturers, packagers and distributors of products provided through the hobby products industry supply chain.  The recommendations made are intended to provide a common method for communicating critical information throughout this distribution channel.  This includes manufacturing, distribution and retail sales.

Today’s retailers are demanding that their trading partners provide product distribution information that is timely, complete and in conformance with industry data/information communications standards.  This demand translates into both opportunity and responsibility for implementing the technologies and techniques outlined in this guide.  There are three specific areas addressed in this document, they are: Standard Forms, Bar Codes and Electronic Commerce (Electronic Data Interchange, EDI).

2.  Overview

When a customer asks a vendor to apply a bar code label or lose their business, the benefits are easy to estimate. To be more accurate, some of the benefits are easy to estimate. Others take digging to identify and quantify.

Time and experience have shown that manual data collection and data entry systems (handwritten documents followed by keyboard data entry) are cost drivers for three reasons:

• Manual data collection is slow and error prone. Bar code is significantly faster (about 15 times) and more accurate (about 10,000 times) than manual data entry systems.

•  Manual data collection systems tend to be batch oriented so data bases are often out of date. Bar code data entry can save hours or even days of the "Information Float" period. "Information Float" is the time between an event occurring and the information system knowing it occurred, i.e. the time it takes to enter a receiving transaction or the completion of a specific manufacturing operation, etc.

• Manual data collection is so expensive and error prone that companies are discouraged from collecting important information. Realizing the problems of collecting data manually, many companies don’t collect data that they should.

The consequences of these problems are significantly higher costs that ripple throughout an entire organization –– even entire industries.

2.1  Examples of Benefits to Individual Companies

An investment in bar code , or any other technology for that matter, can pay for itself in three ways:

• Increasing Sales;

• Improving Gross Margins;

• Reducing Overhead.

Some benefits, like keeping a customer’s business, can be easily measured. Others, like increasing sales due to improved customer service, are more difficult to predict with any certainty.

Any bar code application can be analyzed by its impact on sales, gross margins and overhead. Consider the following two examples.

The cost of inaccurate inventory records.

Theoretically, inventory records should always be perfectly accurate. If every transaction is recorded in "real time," the inventory will be accurate. Realistically, however, day–to–day mistakes throw the accuracy off. One solution is to take inventory more often in order to detect the cause of the inaccuracies.

Unfortunately, taking inventory with traditional methods is not a pleasant task and sometimes this fact discourages companies from counting inventory as often they should. This leads to inaccurate inventories: not knowing what is on hand or where it is stored. The consequences of inaccurate inventories can be felt throughout a business. For example:

Lost sales

• If you tell a customer you don’t have something when you do, you may lose a sale.

• If you miss a delivery date, or you lose orders, retail shelves are bare.

• Damaging your reputation with a customer due to late deliveries or not having what they need eventually causes lost sales.

Lower Margins

• Buy from a competitor to supply a product you thought you had but didn’t; your margins suffer.

•  Tell a customer to keep a product shipped by mistake rather than pay to have it returned.

• Pay RUSH transportation costs to expedite an item you thought you had but didn’t.

• Pay higher prices to a vendor to drop ship a small quantity of product because you didn’t have something you thought you had.

Higher Overhead

• Inaccurate inventories often lead to purchasing buffer inventories which causes lower inventory turns.

• Lower material handling productivity. The productivity of material handlers can be reduced if inventory records are inaccurate because they waste time trying to find merchandise.

For all the reasons stated above, bar code is frequently used to take annual physical inventories and conduct cycle counts because using bar code is easier, more accurate and faster than manual methods.

The Cost of Picking & Shipping Errors

When the wrong product or the wrong quantity of the right product is sent to a customer, it initiates several costs.

Lost Sales

•  Lower sales force productivity. Shipping errors irritate customers. They take it out on the sales force. Rather than selling, the sales force winds up apologizing and spending time and money trying to keep a customer.

• Undetected over-shipments lead to inventory inaccuracies which can lead to lost sales.

Lower Margins

• Undetected over-shipments by definition are shipments with no corresponding invoice. This shows up as reduced overall gross margins.

Higher Overhead

• Customers frequently delay paying incorrect invoices … even if most of the invoice is correct. Delayed payment reduces cash flow and increases borrowing costs.

• Picking up the incorrect merchandise and re-shipping the proper merchandise increases transportation costs, with "overnight" charges or even salespeople or other personnel making deliveries.

• Material handling productivity is reduced if merchandise shipped in error needs to be re-stocked and if the correct merchandise needs to be picked again.

• Issuing credits and rebills (debit memos) consumes administrative time and money. Some portion of one or more person’s salary goes to researching these errors and issuing the necessary paperwork.

Example:

A company issues 200 invoices per day, 240 days a year. They process 10 credits / rebills a day (5%). Half of these were because they made a picking, packing or shipping error (5 per day). The other half are customer errors or errors out of their direct control. The total number of errors under their control per year is 1,200 (5 per day @ 240 days). At an average cost of $75.00 per error (administrative, material handling, transportation, etc.), the total cost of errors is $90,000 a year.

If the company is earning 5% pre-tax profit, this is the equivalent of a $1,800,000 customer! And even if you are only shipping 50 invoices a day, it's still like a $450,000 customer.

In fact, the actual cost may be double this amount since the detected errors are brought to your attention by customers when you make an error in your favor. Errors in their favor may never be reported. You notice them as inexplicable low gross margins or inventory adjustments.

Note: Shipping errors drive costs at both the sender and the receiver side. The costs described above don’t include the cost to the recipient and should be included in the overall cost of errors to an industry.

Bar code-assisted order picking and shipping verifications systems pay for themselves by reducing these costly errors.

2.2  Summary of Company Benefits

Within organizations, bar code has proven its ability to help companies compete better. A few of the documented benefits are listed below:

•  improved on-time fill rates.

• reduced inventory carrying costs.

• accurate and timely reporting of POS information.

• increased material handling productivity.

• identification of production bottlenecks.

•  increased inventory accuracy.

• reduced data entry costs.

• reduced picking and shipping errors.

•  increased sales.

• reduced buffer inventories.

Any one of these benefits is worth pursuing, but when U.P.C. numbering, bar code and EC/EDI are implemented throughout an industry, individual members of that industry can achieve meaningful gains in all of them and help entire industries remain competitive!

2.3  Industry Benefits

Manufacturers, distributors and retailers conduct thousands of business transactions every day. Many of these transactions involve the communication of item numbers and quantities. Most transactions start out as handwritten documents, followed by a phone conversation or computer generated report which is ultimately FAXed or mailed to a trading partner.

In many cases, products pass through the entire distribution channel without being changed at all, so translating to proprietary item numbers is an unnecessary and error–inducing step. A bird’s eye view of the relationships between trading partner looks like this:

Bird’s Eye View of Trading Partner Material and Information Flow

Instead of using proprietary item numbers requiring multiple translations, retailers, distributors and manufacturers can use standard numbering systems and bar code, EC and/or EDI to record sales, receive merchandise, place orders, count inventories, verify shipments, and record storage locations. As unnecessary costs associated with using proprietary numbering schemes are removed from the distribution pipeline, entire industries become more competitive.

With improved accuracy and timeliness of POS data, retailers can control their inventory better, increasing sales by stocking the proper merchandise and reducing unplanned mark–downs. Using bar code to track work in progress helps manufacturers identify production bottlenecks and improve deliveries while reducing inventory carrying costs. Distributors using bar code and U.P.C. numbers can improve inventory accuracy, on-time fill rates and reduce inventory carrying costs.

2.4  Final Thoughts on the Benefits of Bar Code

Tracing the actual benefits of using bar code instead of manual data collection systems is true detective work. It takes time but it can be very rewarding because it can improve sales, improve gross margins and reduce overhead.

Companies using the EAN.UCC System and bar code are not pioneers. Fortunately, each of these communication technologies has already been tested and implemented successfully in many industries.

3.  The EAN.UCC System

3.1  Introduction

People and organizations communicate better when they both use the same words and numbering systems. In language, standard words are defined in the dictionary. For measurement, the metric system is an international standard. The EAN.UCC System is an internationally accepted method of identifying products, serializing shipping containers and clearly communicating other important business transaction data such as purchase order numbers, expiration dates, lot numbers, etc. in a standard, machine readable (bar code) format.

The EAN.UCC System has been used since 1974 in the food industry but nothing about it makes it appropriate only for food items or only for retailers. In fact, the EAN.UCC System was originally conceived and developed by members of the electrical products industry for use between manufacturers and distributors. In the United States alone, over 95,000 manufacturers of everything including industrial, general merchandise, food and of course hobby products, are using this product numbering system.

Understanding the concepts of the EAN.UCC System is important to the success of the compliance labeling project, so take your time reading and digesting this chapter before going on to the rest of the book.

This chapter is organized into the following sections:

• Overview of the EAN.UCC System
• UCC-12 (U.P.C.) and Consumer Units
• EAN/UCC-14 and Intermediate Packs
• SSCC and Carton Serial Numbers
• Product ID versus Shipping Labels
• UCC/EAN-128 and Secondary Information
• Getting a UCC Company Prefix from the UCC
• Summary of the EAN.UCC System

3.2  Overview of the EAN.UCC System

The objective of the EAN.UCC System  is to improve communication between trading partners by establishing a precise but flexible method of uniquely identifying products and package quantity in both human readable and machine readable formats. To accomplish this objective, the EAN.UCC System defines:

• There are rules for assigning Item Reference numbers to individual items, called consumer units in EAN.UCC terms. A consumer unit is the lowest saleable unit of sale for a specific product. A single 12 oz. bottle of aquarium cleaner, a 1 liter bottle of the same product and a 2 liter bottle of the same product are three different consumer units and would each get a different Item Reference number. The Item Reference numbers assigned to "consumer units" are all numeric and the length is determined by the Company Prefix that precedes it. The rules for assigning them are explained later in this chapter under the section titled UCC-12 (U.P.C.) and Consumer Units.
• There are also rules for assigning Item Reference numbers to intermediate packs and shipping containers of consumer units. When identical consumer units are packaged into standard quantities of intermediate packs or shipping containers, the General EAN/UCC Specification specifies that they should be assigned a new, 14 digit number. Cases containing four 1 liter bottles would be assigned a different 14 digit number than cases containing eight 1 liter bottles of the same product. The rules for assigning these 14 digit numbers are explained later in this chapter in the section titled EAN/UCC-14 and Intermediate Packs.
• There are also rules for assigning unique serial numbers to cartons and shipping containers, like the Package Identification Number (PIN) assigned by common carriers. This system is used in conjunction with EDI (Electronic Data Interchange) to tie the container or pallet to a specific purchase order number. The rules for assigning these are explained later in this chapter in the section titled SSCC and Carton Serial Numbers.
• There are also rules for communicating secondary information such as purchase order numbers, batch numbers, lot numbers, expiration numbers, and other types of data commonly communicated between trading partners. The format for these numbers varies, i.e. not always a specific number of digits, but the rules are precise and allow the information to be encoded in a bar code for fast and accurate data entry. The rules for assigning these numbers are explained later in this chapter in the section titled EAN/UCC-14 and Secondary Information.

3.8  Getting a Manufacturer’s ID number from the UCC

When a UCC number is needed (whether the company manufactures or packages a product), companies should contact the Uniform Code Council (UCC) to get a Manufacturer’s ID number. The UCC assigns Manufacturer’s ID numbers and maintains a data base assuring that no other company is assigned the same number. Applicants should contact the UCC and request an application form. Their address and phone number is shown below:

Uniform Code Council
1-800-543-8137
web: http://www.uc-council.org

e-mail: info@uc-council.org

5.  CHA Standard Forms Requirements

The forms that follow are intended to provide a template for forms used between trading partners.  The content and layout of these forms represent the minimum acceptable for common usage. The model is shown with field designations; i.e. Field 1, Field 2… The fields are explained in the following section. The forms provided are: Purchase Order, Packing list / Manifest, Invoice.

6.  Electronic Data Interchange (EDI)

For companies using Electronic Commerce, a minimum set of transactions and data elements are required; they are as follows:

6.1  Minimum Transaction Set

The table below identifies primary transactions necessary for product flow throughout the channel of distribution.   The key letters in column one are used in the table that follows. The number in the EDI column refers to the ANSI X.12 transaction set designation. Be sure to use the latest ANSI X.12 revision level which will be 4.1 or higher. Revision 4.1 (sometimes called 4010) is year 2000 compliant.

6.3  Electronic Commerce Implementation

Implementing Electronic Commerce requires commitment among all of the trading partners involved.  At minimum, a common method of identifying key data elements, such as product identification, is needed.  Furthermore a common method of exchanging information must be adopted.  Use of the UCC coding standard to identify an entity, products and other critical data elements provides a common method of identifying key data elements.  Adopting ANSI X12 (latest revision 4.1 or higher) EDI provides a common method for information exchange.

6.3.1  Interface with Channel Partners

Agree on common methods for identifying products flowing through the channel.  Using the UCC/U.P.C. coding of products as the method for common item identification with cross referencing to existing catalog identification.  Manufacturers need to obtain a UCC supplier’s identification number.  This will uniquely identify each supplier for all channel integration transactions.  Each manufacturer will need to assign a unique, five digit, U. P. C. item number to each different product.  The combined manufacturer’s number and product identification number will provide unique data elements for processing through the distribution channels.

Agree on a common method for information exchange.  Use of ANSI X12 (latest revision 4.1 or higher) EDI will provide a common platform for information exchange.

6.3.2  Selection of Communications Channel

A number of basic systems for electronic communications are available.  Selection of a specific method depends on the existing system configuration, trading partner requirements, implementation cost, operating cost and many other factors.  The basic methods include:

Direct Communications a direct line connecting each trading partner. This can be dial up or via the Internet.

Value Added Network (VAN) a third party that supplies technology to provide users with virtual direct connection with trading partners.

Intelligent Mailbox a third party provider of secure electronic mailboxes for communications with trading partners.

6.3.3  EDI Application Selection

An applications interface is needed to provide translation of data from the applications into an out of the standard format for information exchange.  Depending on the system(s) in use, this may require some degree of custom software development.