December 28, 2006
Retailers Look in Stores for RFID ROI
Chantal Polsonetti, vice president of manufacturing advisory services for Arc Advisory Group, said manufacturers are not looking to reap major benefits from radio frequency identification (RFID) moving product from the factory to retailers’ distribution centers or the backrooms of stores.
“Our manufacturing customer base is telling us they already have sophisticated supply chains, so the benefit from RFID in the distribution center is incremental at best,” she told Modern Materials Handling. “Instead, they’re looking at applications around asset tracking, work-in-process and how product moves through the retail store to get an ROI.”
According to Ms. Polsonetti, “To most people, RFID is associated with automatic identification. We see the greater value in using the data to automate decision-making.”
She added, “Out of stocks are the poster child, but the sophisticated suppliers want to know if their product isn’t on the shelf, whether it’s in the backroom,” she said. “Others are looking at whether their promotions do better in aisle three than in aisle seven. They have this data, so now they’re turning to analytics to make these kinds of inferences.”
Discussion Questions: Where is the biggest return on the RFID investment going to ultimately come from for manufacturers? For retailers?
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Ken Kubat’s comments are absolutely right on, too! Although I am committed to real time data, as he is, in the early stages of understanding, historical studies may be of greater value. That is, you are more likely to be skillful at hitting a moving target if you have first mastered the fixed target.
For our own studies we “freeze frame” the store in order to understand the motion of people and products. Then we look at multiple store frames to understand movements of the store itself. To truly leverage the real time Ken is referring to requires continuous causal updates — as well as prodigious data organizational and processing abilities. The causal updates, what we refer to as store data infrastructure, is the tricky part. But that hurdle is being crossed as we speak. :>)
RFID, like any technology investment, is most quickly adopted where the payback is highest. For high value items, particularly private label high value items, the payback is easiest to prove quickly. When the retailer controls the manufacturing process, the RFID tag can be inserted as part of that process, which reduces the cost. And the RFID payback is amortized over the production process as well as the retail process, instead of just one or the other. For some other thoughts on the future of RFID, check out the podcast done on the National Association For Retail Marketing Services web site.
The challenge with this whole framework is that it takes a technology — RFID — and tries to find a problem to solve with it. This is sort of the classic “technology solution in search of a problem” issue that has been written about innumerable times, but somehow not recognized with RFID.
RFID will be widely used in traditional supply chain process for both manufacturers and retailers, but over time…as price and performance improve, as software is developed that can really exploit the potential, etc. As that happens, RFID adoption will incrementally but consistently improve, as it is just better than bar codes in many/most ways (but not necessarily at today’s price points).
The fundamental problem with the whole RFID discussion around things like out-of-stocks and better in-store information is that just a small percentage of retailers offer and an even smaller percentage of manufacturers can utilize point of sale data today. This information could give manufacturers very good information about promotional lift, in-stock positions, etc. but only a few leaders like P&G and others really utilize it. So, if this data is poorly exploited, how is adding more to it with RFID data going to help, or why would you invest millions to get RFID data when you could first get POS at a much lower cost?
RFID is just the latest in a long series of initiatives (ECR, CPFR, etc.) all designed to solve the same basic set of problems. Both ECR and CPFR could have had huge impacts, and for some have, but have been only modestly adopted and generally only partly versus the original vision…so, rather than address those issues, we jump on the latest bandwagon.
The question really should be: what are the top supply chain and in-store logistics problems that most need solving between manufacturers and retailers? And what approaches and technologies can best solve them? Is the reason Wal-Mart can’t get goods on the shelf because it doesn’t have RFID? I don’t think so.
I am bullish on RFID long term, and it is a great supporting technology in many areas, and will over time become nearly ubiquitous. But it’s a technology in a tool bag, not a solution in and of itself.
I’m not sure I agree with the position that suppliers don’t feel they have big gains available with RFID applications; WHEN they are fully implemented.
Suppliers can win with JIT inventory planning, from raw materials through to consumer use and replenishment. They can more effectively track and manage promotions and the importance of effective product recall has a huge implication with RFID.
Retailers have even greater benefits in total RFID implementation, with improved “item” inventory management at the top of the list.
Product components and finished product are money, and the more efficient JIT delivery and product flow becomes, the greater your improvements in cash flow to invest in other areas of your business.
If a manufacturer says they already have sophisticated supply chain management and don’t see big gains from RFID, it is time to look for a new manufacturer. That statement does not mean that RFID will drive the big gains. It means that manufacturers who think their supply chains are that sophisticated have a lot of work to do. Certainly in the retail sector, supply chains are fairly weak. Will RFID do a lot? Over time, RFID will do its part to help improve the process. It has the potential to do more at the end of the supply chain than in the middle. The fundamental problem is that technology should not be the driver for supply chain improvement.
I agree with Dan Gilmore, particularly on the points he makes about RFID being a tool and not a solution in and of itself. I, too, am bullish on RFID. But I must add that CPFR, administered by RAM Communications client The Voluntary Interindustry Commerce Solutions (VICS) Association, continues to deliver impressive results for both retailers and suppliers. A recent example of improved performance from CPFR, and one that received the Best VICS CPFR® Implementation Award this year, comes from West Marine. The boating supplies retailer, working with ITT Industries, has improved on time shipments from 10% to 80%, improved in-stocks from 91% to 97% and has increased average order value by 75%. These are figures that are capturing the attention of more and more executives in the retail supply chain, and are indicative of a long-term trend in the industry, not a fad.
I also largely agree with Dan Gilmore’s comments. We have been deploying RFID on the sales floor for more than five years, as a research tool. This work has been largely supported by the top 10 CPG brands and a few leading retailers. We actually don’t care anything about RFID. We are after an analytical understanding of the shopping experience.
What that means is looking at the purchase of a single SKU at checkout (the T-log) and then tracing back through the store that shoppers behavior: exactly where were they on a second by second basis. Where did they visit, where did they linger or pause, when and where in their trip did they make this purchase, what other purchases did they make, what displays were they exposed to, what in-store media did they actually face, and for how long, etc., etc.
Of course, having the pedigree of a single purchase of a single item can be enhanced by the pedigrees of hundreds or thousands of purchases of that single item, at the same store or across stores, channels. Or the focus can be brands, categories, etc.
What we are after is understanding, not RFID!!! But active RFID is currently our methodology of choice for this understanding, although UWB is a strong candidate for research purposes. And one cutting edge development is using passive RFID very effectively for the same and much broader purposes, in ways I can’t detail yet.
Sometimes discussion of these technologies, led by companies looking to sell technology, are almost humorous. They sometimes imagine great seas of ignorance on the part of the cutting edge brands and retailers, simply because they themselves are looking at the world through long, narrow pipes, rather than wide angles.
But the understanding that is emerging from the deployment of technology is driving a global movement toward more rational (read: efficient and profitable) retailing. Some of that technology, particularly as costs fall, will directly contribute to solving out-of-stock problems, checkout queue management, loss prevention, media metrics, et al.
Some of that understanding can be had at relatively low cost, in some cases using low-tech means, to deliver brand management and retailing insights more widely right now! Technology is just a key that opens a door. Whether you know what to do with what you find on the other side of the door is not a reflection on the technology key. And maybe you don’t need the key. Maybe just looking in a window will get you all you need for now.
I agree with Ms. Polsonetti’s observation that there is “greater value in using the data to automate decision-making.” New technologies generally drive new information-based challenges and opportunities. While informational benefits often lag operational benefits in early stage utilization of new technologies, they are ultimately the source of the positive ROI associated with technology adoption. A classic example, of course, is the industry’s adoption of bar coding and POS scanning.
The potential data flow associated with RFID technology is both staggering and compelling … and make no mistake, “flow” is the operative word here. Our current challenge from an analytics and value creation perspective is to “architect” systems and solutions that are optimized for “data in motion.” RFID’s data-driven benefits REQUIRE new capabilities and a fresh perspective on the lifecycle of information. RFID will eventually become a huge generator of data, data that has classic “point in time value.” In other words, the informational benefits of the data will be highly transitory, almost ephemeral in nature… borrowing a term from Grocery, this data will have a VERY short “shelf life”!
Capturing the informational benefits of RFID data requires a system that provides REAL-TIME processing of data, recognition of meaningful patterns or “business events,” and automated response capabilities. It also requires, of course, an ability to define those patterns of data and events that are meaningful to the business…AND, it requires a clear understanding of the overall business process and enterprise response capabilities and limitations.
“Data in motion” is, indeed, a new paradigm. Technology and tools to create/build truly innovative solutions for chronic business problems (did somebody say “Out of Stocks”?) are readily available today. The challenge is understanding the connection between those business problems and a highly granular data flow, whether that “flow” is from RFID or POS … AND, knowing what to do (and how to do it!) when you’ve identified a meaningful event.
Let’s not forget that consumers must accept and understand more about RFID technology before it can be truly utilized by today’s retailers. It seems we are a ways off from that. Privacy concerns will need to be overcome and that is one reason retailers are not pushing RFID in their stores.
After reading through the entire list of comments and suggestions by our seniors on RFID, I would agree with Odonna Mathews comments; RFID’s practicality needs time to mature in the retail industry.
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Ken Kubat’s comments are absolutely right on, too! Although I am committed to real time data, as he is, in the early stages of understanding, historical studies may be of greater value. That is, you are more likely to be skillful at hitting a moving target if you have first mastered the fixed target.
For our own studies we “freeze frame” the store in order to understand the motion of people and products. Then we look at multiple store frames to understand movements of the store itself. To truly leverage the real time Ken is referring to requires continuous causal updates — as well as prodigious data organizational and processing abilities. The causal updates, what we refer to as store data infrastructure, is the tricky part. But that hurdle is being crossed as we speak. :>)
RFID, like any technology investment, is most quickly adopted where the payback is highest. For high value items, particularly private label high value items, the payback is easiest to prove quickly. When the retailer controls the manufacturing process, the RFID tag can be inserted as part of that process, which reduces the cost. And the RFID payback is amortized over the production process as well as the retail process, instead of just one or the other. For some other thoughts on the future of RFID, check out the podcast done on the National Association For Retail Marketing Services web site.
The challenge with this whole framework is that it takes a technology — RFID — and tries to find a problem to solve with it. This is sort of the classic “technology solution in search of a problem” issue that has been written about innumerable times, but somehow not recognized with RFID.
RFID will be widely used in traditional supply chain process for both manufacturers and retailers, but over time…as price and performance improve, as software is developed that can really exploit the potential, etc. As that happens, RFID adoption will incrementally but consistently improve, as it is just better than bar codes in many/most ways (but not necessarily at today’s price points).
The fundamental problem with the whole RFID discussion around things like out-of-stocks and better in-store information is that just a small percentage of retailers offer and an even smaller percentage of manufacturers can utilize point of sale data today. This information could give manufacturers very good information about promotional lift, in-stock positions, etc. but only a few leaders like P&G and others really utilize it. So, if this data is poorly exploited, how is adding more to it with RFID data going to help, or why would you invest millions to get RFID data when you could first get POS at a much lower cost?
RFID is just the latest in a long series of initiatives (ECR, CPFR, etc.) all designed to solve the same basic set of problems. Both ECR and CPFR could have had huge impacts, and for some have, but have been only modestly adopted and generally only partly versus the original vision…so, rather than address those issues, we jump on the latest bandwagon.
The question really should be: what are the top supply chain and in-store logistics problems that most need solving between manufacturers and retailers? And what approaches and technologies can best solve them? Is the reason Wal-Mart can’t get goods on the shelf because it doesn’t have RFID? I don’t think so.
I am bullish on RFID long term, and it is a great supporting technology in many areas, and will over time become nearly ubiquitous. But it’s a technology in a tool bag, not a solution in and of itself.
I’m not sure I agree with the position that suppliers don’t feel they have big gains available with RFID applications; WHEN they are fully implemented.
Suppliers can win with JIT inventory planning, from raw materials through to consumer use and replenishment. They can more effectively track and manage promotions and the importance of effective product recall has a huge implication with RFID.
Retailers have even greater benefits in total RFID implementation, with improved “item” inventory management at the top of the list.
Product components and finished product are money, and the more efficient JIT delivery and product flow becomes, the greater your improvements in cash flow to invest in other areas of your business.
If a manufacturer says they already have sophisticated supply chain management and don’t see big gains from RFID, it is time to look for a new manufacturer. That statement does not mean that RFID will drive the big gains. It means that manufacturers who think their supply chains are that sophisticated have a lot of work to do. Certainly in the retail sector, supply chains are fairly weak. Will RFID do a lot? Over time, RFID will do its part to help improve the process. It has the potential to do more at the end of the supply chain than in the middle. The fundamental problem is that technology should not be the driver for supply chain improvement.
I agree with Dan Gilmore, particularly on the points he makes about RFID being a tool and not a solution in and of itself. I, too, am bullish on RFID. But I must add that CPFR, administered by RAM Communications client The Voluntary Interindustry Commerce Solutions (VICS) Association, continues to deliver impressive results for both retailers and suppliers. A recent example of improved performance from CPFR, and one that received the Best VICS CPFR® Implementation Award this year, comes from West Marine. The boating supplies retailer, working with ITT Industries, has improved on time shipments from 10% to 80%, improved in-stocks from 91% to 97% and has increased average order value by 75%. These are figures that are capturing the attention of more and more executives in the retail supply chain, and are indicative of a long-term trend in the industry, not a fad.
I also largely agree with Dan Gilmore’s comments. We have been deploying RFID on the sales floor for more than five years, as a research tool. This work has been largely supported by the top 10 CPG brands and a few leading retailers. We actually don’t care anything about RFID. We are after an analytical understanding of the shopping experience.
What that means is looking at the purchase of a single SKU at checkout (the T-log) and then tracing back through the store that shoppers behavior: exactly where were they on a second by second basis. Where did they visit, where did they linger or pause, when and where in their trip did they make this purchase, what other purchases did they make, what displays were they exposed to, what in-store media did they actually face, and for how long, etc., etc.
Of course, having the pedigree of a single purchase of a single item can be enhanced by the pedigrees of hundreds or thousands of purchases of that single item, at the same store or across stores, channels. Or the focus can be brands, categories, etc.
What we are after is understanding, not RFID!!! But active RFID is currently our methodology of choice for this understanding, although UWB is a strong candidate for research purposes. And one cutting edge development is using passive RFID very effectively for the same and much broader purposes, in ways I can’t detail yet.
Sometimes discussion of these technologies, led by companies looking to sell technology, are almost humorous. They sometimes imagine great seas of ignorance on the part of the cutting edge brands and retailers, simply because they themselves are looking at the world through long, narrow pipes, rather than wide angles.
But the understanding that is emerging from the deployment of technology is driving a global movement toward more rational (read: efficient and profitable) retailing. Some of that technology, particularly as costs fall, will directly contribute to solving out-of-stock problems, checkout queue management, loss prevention, media metrics, et al.
Some of that understanding can be had at relatively low cost, in some cases using low-tech means, to deliver brand management and retailing insights more widely right now! Technology is just a key that opens a door. Whether you know what to do with what you find on the other side of the door is not a reflection on the technology key. And maybe you don’t need the key. Maybe just looking in a window will get you all you need for now.
I agree with Ms. Polsonetti’s observation that there is “greater value in using the data to automate decision-making.” New technologies generally drive new information-based challenges and opportunities. While informational benefits often lag operational benefits in early stage utilization of new technologies, they are ultimately the source of the positive ROI associated with technology adoption. A classic example, of course, is the industry’s adoption of bar coding and POS scanning.
The potential data flow associated with RFID technology is both staggering and compelling … and make no mistake, “flow” is the operative word here. Our current challenge from an analytics and value creation perspective is to “architect” systems and solutions that are optimized for “data in motion.” RFID’s data-driven benefits REQUIRE new capabilities and a fresh perspective on the lifecycle of information. RFID will eventually become a huge generator of data, data that has classic “point in time value.” In other words, the informational benefits of the data will be highly transitory, almost ephemeral in nature… borrowing a term from Grocery, this data will have a VERY short “shelf life”!
Capturing the informational benefits of RFID data requires a system that provides REAL-TIME processing of data, recognition of meaningful patterns or “business events,” and automated response capabilities. It also requires, of course, an ability to define those patterns of data and events that are meaningful to the business…AND, it requires a clear understanding of the overall business process and enterprise response capabilities and limitations.
“Data in motion” is, indeed, a new paradigm. Technology and tools to create/build truly innovative solutions for chronic business problems (did somebody say “Out of Stocks”?) are readily available today. The challenge is understanding the connection between those business problems and a highly granular data flow, whether that “flow” is from RFID or POS … AND, knowing what to do (and how to do it!) when you’ve identified a meaningful event.
Let’s not forget that consumers must accept and understand more about RFID technology before it can be truly utilized by today’s retailers. It seems we are a ways off from that. Privacy concerns will need to be overcome and that is one reason retailers are not pushing RFID in their stores.
After reading through the entire list of comments and suggestions by our seniors on RFID, I would agree with Odonna Mathews comments; RFID’s practicality needs time to mature in the retail industry.