Source Tagging: Profit Opportunity or Unnecessary Expense?

For products that have a high value on the street, such as over-the-counter (OTC) pharmaceuticals, health and beauty products, and medical devices, the financial consequences of theft can threaten retailers' profitability. They therefore must find ways to minimize theft, but some of their solutions—placing items behind service counters or in locked cases—can actually result in fewer sales.

Applying electronic article surveillance (EAS) tags to product packages can help retailers minimize theft without minimizing sales. When shoplifters remove tagged products from the store, the tags alert retailers to the theft. And if product manufacturers or packagers apply the tags themselves—a process known as source tagging—they can further increase the tags' effectiveness.

Source tagging is the most effective and efficient way to minimize theft for several reasons. First, the application of such tags can be automated with packaging machinery that incorporates tag insertion into other operations, such as product filling, cartoning, and labeling. Such automated tagging eliminates the labor costs associated with retail hand tagging. Second, because the tags are integrated into the packaging, either by being placed directly into the package before carton sealing, by being placed under labeling, or by acting as packaging components themselves, they are not as vulnerable to deactivation as are tags that are placed on the outside of packaging. Also, the source tags don't obscure any graphics, instructions, or other pertinent information, and therefore maintain the package's shelf presence. Finally, source taggers can significantly lower unit tag costs by applying them to fewer than 100% of the packages.

Because of these benefits, many retailers are demanding that OTC product manufacturers supply them with source-tagged products.

Unfortunately, the use of source tags can be complicated by another factor. Different retailers use different EAS technologies, such as radio-frequency, electromagnetic, and acoustomagnetic devices. Each technology presents specific problems in tag applications, and their combined presence requires separate stock-keeping unit designations.

But these problems shouldn't deter a supplier from source tagging. OTC product suppliers can work with packaging vendors and consultants versed in source tagging, develop relationships with EAS suppliers, and combine packaging and distribution operations to minimize the need for multiple inventories. Nonpackaging solutions available to suppliers include collaborative forecasting and cost negotiating with retail merchandising representatives and redesigning the packaging of introductory items.

Despite the challenges associated with source tagging, the rewards are great for suppliers. Effectively tagged products can increase sales and profits for both supplier and retailer.

Bender is also retail and supply chain practice manager of Soza International (Fairfax, VA). For more information about STI, call 703/836-4090.