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RFID : not when but how
Retailers are no longer sitting on the fence over Radio Frequency Identification (RFID). Although further standards have yet to be ratified, tag costs remain too high for some, and the business case is still uncertain for many supply chain partners, the size of the prize and the benefits coming out of pilots right now are too big to ignore any longer.
The proof is already out there – the ability to track and trace products through the supply chain, from manufacturer to sales outlet and from there to customer (and even back again) is one of the best solutions to the challenges facing retailers looking to cut costs, protect or raise margins, and improve customer service.
The figures speak for themselves : margins up 1.3%, costs down 5-10%, inventory in supply chain down 5-20% and asset turnover up 5-15%. The goal is focused on the business bottom line: the empowered store with 24/7 visibility of supply chain and customers needs.
Hotly debated for the last 18 months, now is the time to confront the technical and logistical challenges that will have to be faced in order to achieve these benefits.
No one said it would be easy
METRO is the third largest retailer in the world and, with 2,400 locations in 30 countries, hundreds of thousands of SKUs across food and general merchandise, it faces more challenges than most retailers. And yet it is an RFID pioneer and one that is already seeing major benefits come through in trials. With the opening of its RFID Innovation Center in Neuss, Germany, METRO and its partners in the consumer goods industry are technical innovators in both trade and retail.
Christopher Boone, senior analyst for IDC and author of a report on METRO Group's Future Store, has said, “METRO AG definitely has a vision. The retailer had the courage to take the risks. A lot of retailers are playing a wait-and-see game. METRO AG has an advantage – it will be able to act quickly and can start rolling out new technologies on a broader scale.”
Other pioneers, notably Wal-Mart, Marks & Spencer and Tesco are all heavily committed to pilots as the ideal route to broader implementation. They are addressing the hurdles with practical and pragmatic solutions, particularly in the area of standards, which are critical, because they lead to lower costs and provide the mechanism for broad adoption. However, they are not holding things up. The business case is so strong that these pioneers are prepared to adopt multiple standards plus their own to get things done, knowing they can adjust once further global standards are ratified by EPCglobal.
These companies have chosen wisely to start small, generally within a single distribution centre or store, and with no more than a handful of suppliers and partners, in order to get quick wins that can then be promoted across the business. They have all found that the business case for RFID is most definitely there for a majority of the projects that are currently underway.
Network issues
The pioneers also recognise that RFID, more than tags, readers and standards, is about data – large volumes of data, residing on multiple platforms and demanded by multiple users in multiple locations. It is the network and its ability to scale quickly that will be the source of competitive advantage for retailers that start to roll out advanced bar codes.
The degree of intelligence in the network is not just important for reader connectivity but also for managing the applications that reside on the edge of the network i.e EPC XML message routing which supports ”real time” and close to real time supply chain deployments in retail stores or warehouses.
Duncan Brown, UK Consulting Director for IDC and author of a new report, “Planning for Proliferation: The Impact of RFID on the Network” says, “RFID system expansion is inevitable, as proliferation throughout the supply chain is a core premise for the realisation of system benefits. It is important for organisations to consider the impact on network infrastructure at the beginning of RFID rollout, and to build in scalability from the start. Adjusting the network design retrospectively will be complex and expensive.”
The network will also have to operate more intelligently by filtering a tremendous amount of non-essential RFID data as close to the source as possible, so that it is invisible to applications and will not overwhelm the system. Retailers can minimise their total cost of ownership by selecting networks that provide interoperability and device management in a converged, secure network that supports voice, video, and data as well as RFID traffic.
Benefits lead to more benefits
In addition to measurable and deliverable benefits in the short term, RFID will, over time, enable retailers to rethink the way they interact with customers and suppliers, because all information is known and certain. RFID will provide retailers with an insight into their customers’ shopping habits that can be used to provide further service, stocking and replenishment benefits.
Start now
The pundits still debate when RFID will be implemented widely, suggesting we are 5-10 years away from mass adoption. However, retailers are getting big benefits right now and there is talk of the emergence of a race of haves and have nots, with the haves achieving benefits that will widen the gap between market leaders and slow adopters.
There is also a much clearer road map towards broad RFID adoption. This generally is seeing retailers and manufacturers implement systems for tracking and tracing products, often in response to legislation such as bio-terrorism, which requires companies to demonstrate item visibility from manufacture all the way through to the shelf. While some of these end-to-end processes are not yet RFID-enabled, it is the intention of the players to add intelligent bar codes later on, to hike the benefits and strip costs out of the supply chain. 08/2005
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