August 28, 2007
Metro Goes to Full-Scale RFID Deployment
By George Anderson
The Metro Group is taking its radio frequency identification (RFID) program past the test stage to full deployment at 200 locations. The company has made its seriousness known by mandating its top 650 suppliers be ready with a tag program by early next year.
Jonathan Collins, senior analyst with ABI Research, told RFID Update, that Metro is serious about compliance with its program.
“Metro is going to pass through the additional handling cost of an untagged pallet. Mandate compliance will be built in to the contractual relationship between Metro and each supplier,” he said.
“This is a somewhat stronger step than we’ve seen from other high-profile deployments like Wal-Mart,” Mr. Collins told RFID Update. “It is absolutely a statement of intention, and a serious one at that.”
According to the analyst, Metro’s move to full-scale RFID deployment will motivate others in Europe to follow suit.
“The Metro deployment is a good signal that a lot of the hurdles can be managed and that UHF RFID can be done. The reasons for thinking RFID is a better investment are becoming clear,” he said.
“I think it’s fair to say that in the first half of next year you will see other European companies making similar announcements. Maybe they won’t have the same teeth as the Metro announcement, but they will certainly entail rolling out RFID in the supply chain.”
Discussion Questions: What will U.S. retailers take from the Metro RFID rollout? Will we see a full-scale deployment of RFID at Wal-Mart, Best Buy or other retail chain currently testing the technology in backroom or other applications?
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I have always believed that RFID will eventually reach item level information as the cost of the technology comes down and the benefits of item tracking are turned into usable information. Metro is obviously using its power to force the issue and that approach may work and be translatable to the USA. At the end of the day, retailers, vendors and consumers must all sign off on RFID in order for it to be utilized to its potential. We are still years from that implementation.
We should not take the mandate by Metro to signify that RFID has now reached the point where all the bugs are worked out and is ready for everyone to implement. If the benefits of RFID had been proven, then there would be no need to mandate that suppliers use RFID. It’s one thing to have RFID tags on cases, quite another to be able to read 100%, and still another to have systems in place to use the huge amount of data that RFID generates.
While all this is true, Metro should still be commended for the mandate because none of the real value of RFID will come until it reaches a tipping point.
Metro has decided they want to be known as the innovators with RFID. They have created a lot of press for themselves and the technology suppliers they have chosen. There is no easy economic calculation that can justify this effort of “image building.” The costs still make the simple RFID economics problematic. When you factor in the “free press” and the image aspect, maybe it does make sense for a few headlines. On the other hand, when the press stops and the uniqueness is gone, it is going to take continued cost reductions before RFID real economic sense.
It’s refreshing to see this critical, next-step inventory/tracking technology making serious strides, and that it’s coming from a source other than Wal-Mart. As interviewed sports stars are often heard to remark, “I take my hats off to them.”
Some of us were around when barcodes were in development, and can remember all the Luddite naysayers of the time. Seems like some of our commentators are channeling those folks.
“Where have you gone, Ron Mar-goo-oo-lis?, retailers turn expectant eyes to you.”
I always defer to Ron Margulis on this topic. He’s the expert, and we need his input.
I love it. The savings on shrink will offset the costs to implement.
The future is here!
I suppose the big difference with the mandate here is that Metro seems prepared to charge suppliers for not being compliant while Wal-Mart hasn’t, to my knowledge, spelled out publicly the penalty for not getting on board with its RFID program.
Not only will RFID flood the supply chain by and by, it will spill onto the sales floor. We were one of the first there, along with METRO, with active RFID. However, the passive RFID used in the supply chain makes more sense for permanent, item level installations. There are at least two companies with sales floor RFID and serious plans and some installations.
Looking at the benefits RFID offers, like reduced POS labor cost, reduced inventory, reduced OOS conditions, reduced thefts etc, eventually costs are going to balance out the economics for getting RFID implemented. Again, actual benefits and transformation can be seen when RFID solutions are conjoined with business process change, quick or more proactive decisions, and also integration with enterprise systems. We look forward to results from companies taking the lead in the area.
It seems that Wal-Mart also told suppliers they had to be fully RFD compliant by a certain date. As we know, that didn’t happen. It’s easy to mandate such things but, in a world where suppliers of all kinds and sizes provide retailers with merchandise, mandating compliance is not only foolish but totally impractical. I suppose we’ll see if Metro can make it happen with their suppliers.
Saying it will be and it actually happening are two different stories, correct? Metro has obviously overcome some of the hurdles of RFID that have existed since early adoption and the Wal-Mart mandate in 2003. RFID is bar codes on steroids; there still has to be a proven ROI before others will follow. Many companies are not taking advantage of the information available through their bar code system so RFID to them is overkill.
RFID activity will increase tremendously in the pharma industry to meet the pedigree requirements of every state. As applications are invented and delivered to accommodate those requirements, more and more applications will be perfected. As applications and products are perfected, the cost will go down and adoption will become more cost efficient. Adoption for the electronics market for higher end merchandise, like that sold in Best Buy, is a no brainer. It is the CPG market that struggles for the ROI.
RFID continues to get hyped, mostly by people and companies with a financial interest in RFID. The concept is sound and valid. The costs limit items and categories that can benefit from it. At this point in time, RFID cannot pass an economic test for items that sell for less than a few dollars. Development and testing on readers has a way to go. Therefore, implementation for a sub-set of a retailer’s items increases the operation’s complexity and costs.
At this time, RFID has economic value for high value and high shrink items. Capital and implementation costs are high for most retailers. Improvements over the next 3 to 5 years may change the equation.
Retailing economics in Germany and the US have some significant differences, which might lead to substantially different RFID return on investment. German labor, transportation, warehousing, and real estate costs are much higher than the US, and gross profit margins are often higher, too. Since the cost of any new technology is highest at first, the first successful adopters should be the businesses with the greatest opportunity.
High-end and consumer electronics retailers like Best Buy and Coach are now acting on RFID faster than those in the discount and food channels because there are loss prevention and warranty elements that are being combined with the tracking component of RFID. The drug and DIY channels will have to take the issue category by category, which should yield some great implementation lessons.
Interestingly, insurance, particularly car insurance, and health care are seeing plenty of advances around RFID. I don’t see any US retailer moving to full deployment before the end of the decade, my forecast at the start of the RFID phenomenon, but Best Buy and a few others may be there shortly into the next decade.
It will indeed happen eventually if the business economics and ROI value can be worked out. However, any change to operational infrastructures must be either forced or actively embraced as being worth the pain of implementation.
It’s easy for us all to say something will happen but if you’ve ever worked within a retailer’s walls, you realize how much change management a move like this will require. It simply must be proven out and prioritized to happen…and most retailers will wait for others to work out the bugs first.
This is going to be interesting to watch. Of course whether or not mandatory RFID actually gets entrenched in supplier contracts will depend on the next round of contract negotiations. Metro Group has muscle with its suppliers, that’s clear, but the cost to suppliers of implementing tagging will be high. Some suppliers have already bought into the benefits of RFID (e.g. Johnson & Johnson, Nestlé, Proctor & Gamble, Unilever and other majors who participated in the Metro pilot), but others may not be so keen. Remains to be seen.
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I have always believed that RFID will eventually reach item level information as the cost of the technology comes down and the benefits of item tracking are turned into usable information. Metro is obviously using its power to force the issue and that approach may work and be translatable to the USA. At the end of the day, retailers, vendors and consumers must all sign off on RFID in order for it to be utilized to its potential. We are still years from that implementation.
We should not take the mandate by Metro to signify that RFID has now reached the point where all the bugs are worked out and is ready for everyone to implement. If the benefits of RFID had been proven, then there would be no need to mandate that suppliers use RFID. It’s one thing to have RFID tags on cases, quite another to be able to read 100%, and still another to have systems in place to use the huge amount of data that RFID generates.
While all this is true, Metro should still be commended for the mandate because none of the real value of RFID will come until it reaches a tipping point.
Metro has decided they want to be known as the innovators with RFID. They have created a lot of press for themselves and the technology suppliers they have chosen. There is no easy economic calculation that can justify this effort of “image building.” The costs still make the simple RFID economics problematic. When you factor in the “free press” and the image aspect, maybe it does make sense for a few headlines. On the other hand, when the press stops and the uniqueness is gone, it is going to take continued cost reductions before RFID real economic sense.
It’s refreshing to see this critical, next-step inventory/tracking technology making serious strides, and that it’s coming from a source other than Wal-Mart. As interviewed sports stars are often heard to remark, “I take my hats off to them.”
Some of us were around when barcodes were in development, and can remember all the Luddite naysayers of the time. Seems like some of our commentators are channeling those folks.
“Where have you gone, Ron Mar-goo-oo-lis?, retailers turn expectant eyes to you.”
I always defer to Ron Margulis on this topic. He’s the expert, and we need his input.
I love it. The savings on shrink will offset the costs to implement.
The future is here!
I suppose the big difference with the mandate here is that Metro seems prepared to charge suppliers for not being compliant while Wal-Mart hasn’t, to my knowledge, spelled out publicly the penalty for not getting on board with its RFID program.
Not only will RFID flood the supply chain by and by, it will spill onto the sales floor. We were one of the first there, along with METRO, with active RFID. However, the passive RFID used in the supply chain makes more sense for permanent, item level installations. There are at least two companies with sales floor RFID and serious plans and some installations.
Looking at the benefits RFID offers, like reduced POS labor cost, reduced inventory, reduced OOS conditions, reduced thefts etc, eventually costs are going to balance out the economics for getting RFID implemented. Again, actual benefits and transformation can be seen when RFID solutions are conjoined with business process change, quick or more proactive decisions, and also integration with enterprise systems. We look forward to results from companies taking the lead in the area.
It seems that Wal-Mart also told suppliers they had to be fully RFD compliant by a certain date. As we know, that didn’t happen. It’s easy to mandate such things but, in a world where suppliers of all kinds and sizes provide retailers with merchandise, mandating compliance is not only foolish but totally impractical. I suppose we’ll see if Metro can make it happen with their suppliers.
Saying it will be and it actually happening are two different stories, correct? Metro has obviously overcome some of the hurdles of RFID that have existed since early adoption and the Wal-Mart mandate in 2003. RFID is bar codes on steroids; there still has to be a proven ROI before others will follow. Many companies are not taking advantage of the information available through their bar code system so RFID to them is overkill.
RFID activity will increase tremendously in the pharma industry to meet the pedigree requirements of every state. As applications are invented and delivered to accommodate those requirements, more and more applications will be perfected. As applications and products are perfected, the cost will go down and adoption will become more cost efficient. Adoption for the electronics market for higher end merchandise, like that sold in Best Buy, is a no brainer. It is the CPG market that struggles for the ROI.
RFID continues to get hyped, mostly by people and companies with a financial interest in RFID. The concept is sound and valid. The costs limit items and categories that can benefit from it. At this point in time, RFID cannot pass an economic test for items that sell for less than a few dollars. Development and testing on readers has a way to go. Therefore, implementation for a sub-set of a retailer’s items increases the operation’s complexity and costs.
At this time, RFID has economic value for high value and high shrink items. Capital and implementation costs are high for most retailers. Improvements over the next 3 to 5 years may change the equation.
Retailing economics in Germany and the US have some significant differences, which might lead to substantially different RFID return on investment. German labor, transportation, warehousing, and real estate costs are much higher than the US, and gross profit margins are often higher, too. Since the cost of any new technology is highest at first, the first successful adopters should be the businesses with the greatest opportunity.
High-end and consumer electronics retailers like Best Buy and Coach are now acting on RFID faster than those in the discount and food channels because there are loss prevention and warranty elements that are being combined with the tracking component of RFID. The drug and DIY channels will have to take the issue category by category, which should yield some great implementation lessons.
Interestingly, insurance, particularly car insurance, and health care are seeing plenty of advances around RFID. I don’t see any US retailer moving to full deployment before the end of the decade, my forecast at the start of the RFID phenomenon, but Best Buy and a few others may be there shortly into the next decade.
It will indeed happen eventually if the business economics and ROI value can be worked out. However, any change to operational infrastructures must be either forced or actively embraced as being worth the pain of implementation.
It’s easy for us all to say something will happen but if you’ve ever worked within a retailer’s walls, you realize how much change management a move like this will require. It simply must be proven out and prioritized to happen…and most retailers will wait for others to work out the bugs first.
This is going to be interesting to watch. Of course whether or not mandatory RFID actually gets entrenched in supplier contracts will depend on the next round of contract negotiations. Metro Group has muscle with its suppliers, that’s clear, but the cost to suppliers of implementing tagging will be high. Some suppliers have already bought into the benefits of RFID (e.g. Johnson & Johnson, Nestlé, Proctor & Gamble, Unilever and other majors who participated in the Metro pilot), but others may not be so keen. Remains to be seen.