February 16, 2007
Does RFID Have Issues?
From some viewpoints, it’s been pretty much all good on the radio frequency identification (RFID) front as retailers such as Metro in Germany and Wal-Mart here in the U.S. have reported impressive results from the use of the technology.
A report in The Wall Street Journal, however, says all is not well in RFID land as suppliers continue to express concerns about the investment in the technology while pointing to less than satisfying returns.
The retailer, according to the Journal, had planned to have 12 of its distribution centers using RFID by January 2006. To date, the technology is in place at five of the DCs along with 1,000 stores.
The chain did not reply to the question of whether the technology was leading to cost savings but continued to point to better shelf management and improvements in inventory replenishment as the benefits it has seen from the implementation of RFID.
The controversy surrounding the use of RFID does not appear to be a question of whether the technology works or that it provides certain benefits to all participants in the supply chain. The question that appears to be increasingly asked is if it is the right technology and whether another might achieve the same or better results without the expense and effort involved.
Most suppliers have been reluctant to speak over concerns it may harm business relations with large customers, such as Wal-Mart, Target, Best Buy and Albertsons, that are in various stages of RFID testing.
“Do you want to risk the business by not being in the game?” Howard Stockdale, Beaver Street Fisheries’ chief information officer, rhetorically asked the Journal.
Last summer, VF Corp., makers of Wrangler and Nautica clothing, decided to pull back on RFID investments. “We’ll let others drive the technology,” said Martin Schneider, VF’s global chief information officer.
The slower than expected pace of Wal-Mart’s program has identified some roadblocks to RFID implementation with less than satisfactory answers in specific cases.
A continuing issue remains the cost of retrofitting warehoused and stores to make them RFID enable. There is the remaining concern over bringing RFID down to the item level for two primary reasons: 1) The public relations aspect dealing with privacy concerns and 2) the cost of tags for lower-cost items such as many CPG items doesn’t seem to pass the cost/benefit analysis.
David Donnan, a manufacturing consultant and former president of radio-frequency-device maker CheckPoint Systems Inc., said most companies working with RFID today are not looking to stop testing. Instead, “they’ll say, ‘Go slower.’”
Discussion Questions: The issues raised in The Wall Street Journal article are not new, but they have been repeated for a number of years now. How “slow” should trading partners be proceeding with RFID projects if that is the prudent course to take? Are there other technologies that would achieve similar results to those predicted for RFID without the apparent hassle (cost and implementation) involved?
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In the early 1990s Wal-Mart and IBM partnered to bring RFID to life. Millions were spent before the project was dropped. So this is the second time around for Wal-Mart. Some technologies prove quick payback. Some take a while. Some never pay for themselves. Think of all the shelfware in the world. RFID, for most retailers, isn’t much better than bar codes. So why push it?
Count me as another member of the “I told you so” camp. What a waste of energy! Wal-Mart had the chance to work on its merchandising mix and focus on localized assortments. Instead it spent 3 years and its vendors’ money seeking cost reductions from an immature technology where standards hadn’t been set and no real applications had been written. There’s an old rule in retailing: you cannot ‘expense reduce’ your way to long-term profitability.
Look at the results. Comp sales down. Turnover across the organization. Marketing message thrashing. Time lost. Good will lost. And for what?
There are interesting applications for RFID. I personally don’t see carton and pallet tagging as one of them. Asset tracking, merchandise provenance, and someday, the ability to cycle count stores the way warehouses are cycle counted with bar code are interesting. It’s all about high value merchandise. Not containers of peas or Tide.
It wasn’t easy to say these things when the tide of RFID was rising (oops–there goes a pun). Now, it’s kind of fun to say “I told you so.” There are fundamental rules to retailing success. RFID on cases and pallets doesn’t change those rules.
One of the key benefits using RFI was the expected major reductions in shipment invoice deductions–40% of shipments had invoice deductions that cost the manufacturers $250 dollars/incident-that was part of MIT’s original value proposition. The initial tests on paper products worked but the technology failed on liquids and metals–we could get into finger pointing but whatever….
But, I remember the kick-off meeting Wal-Mart had in Bentonville, the overflow crowd into the hallway, the manufacturers were not treated so well in my opinion…that was not so good.
But in the “I told you so category,” I remember telling a gung ho analyst from a leading firm something months later I thought was kind of funny; in a play off of Yogi’s line I said: “RFID is so popular, no one’s going there any more.” I remember the early days of the Internet, the vibe at Interop; the vibe in early supply chain days…and that vibe was totally missing that day in Bentonville.
Why does our industry insist on proceeding with technology initiatives before they have done the hard work of Cost and Benefit analysis? You just can’t get this stuff right until you understand what it costs and how you get return. That also should guide any standards development. It’s a story we hear over and over again. Happened with Global Data Synchronization Network–no ROI. It happened with ECR–$30B in cost reduction out there boys and girls. Go get it. But, what has to be done to get it, and how much do you really get for that effort? The industry repeatedly sees an opportunity for improvement then jumps straight to implementing a solution without taking all the necessary steps in between.
Many of the benefits claimed by retailers are more due to a “Hawthorn” effect than to actual benefits. Parallel with the RFID investment, employees do more because they know their performance is being tracked.
The data generated by RFID will be more overwhelming than what scanner data was to retailers and manufacturers in the late 1980s. Best to wait for computer and software capacities to ramp up to handle the database before trying to build the application.
The advantages of RFID are overwhelming for retailers. But over ambitious plans will linger as the early adoption hiccups run their course.
It is always better to install a new technology in a contained environment. Wal-Mart’s plan involves hundreds of trading partners and many locations. All innovative retailers should experimenting with RFID, but on a much more limited scale. Try it out in a controlled test on a measurable business problem: shelfing systems, dressing rooms, high pilferage items, shopping carts, fixtures, pallets, etc. You’ll learn for yourself the pitfalls, the true costs and reaction from your customers, suppliers, and employees. These lessons will be priceless in the coming rollout of RFID.
Beyond the hype of RFID it is good to go slow. But it also good to go.
The buzz on RFID started in 2003 and really took off when Wal-Mart made the mandate to their top 100. It took off like wild fire only to fizzle when the real ROI was not found in major CPG distribution. Because a majority of the top CPG companies developed work-arounds to comply with the mandate, RFID not only didn’t save them money but they also incurred substantial cost to comply.
Consultants and others used the buzz to sell solutions and analytical studies much like Y2K. One CPG company embarked on their RFID mission after the consulting company said they had an ROI…only to find out that the study was based on 5 cent tags while they were really 97 cents. Oops!
What if Wal-Mart had not made that mandate? RFID would be years behind in development. So their vision and future-looking ideas did help to develop the technology, which still has some ways to go. RFID captures and shares information. A bar code on steroids!
Currently the technology has not matured to the point that a pallet with 80 cases of soap detergent can be read with 100% accuracy. Last report was in the 80 percent accuracy range, causing CPG companies to read the cases prior to palletizing, which increases steps and costs money. So for low end items, it’s still a long race.
Many companies that jumped on the bandwagon with prototypes have since taken the wait-and-see position. RFID has its place in asset management and will continue to develop but my guess is we are some years away from widespread adoption in the typical distribution center.
I hate to be an “I told you so” but “I told you so.”
For the record, I’m not totally jaded on the RFID question (despite all my earlier RW postings to the contrary) I just agree with Dave Donnan. There’s a good rule in technology (and life for that matter)–just because you can, doesn’t mean you should. Didn’t anyone wonder what the advantage was of bringing in product to a DC that then had to be de-palletized, scanned and then re-palletized?
Some of us get blinded by the technology and begin to adopt business processes to it rather than approaching it the other way around. We need to clearly define the business problem and then chose the best (defined in many ways from efficiency, to cost, to least disruptive) available technology to solve the problem.
None of this is to say that RFID doesn’t have a place in retailing. It is to say however that retailing has to get over the notion of a magic technological bullet that solves all problems.
VF Corp is a great example. RFID yielded a staggering amount of information about the contents of one of their shipping units–with the emphasis on staggering. There was huge cost associated with the trial system, but those costs weren’t accompanied by huge benefits to VF Corp, the retailer or the end consumer. Their decision to drop the role of pioneer is perfectly understandable.
When Ron Margulis weighs in on this development, my comment will be, “What he said.” No one is more tuned in to this technology and its retail ramifications than he.
In response to the November 3, 2003 Retailwire article: “Do RFID Tags Work Well Enough?”, by George Anderson, I wrote the following:
“RFID tags for use in the retail supply chain do NOT work any better than barcodes. The reasons are as follows:
1. Unlike all the hype, the tags are directional and must be facing the reader.
2. Tags not facing the reader do not read.
3. Any metallic or liquid surface between reader and tag will cause failure.
4. Tags inline to the reader block reading of any tags behind them.
5. Group reading of tags, such as a pallet load of cases, is limited to 50% to 80% depending on content.
6. Each and every item to be tagged must to be experimentally examined for tag placement.
7. Unrestricted and unlimited numbers of readers are not possible due to reader to reader interference, and reader to tag interference.
The general response to these limitations is that the technology is still immature, and future developments will overcome these problems. Unfortunately, the technology is ill-conceived. The same laws of physics, that prevent the reading of barcodes behind visible obstructions, are responsible for the inability to read tags obstructed by metallic and liquid objects.
While barcodes can be applied to any flat surface without any consideration of readability, RFID tags must be specifically selected and located depending on the metallic or liquid content of the item. These limitations have already resulted in the abandonment of tagging at the item level. Without the volume implied by item level tagging, the five cent tag will never materialize.
There are many justifiable applications for RFID, but replacing barcodes in the supply chain is not one of them.
Those who continue to hype RFID as the replacement for barcodes are doing all of us a disservice.”
As to the question of “I told you so!!,” I claim first prize. RFID was sold on the basis that it was better than barcode because it permitted hands-free automation for data capture, without changes to current business processes. In practice, automation failed, and hand-held readers are required just like barcode. The industry was sold a “Bill of Goods.”
Given Doc Banks’ overly generous intro, I feel compelled to provide an opinion on this topic, albeit a late one. There is real progress being made in the manufacturer–retail DC loop, but not as much at retail. Manufacturers and retailers are seeing 100 percent or near 100 percent tag read rates on unit loads and cases (although many unit loads need to carry multiple tags) up from 85% to 95% 14 months ago. The deployment of analytical tools to actually make better decisions based on the data collected is coming along, which is one of the most underreported developments of the past year. The reason why it hasn’t been widely reported is because the companies having success want to have a little competitive advantage after investing millions in the projects.
As to what course to take, the answer is totally dependent on the line of manufacturing and retailing. High-end and consumer electronics retailers and suppliers need to act more quickly than those in the discount and food channels because there is a loss prevention element that will be combined with the tracking component of RFID. Distributors looking for a new value-add proposition also will need to invest sooner. The drug and DIY channels will have to take the issue category by category, which should yield some great implementation lessons. Interestingly, insurance and health care are is seeing plenty of advance around RFID. Long story short, this is far from a dead issue.
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In the early 1990s Wal-Mart and IBM partnered to bring RFID to life. Millions were spent before the project was dropped. So this is the second time around for Wal-Mart. Some technologies prove quick payback. Some take a while. Some never pay for themselves. Think of all the shelfware in the world. RFID, for most retailers, isn’t much better than bar codes. So why push it?
Count me as another member of the “I told you so” camp. What a waste of energy! Wal-Mart had the chance to work on its merchandising mix and focus on localized assortments. Instead it spent 3 years and its vendors’ money seeking cost reductions from an immature technology where standards hadn’t been set and no real applications had been written. There’s an old rule in retailing: you cannot ‘expense reduce’ your way to long-term profitability.
Look at the results. Comp sales down. Turnover across the organization. Marketing message thrashing. Time lost. Good will lost. And for what?
There are interesting applications for RFID. I personally don’t see carton and pallet tagging as one of them. Asset tracking, merchandise provenance, and someday, the ability to cycle count stores the way warehouses are cycle counted with bar code are interesting. It’s all about high value merchandise. Not containers of peas or Tide.
It wasn’t easy to say these things when the tide of RFID was rising (oops–there goes a pun). Now, it’s kind of fun to say “I told you so.” There are fundamental rules to retailing success. RFID on cases and pallets doesn’t change those rules.
One of the key benefits using RFI was the expected major reductions in shipment invoice deductions–40% of shipments had invoice deductions that cost the manufacturers $250 dollars/incident-that was part of MIT’s original value proposition. The initial tests on paper products worked but the technology failed on liquids and metals–we could get into finger pointing but whatever….
But, I remember the kick-off meeting Wal-Mart had in Bentonville, the overflow crowd into the hallway, the manufacturers were not treated so well in my opinion…that was not so good.
But in the “I told you so category,” I remember telling a gung ho analyst from a leading firm something months later I thought was kind of funny; in a play off of Yogi’s line I said: “RFID is so popular, no one’s going there any more.” I remember the early days of the Internet, the vibe at Interop; the vibe in early supply chain days…and that vibe was totally missing that day in Bentonville.
Why does our industry insist on proceeding with technology initiatives before they have done the hard work of Cost and Benefit analysis? You just can’t get this stuff right until you understand what it costs and how you get return. That also should guide any standards development. It’s a story we hear over and over again. Happened with Global Data Synchronization Network–no ROI. It happened with ECR–$30B in cost reduction out there boys and girls. Go get it. But, what has to be done to get it, and how much do you really get for that effort? The industry repeatedly sees an opportunity for improvement then jumps straight to implementing a solution without taking all the necessary steps in between.
Many of the benefits claimed by retailers are more due to a “Hawthorn” effect than to actual benefits. Parallel with the RFID investment, employees do more because they know their performance is being tracked.
The data generated by RFID will be more overwhelming than what scanner data was to retailers and manufacturers in the late 1980s. Best to wait for computer and software capacities to ramp up to handle the database before trying to build the application.
The advantages of RFID are overwhelming for retailers. But over ambitious plans will linger as the early adoption hiccups run their course.
It is always better to install a new technology in a contained environment. Wal-Mart’s plan involves hundreds of trading partners and many locations. All innovative retailers should experimenting with RFID, but on a much more limited scale. Try it out in a controlled test on a measurable business problem: shelfing systems, dressing rooms, high pilferage items, shopping carts, fixtures, pallets, etc. You’ll learn for yourself the pitfalls, the true costs and reaction from your customers, suppliers, and employees. These lessons will be priceless in the coming rollout of RFID.
Beyond the hype of RFID it is good to go slow. But it also good to go.
The buzz on RFID started in 2003 and really took off when Wal-Mart made the mandate to their top 100. It took off like wild fire only to fizzle when the real ROI was not found in major CPG distribution. Because a majority of the top CPG companies developed work-arounds to comply with the mandate, RFID not only didn’t save them money but they also incurred substantial cost to comply.
Consultants and others used the buzz to sell solutions and analytical studies much like Y2K. One CPG company embarked on their RFID mission after the consulting company said they had an ROI…only to find out that the study was based on 5 cent tags while they were really 97 cents. Oops!
What if Wal-Mart had not made that mandate? RFID would be years behind in development. So their vision and future-looking ideas did help to develop the technology, which still has some ways to go. RFID captures and shares information. A bar code on steroids!
Currently the technology has not matured to the point that a pallet with 80 cases of soap detergent can be read with 100% accuracy. Last report was in the 80 percent accuracy range, causing CPG companies to read the cases prior to palletizing, which increases steps and costs money. So for low end items, it’s still a long race.
Many companies that jumped on the bandwagon with prototypes have since taken the wait-and-see position. RFID has its place in asset management and will continue to develop but my guess is we are some years away from widespread adoption in the typical distribution center.
I hate to be an “I told you so” but “I told you so.”
For the record, I’m not totally jaded on the RFID question (despite all my earlier RW postings to the contrary) I just agree with Dave Donnan. There’s a good rule in technology (and life for that matter)–just because you can, doesn’t mean you should. Didn’t anyone wonder what the advantage was of bringing in product to a DC that then had to be de-palletized, scanned and then re-palletized?
Some of us get blinded by the technology and begin to adopt business processes to it rather than approaching it the other way around. We need to clearly define the business problem and then chose the best (defined in many ways from efficiency, to cost, to least disruptive) available technology to solve the problem.
None of this is to say that RFID doesn’t have a place in retailing. It is to say however that retailing has to get over the notion of a magic technological bullet that solves all problems.
VF Corp is a great example. RFID yielded a staggering amount of information about the contents of one of their shipping units–with the emphasis on staggering. There was huge cost associated with the trial system, but those costs weren’t accompanied by huge benefits to VF Corp, the retailer or the end consumer. Their decision to drop the role of pioneer is perfectly understandable.
When Ron Margulis weighs in on this development, my comment will be, “What he said.” No one is more tuned in to this technology and its retail ramifications than he.
In response to the November 3, 2003 Retailwire article: “Do RFID Tags Work Well Enough?”, by George Anderson, I wrote the following:
“RFID tags for use in the retail supply chain do NOT work any better than barcodes. The reasons are as follows:
1. Unlike all the hype, the tags are directional and must be facing the reader.
2. Tags not facing the reader do not read.
3. Any metallic or liquid surface between reader and tag will cause failure.
4. Tags inline to the reader block reading of any tags behind them.
5. Group reading of tags, such as a pallet load of cases, is limited to 50% to 80% depending on content.
6. Each and every item to be tagged must to be experimentally examined for tag placement.
7. Unrestricted and unlimited numbers of readers are not possible due to reader to reader interference, and reader to tag interference.
The general response to these limitations is that the technology is still immature, and future developments will overcome these problems. Unfortunately, the technology is ill-conceived. The same laws of physics, that prevent the reading of barcodes behind visible obstructions, are responsible for the inability to read tags obstructed by metallic and liquid objects.
While barcodes can be applied to any flat surface without any consideration of readability, RFID tags must be specifically selected and located depending on the metallic or liquid content of the item. These limitations have already resulted in the abandonment of tagging at the item level. Without the volume implied by item level tagging, the five cent tag will never materialize.
There are many justifiable applications for RFID, but replacing barcodes in the supply chain is not one of them.
Those who continue to hype RFID as the replacement for barcodes are doing all of us a disservice.”
As to the question of “I told you so!!,” I claim first prize. RFID was sold on the basis that it was better than barcode because it permitted hands-free automation for data capture, without changes to current business processes. In practice, automation failed, and hand-held readers are required just like barcode. The industry was sold a “Bill of Goods.”
Given Doc Banks’ overly generous intro, I feel compelled to provide an opinion on this topic, albeit a late one. There is real progress being made in the manufacturer–retail DC loop, but not as much at retail. Manufacturers and retailers are seeing 100 percent or near 100 percent tag read rates on unit loads and cases (although many unit loads need to carry multiple tags) up from 85% to 95% 14 months ago. The deployment of analytical tools to actually make better decisions based on the data collected is coming along, which is one of the most underreported developments of the past year. The reason why it hasn’t been widely reported is because the companies having success want to have a little competitive advantage after investing millions in the projects.
As to what course to take, the answer is totally dependent on the line of manufacturing and retailing. High-end and consumer electronics retailers and suppliers need to act more quickly than those in the discount and food channels because there is a loss prevention element that will be combined with the tracking component of RFID. Distributors looking for a new value-add proposition also will need to invest sooner. The drug and DIY channels will have to take the issue category by category, which should yield some great implementation lessons. Interestingly, insurance and health care are is seeing plenty of advance around RFID. Long story short, this is far from a dead issue.