One of the most ambitious, yet rigorous systems for tracking products in the supply chain is being developed in Russia. It is called Chestny ZNAK and is based on Data Matrix codes – a type of 2D code. We explain what this system is all about and what companies planning to export products to the Russian market should know.

Data Matrix is a type of 2D code with a relatively high information capacity. They are used, among others, to monitor the circulation of products, fight against counterfeits, and for marketing purposes, e.g. they allow to eliminate costly intermediation in loyalty programs.

Data Matrix codes are similar to QR codes in many ways, but have two significant advantages over them:

• Data Matrix standard allows more data to be stored in less space and
• has a higher error correction rate, which means that even a damaged Data Matrix code is easier for the scanner to read than a QR code.

Marking with Data Matrix technology is used in various industries: from pharmaceutical, through footwear to tobacco. The standard is known virtually worldwide, but has recently gained particular popularity in Russia where it is used under the Chestny ZNAK system. It requires economic operators, including manufacturers and importers, to mark goods in certain categories with 2D codes.

This is important information for companies that plan to expand to the East and consider exporting products to the Russian market.

What product categories are subject to 2D code marking under the Chestny ZNAK system?

Chestny ZNAK (Russian: sign of honesty, reliability) is one of the world's most ambitious supply chain monitoring systems based on Data Matrix codes. It was introduced by virtue of the law signed by President Vladimir Putin on December 29, 2017. The obligation to mark certain product categories came into force on July 1, 2019 and is gradually being extended to other groups of goods.

The mechanism is still in the process of implementation and is expected to be completed in 2024. As intended, it aims to improve quality control, protect brands and consumers from counterfeits, and facilitate the monitoring of supply and demand. Chestny ZNAK places high demands on manufacturers and traders. Sooner or later most companies exporting to Russia will encounter it, as the system covers a very broad spectrum of goods.

Currently, ten product categories are being marked under the Chestny ZNAK system:

• medications,
• fur products,
• bottled drinking water,
• tires,
• tobacco products,
• dairy products,
• light industry products,
• perfume,
• cameras and
• flashlights.

Additionally, four product categories are in the experimental phase:

• dietary supplements,
• beer and beer drinks,
• wheelchairs,
• bikes.

This means that specific parameters, technical specifications and dates for the inclusion of a given category of products in the obligation to be marked with 2D codes under the Chestny ZNAK system are to be determined after arrangements with industry representatives, distributors, market regulators and the system operator – Center for Research in Perspective Technologies (CRPT), an organization operating in the mode of public-private partnership (51 percent of shares in CRPT is held by the USM group, a Russian holding operating in the telecommunications, Internet and mining industries).

A similar experimental path must be followed by every industry whose products have been submitted for digital tagging with Data Matrix codes. This is to enable optimal solutions to be developed to the satisfaction of manufacturers and other supply chain stakeholders.

Main principles of the Chestny ZNAK system

The requirements of the Chestny ZNAK system vary by product category, for example in terms of marking instructions. However, the basic principles and components of the system are common to all industries and types of goods:

• serialization (assigning a unique serial number associated with product information),
• aggregation (associating serial numbers of individual products with the numbers of collective packagings and larger units and stages in the supply chain),
• traceability of individual products and entire batches,
• application of Data Matrix codes,
• electronic reporting,
• electronic records.

What information does the Data Matrix code contain?

Products subject to the Chestny ZNAK system must be marked with Data Matrix codes containing an 85-character alphanumeric string that includes at least four categories of information:

• GTIN (Global Trade Item Number),
• serial number,
• verification key,
• crypto code.

In addition, the owner of the goods must prepare a Universal Transfer Document (UTP) when they take possession of the product and send it to CRPT.

How to obtain 2D codes within the Chestny ZNAK system?

Detailed instructions for selected industries and goods can be found on the ChestnyZNAK.ru website (link to English version: https://chestnyznak.ru/en/). In order to obtain Data Matrix codes within the Chestny ZNAK system, you need to:

• create a personal account in the system,
• enter information on the goods into the data monitoring system,
• describe the products in the catalog of marked products,
• order the codes and then mark the goods with them.

Participation in the Chestny ZNAK system also requires the CEO or business owner to obtain an electronic signature certificate. This can be done through one of the certification centers accredited by the Russian Ministry of Communications and Media. You will also need to install the appropriate signature software provided by the certification center and then apply to register with the monitoring system.

Who is required to mark products with Data Matrix codes under the Chestny ZNAK system?

The obligation to mark products with Data Matrix codes applies to:

• production of the indicated goods on the territory of the Russian Federation,
• import of products,
• return of products by consumers when the code has been removed or destroyed,
• acceptance of goods for commission sale from individuals.

For imports from the Eurasian Economic Union, which includes some of the post-Soviet countries and several others that participate in the free trade area, the codes must be printed before they cross the border. For imports from other countries, including Poland, the codes must be implemented before customs clearance procedures begin.

What is the mechanism of the Chestny ZNAK system?

The mechanism of the Chestny ZNAK system can be divided into five stages.

Stage 1

A CRPT-authorized economic agent, a manufacturer, wholesaler, retailer, or importer registered in the Chestny ZNAK system, submits a request for codes. CRPT sends the petitioner unique codes for each product. The codes must be placed on the packaging. In this way, the product is entered into the register of marked products of the Chestny ZNAK system.

Stage 2

The 2D code becomes the product's non-editable passport for its "journey" through the supply chain. Any change in product owner/keeper must be recorded in the register.

Stage 3

When the product arrives at its destination, the recipient scans the product. Confirmation of the product transfer goes into the Chestny ZNAK system, and then it can be released or sold to the customer.

Stage 4

The vendor or entity dispensing the product must have a cash register connected to the Internet with the appropriate software installed. The device comes standard with a touch screen, 2D code scanner, payment card scanner and printer. When a product is scanned while it is being dispensed/sold, the cash register sends a notification to the Chestny ZNAK system that "the code has gone out of circulation". If the scanned data does not match the data from the register of marked products, it means that the product is counterfeit or otherwise not compliant with the system requirements and cannot be sold.

Stage 5

The final step rests with the consumer. The end consumer, using the Chestny ZNAK application, scans the Data Matrix code located on the package, thus checking the authenticity of the product and gaining access to a range of information about it (e.g. related to its composition or place of origin). If the application displays a message about a discrepancy between the information recorded in the 2D code and the data in the register, e.g. due to product adulteration, the customer can report the problem directly to the CRPT.

Why implement Data Matrix codes and how to expand their use?

Regulations related to the Chestny ZNAK system are very strict, and Russian authorities enforce them with the utmost rigor. Companies that commit violations face heavy fines and may even be prevented from doing business in Russia. In turn, individuals responsible for violating the law can be sentenced to jail time. It doesn't sound appealing, but the temptation to enter one of the largest markets in the world can effectively mitigate concerns about restrictive laws.

The implementation of Data Matrix codes, not only within the Chestny ZNAK system, is supported by another strong argument. 2D codes are great for marketing efforts and provide effective sales support. Above all, they enable the creation of loyalty programmes at a relatively low cost, as they eliminate the need for intermediary suppliers of such services. Thanks to Data Matrix codes and the app, a manufacturer can reach end customers directly, for example with special offers or discounts.

Such application of 2D codes:

• contributes to customer loyalty and retention,
• provides access to precise sales data,
• allows you to better analyze consumer trends,
• allows you to reach your audience more effectively,
• allows you to reduce the risk of "competition" from counterfeiters,
• and even create effective incentive programs for salespeople representing the brand. The result of these actions is an increase in sales and company turnover.

At KISS digital we have developed our own system to support Data Matrix codes

The use of Data Matrix codes for marketing and sales purposes is still a niche phenomenon. As KISS digital, we pioneered this area in cooperation with Olimp Labs for which we developed our own application supporting the loyalty programme - Olimp Premium Club. This solution is designed for people who care about their health and use dietary supplements. Using the mobile application, they can scan 2D codes unique for each Olimp Labs product and add points to their account in the system. The points can then be exchanged for prizes, which helps to attach customers to the brand and build its positive image.

If you are considering implementation of Data Matrix codes or extending their use, need a dedicated system for this purpose or simply want to discuss the possibilities offered by 2D Codes, contact us – we will be happy to help you!

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