Retail Mandate for RFID

Prepared by Supply Insight Inc.

Document Revision: 1.0
Release Date: April 20, 2006
Written by: Supply Insight Inc.

Overview

Radio Frequency Identification (RFID) is a data collection technology that uses electronic tags to store the identified information and a wireless reader device to capture and transmit the stored information. The RFID tag is a thin, low cost, wireless device that is capable of transmitting and receiving data. It consists of a computer chip and antenna that can be powered or un-powered, with capabilities ranging from a simple unique license plate to encryption, memory, and read/write. It works with a wireless radio frequency reader that relays the tag information to the management systems.

The important point to be noted is that the data required in the EPC tag is based on EAN.UCC GTIN (Global Trade Item Number) or SSCC (Serial Shipment Container Code) which are the codes contained in bar codes on shipping labels. Notably, bar codes introduce human errors, can encode only limited static data, and do not offer read/write capability and cannot read multiple codes. Scanning bar codes generates periodic and single data packet transactions, while the RFID, by virtue of its simultaneous identification, generates more data in a short period of time that can be managed prior to presenting the data to an existing business application.

Source: Atkearney RFID Presentation

RFID has been utilized by companies for many years, but has been receiving attention in retailing only after Wal-Mart and U.S DoD (Department of Defense) mandated the use of RFID to their suppliers to improve the efficiency of their supply chains. RFID has become the milestone in retail industry thanks to the efforts from Wal-Mart and a host of subsequent mandates from other retailers.

Retail Mandate for RFID Applications

The essentials for any successful retailer are: buy at the best price, promote and merchandise to expectations, lower costs in the store, and quick and efficient check out for the customers. With RFID technology, retailers can synchronize all the basic essentials and automate critical store functions:

• control inventory flow
  
• combine in-store and back office virtually to enhance productivity
  
• track customer purchases
  
• control back office and retail floor simultaneously
  
• inventory and price checks on floor
  

Source: Atkearney RFID Presentation

Some of the recognized retail chains like Wal-Mart, Target, Best Buy, Tesco and Metro are testing RFID technology with pilot projects already starting to show tangible benefits in terms of reduced inventory and out-of-stock conditions.

As RFID becomes better understood (how the tags and readers work, where to place the antennas/readers, how to physically lay the RFID system, and its effects on data operations), more retailers and suppliers have started using it to solve many of the problems by providing visibility into the supply chain by the automatic recording of all inbound stock and easier identification and retrieval of stock in the market. Staff motivation, management awareness, packaging, inventory control, and accuracy are the vital roles of RFID in the industry.

RFID benefits across the supply chain for any retailer can be described as:

• Labor efficiency: Reduced cycle counting, manual recording and bar code scanning
  
• OOS (Out Of Stock) Management: Pallets and cases being tagged help in efficient tracking of goods within stores, thus saving time when goods are in-house but not available to customers
  
• Inventory management: Tags will track the case and pallet throughout the warehouse and distribution systems
  
• Receiving shipping accurately
  
• Reduced Claims, Diversion: reduce un-warranted claims and processing costs, goods with expiration dates can be moved quickly reducing need for write-offs due to spoilage
  
• Product Recall Management
  
• Reduced shrinkage, improved dock and truck utilization, improved product traceability, precise recall capability
  

Retailers are keen on using RFID to reduce out-of-stock and shrinkage due to theft, damage, expiration of perishable items, etc. RFID in item-level tagging directly contributes to business by reducing costs and increasing sales.

The cost reduction due to automation, reduced shrinkage, better stock management, and reduced time to market are the main drivers in the adoption of RFID in retail sector. Implementing the item level tagging in the retail sector helps manage high stock-out items like edition books, souvenirs, fashion accessories, etc. In any retail industry, the stock-outs affect major sales where they can lead not only to a one-time loss of sale but also loss of customers who switch to competitors. Tagged items make it easy to locate the items and deliver prompt service to the customer.

Some examples of companies are and will continue to benefit from RFID are:

Wal-Mart: Live in 104 Wal-Mart stores, 36 Sam's Clubs and 3 distribution centers in Texas, the customers have been able to find goods on the shelf up to sixteen percent more often than before, after RFID was introduced into Electronic Product Code (EPC) tagging, according to a study conducted by University of Arkansas. Out-of-Stock items were replenished three times faster than comparable items using standard bar code after RFID technology was introduced into Wal-Mart.

Basically, Wal-Mart demands that its suppliers tag all products right from carton or case level, as well as pallets coming into the distribution center. With a hundred percent read reliability for a pallet shipped through a distribution center dock door, the next major performance enhancement is moving goods on a conveyer belt with equal accuracy in readability regardless of the goods type.

According to Lee Scott, president and CEO of Wal-Mart, RFID helps improve the visibility of the supply chain, reduces inventory costs, eliminates manual scanning at the pallet-level, saves billions in labor, reduces shrinkage and helps in better administration. CIO Linda Dillman states that hundreds of suppliers have begun sending RFID tagged freight and devoting extensive efforts to RFID technology.

Target: After completing a year long testing of RFID with a small group of suppliers for case and pallet level tagging in Texas, Target is now considering implementing RFID for its imported goods after using RFID in its supply chain.

Best Buy: Following in the footsteps of Wal-Mart and Target, Best Buy has also issued a mandate to its major suppliers to use EPC (Electronic Product Code) compliant RFID tags on their shipments (all cases and pallets) to increase its supply chain efficiency. Best Buy also plans to test RFID in select stores and distribution centers to increase the velocity of the supply chain by moving the products more efficiently and faster.

Gillette: Has operational cost savings in excess twenty percent per distribution center. With improved product availability on retailer’s shelves, Gillette estimates an over twenty percent return on investment.

Walgreens: Operating a chain of drug stores, Walgreens will also be implementing an RFID based tracking solution for its in-house product displays.

Tesco: Is promoting the pilot studies of RFID tagging at its suppliers end.

Rewe: Following the example of Wal-Mart, Target, Best Buy, Metro and other retailers, the German retailer Rewe will be testing RFID at one of its distribution center with pallet level tagging for about 30 of its suppliers.

The future of logistics for all these companies will be driven by RFID that will help retailers and suppliers to track goods throughout the supply chain. Better marketing of the technology has been an effective driver in the market as more retailers and suppliers move towards equipping their stores and distribution centers with RFID.

Retailer Costs and Benefits Source: Atkearney Retail RFID Mandate

The benefits of RFID-enabled applications to a retailer, supplier, manufacturer, distributor or a pharmacy are: track and trace system built on AIDC (Automatic Identification and Data Collection) technology, which is extremely valuable in asset tracking to prevent theft and loss of high value products. The tagging of high-value goods, promotional products, and new products can help the retailers work with suppliers in tagging and tracking the relevant individual items, ensuring they are in-store during promotional events. For non-saleable assets, retailers can improve the compliance by ensuring that displays are in the right place at the right time to give the customer a value in impact.

About Supply Insight, Inc.

Supply Insight is an RFID software and services company that helps its customer realize business benefits through strategic adoption of this cutting edge technology.  Supply Insight offers a distributed RFID framework and a wide range of industry solutions to generate a faster return on its customers’ investment.  Supply Insight is a privately held company located in Hamden, Connecticut, USA. 
Learn more about us at www.supplyinsight.com.
Corporate Headquarters:
Supply Insight Inc., 157 Carr Avenue Newington, CT 06111 USA
Phone: 203-281-RFID (7343)    Fax: 877-282-4646.
Email:    Sales: sales@supplyinsight.com
                Info: info@supplyinsight.com
                Support: support@supplyinsight.com