RFID Strategy -- Mixed Signals From Retail

Nov. 14, 2005
Several significant developments have occurred in the RFID community this fall. On the plus side, Gillette and Wal-Mart reported optimistic news detailing real and anticipated savings due to their pioneering RFID efforts. Avery Dennison announced a ...

Several significant developments have occurred in the RFID community this fall.

On the plus side, Gillette and Wal-Mart reported optimistic news detailing real and anticipated savings due to their pioneering RFID efforts. Avery Dennison announced a price point of 7.9¢ per Gen 2 inlay for large volume orders. And EPC Global ratified the long-awaited Application Level Events software standard.

On the negative side, industry analyst AMR Research published a study casting doubt on the ability of most retail supply chains to recoup the costs of an enterprise-wide rollout of RFID technology.

The mood of attendees at our most recent Tompkins Emerging Technology Center tour reflected this mix of excitement tempered by skepticism. The tour group consisted of 60 senior managers and executives from top retail and consumer products companies. Their primary focus was participation in the Supply Chain Best Practices Consortium, but as usual, RFID installation caught the attention of the tour group. A good deal of eager discussion about trends in RFID equipment followed, but each conversation concluded with the words, "We see RFID primarily in terms of cost right now."

Where Are We Going?

One interesting result from a recent survey on RFID usage clearly illustrates this dichotomy between optimism and pessimism. In a benchmarking and best practices survey, all respondents who reported use of RFID said that they read tags in manufacturing plants, warehouse receipts and store receipts -- exactly the places necessary for a minimum-cost compliance initiative.

When asked where they planned to read tags in three to five years, survey respondents said they would use them to perform distribution inventory counts and would read them during each-picks and case-picks within the distribution center. Therefore, the industry still seems quite optimistic about the degree to which RFID tags will become ubiquitous and integrate into their daily operations.

Positive Retail News

Wal-Mart is, of course, the lead retail company in implementing RFID technology. Their experience is giving hope to the optimistic. Wal-Mart recently reported that RFID tags have reduced their out-of-stocks merchandise by 16% at 12 pilot stores as measured against 12 non-pilot stores. They also claimed that the pilot stores were three times more effective in replenishing out-of-stock items than the baseline stores.

Among consumer products companies, Gillette has had very positive experiences in implementing RFID. At the recent EPC Global conference, Gillette reported that they would be able to show an RFID return on investment of 25% or more over the next ten years. This is really an attention-grabbing number, given that the bulk of the industry is still experiencing RFID as net cost to operations.

Is there something other than depth of experience that explains the success of Wal-Mart and Gillette? If you dig into the details of their public statements, a common theme emerges. The RFID initiative became a function forcing the entire organization to get focused on supply chain efficiency. In the case of Wal-Mart, the RFID project began with the goal of increasing accuracy at the store level -- so the store managers and employees responded.

At Gillette, the RFID initiative initially focused on the four-walls operations, but then it evolved to cover the entire supply chain from factory to consumer. At both companies, RFID provided crucial measurements at places in the supply chain that weren't measured before! In turn, these measurements gave them the tools to focus employee activities and improve processes, thus resulting in cost savings.

Supply Chain Focus Boosts RFID

Exciting new advances in RFID technology, coupled with cost reduction of tags, continue to stoke optimism within the industry. A close analysis of the reported data shows, however, that the long-term potential of RFID tags to provide automated data collection has not been the key to progress thus far. Instead, cost savings have been realized by focusing the organization on supply chain efficiency and using RFID tags as one way to support measurements where they had not been considered before.

Companies that simply added RFID tagging to their existing processes will inevitably experience RFID only as pure cost. For Wal-Mart and Gillette, the cost savings came from the process re-design. RFID's future depends, in a large part, upon an organization's drive for supply chain efficiency and how it involves its processes and people.

Paul Faber is a principal with Raleigh, N.C.-based Tompkins Associates, a supply-chain-solutions consulting firm. As the chief manager of RFID equipment implementation at Tompkins Emerging Technology Center, Paul possesses extensive experience in material handling solutions, systems integration, and installation. He has managed field integration and operations activities at material handling sites around the world.

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