December 5, 2008
RFID Ready for Takeoff
The year 2008 will go
down in history as the year that radio frequency identification (RFID)
technology got a foothold and began its climb toward widespread use in
retailing. That is the conclusion of an editorial by John Johnson on the
RFID 24-7 blog.
RFID industry professionals
and analysts have been heartened by the continued forward push of the technology
during a time of economic weakness. Some believe that the technology’s
ability to help reduce costs and improve profitability is key to its success
in a period where continued growth cannot be assumed.
"The
fight for the consumer dollar is more relevant than ever given the economic
times," said Mike Liard, research director for RFID & contactless
at ABI Research. "RFID can help reduce that out-of-stock challenge.
The technology can make sense in a tough economy from a technology and
business benefit and operational efficiency point of view."
American
Apparel is one of the most visible supporters of RFID with plans to introduce
item-level tagging at its more than 200 stores in the U.S. The company
claimed to achieve a 15 percent lift in sales after deploying item-level
tags at a store in New York.
Discussion Question:
Is 2008 the year that RFID turned the corner to widespread adoption in
the retailing business?
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I was surprised to read “this was the year for RFID” this morning, as I just finished telling a business partner that I have seen many of my clients who once prioritized marketing their RFID capabilities, dial their efforts way down. It just seems they haven’t been able to achieve the profits they had hoped for by selling RFID products and services. This says to me that it has not been the year for RFID….
Add me to the roll of skeptics. I’m more comfortable with Ron’s timetable.
I’m one of a team that has been querying retail CIOs about their opinions on item-level RFID. Nearly all of the CIOs we’ve spoken with want to implement item-level RFID sooner than later.
Their pilots point to sales upticks due to better product availability. They anticipate faster turnover of items, which can be found more easily. They look forward to the promise of leaner inventory, and fewer items languishing in the back of the store. They want 10-minute inventory counts.
There are a lot of reasons why RFID is so rare in retail, and 2008 is not the turning of the corner. But there’s pent-up demand.
The American Apparel experience seems to be focused on improvement of their in-store processes. Specifically, how they manage their backroom to shelf procedures. This is such a relative factor, that depends significantly on individual starting points, that it is difficult to extrapolate one retailer’s results onto the general population.
What were the procedures that American Apparel already had in place? Were they monitoring POS transactions against in-store display allocations? The truth is that if a retailer already has in place a perpetual inventory on their POS system, the only thing that RFID can do is reduce the “buggy factor” and shrink. The buggy factor addresses items that have been removed from the shelf but not yet recorded at checkout, but this requires RFID readers at the shelf edge. Consumer related shrink has already been addressed by various security tagging, but RFID can address the shrink caused by misidentification during order picking and receiving errors.
As I learn more about RFID and a lot of very smart people are out of work in the economy, I become more concerned about using RFID at checkout. Security people always say there are three ways to confirm identity: something you own, something you know, or your physical characteristics. For humans these translate to an ID Card, a password, or your fingerprint. For an inanimate object the password or knowledge based characteristic does not exist. The other two ways for confirming identity translate to a “license plate” and the physical characteristics of the object. Barcode based shelf checkout systems recognize this by cross checking the UPC against the weight and dimensions of the item passing through the system or place in bags. In the case of RFID, we give up both the knowledge based and physical characteristics check. The consumer walking through a checkout with various items in their hands offers no opportunity for verifying anything but the RFID.
There are some options here, such as maintaining a list of all the RFIDs received in the store and then validating each sale against the IDs to check the serial numbers. This requires significant upgrades to POS systems. In the meantime, it is pretty easy to counterfeit an RFID. A modestly sophisticated teenager can purchase an RFID printer and flood the market with counterfeit tags. What would be their incentive? It could be as simple as “because they can.”
This has been said every year for the past five years and it is still being said. Until companies see direct ROI for them, they are not likely to make the switch. Unfortunately, it does end up as a chicken and egg argument. Until the warehouses and retail outlets utilize RFID, the vendors don’t get much return. Until the vendors are using RFID, the warehouses and retail outlets don’t get great return. Until something breaks the deadlock, we will be reading the same statement year after year–this is the year for RFID.
Five years ago, on this site, I predicted the following:
The timeframe I see for the CPG industry, and this is different than what Accenture recently published, is chips on most pallets by 2008, chips on most cases by 2012 and chips on (or in) most individual items by 2015.
At this point, I would tack on 3 to 5 years to each of these estimates. It’s interesting to note that Accenture’s forecast was much rosier than mine.
Hard to say. Even Wal-Mart has backed off on some of its tagging requirements for manufacturers.
Frankly, the retail industry has bigger fish to fry when it comes to technology. It’s surprising to see how many old legacy systems are out there and software more suited to 20th century technology. As such, I think capital expenditures will be focused on rebuilding or updating IT infrastructures. Without that, you can’t do things like wireless networks and RFID technology.
Widespread item-level tagging is still a few years away unless you’re selling Prada handbags. For mass retail, the emphasis will, of course, be on pallet-level tagging. The recalls of the past year have put the spotlight on traceability and the ability of companies to track product throughout their supply chains–not just one step forward or back.
The Produce Marketing Association has adopted GTIN numbers for its Produce Tracing Initiative on all shipments. Eventually this is going to lead to RFID tagging.
There is the old Catch-22 about there not being widespread use of RFID tagging until the cost of the tags come down and the cost of tags won’t come down until usage increases. I’m not sure if this is really the issue any more.
Oh good grief.
I am very bullish on the potential for RFID, more so of late as as I have thought it through a bit more, but I have been hearing “this is the year” for RFID annually since 2004.
In certain sectors, such as asset tracking and health care, which are unrelated to retail, RFID-based systems continue to move forward. There is also a reasonable amount of activity in “closed-loop” manufacturing systems (shop floor tracking, etc.)
But what happened in 2008 to say it was a turning point in retail? In late 2007, Wal-Mart announced it was dramatically changing its approach, and the original strategy is for all intents and purposes, dead for now. There is a Sam’s Club pallet tagging requirement of modest impact that just kicked in–let’s see where it goes.
No other large retailers I am aware of have made any public moves. Many, for sure, have looked at the technology, and most were waiting for Wal-Mart to do the dirty work of forcing compliance and learning from Wal-Mart’s mistakes at the same time, but right now there is no action act Wal-Mart’s regular stores nor these other chains.
It was in 2004 that Target announced an initial compliance program. Dropped, and nothing since then.
There is some action for sure in apparel, and a pretty good value prop. American Apparel is a vertically integrated chain, and can obviously decide to tags the goods it makes and use through point of sale. Sounds like a good ROI from what I have seen, and the general consensus, especially for apparel specialty chains, is that the inventory control benefits are very high in a sector where not having the right size loses a sale, and lost/misplaced inventory ultimately results in a big mark down.
But 2008 as the year RFID grabbed its foot hold in retailing? You’ve got to be kidding me.
Pundits seem to think, as I have seen over and over again, that saying “this is the year” will entice others to make RFID moves because they are afraid of being left behind or something. As if the big retail chains don’t move at their own pace, and know fully well what is going on. The pundits would be so much better off simply citing real examples of where value is being achieved, and/or real economic models by industry/application of the ROI. The American Apparel example has been beaten to death–the Great White Hope.
RFID will take off in retail when big chains start enforcing tagging mandates, and I think that is now several years away, or manufacturers start pleading with the retailers to add RFID readers so they can track goods better–but outside of promotional displays, they simply aren’t doing so.
Eventually, this will change our entire thinking, as we know where everything is all the time, and that change will be profound. But the rocket certainly did not leave the launch pad in 2008.
In the US, there have been very few RFID retail pilots at all, let alone at the item level.
The exception, as I noted previously above, is in specialty store apparel, where there have been a number of promising pilots.
Some of these specialty apparel retailers have even been fairly forthcoming in 2008 about the pilots/benefits.
So I think the business case for RFID in that specific retail category gained some important support in 2008, and that this will be the retail sector where we first see some real roll-outs/deployment. I can imagine CIOs in that sector (but not others) putting RFID fairly high on the priority list. A key barrier is the challenge of source tagging items correctly in Asia/low cost country sources, which struggle today with bar codes.
In sectors outside of specialty apparel there have been almost no pilots in the US other that Wal-Mart’s mega-pilot, which is what it was, and when RFID comes to many other sectors you will have to move through the pallet, case, item hierarchy, as noted above by others. Staples Canada is an exception, which did in 2008 have what it says is a successful item level pilot, interestingly using re-usable tags in store that it applied to some SKU categories itself (electronics, etc.).
There is more pilot activity in Europe, and Germany’s Metro Stores is far and away the retail pioneer/leader, charging fairly full speed ahead (though still slower than initial projections) while Wal-Mart and Tesco stumbled. There have been a few other full retail roll-outs in Europe, such as a Dutch (I believe) book seller, but think again it tagged goods itself in the DC, and did not rely on supplier tagging.
2008? Well it was the year that money flowed into RFID companies again. Near as I can tell about 75 Million into Altier, Goliath and others… Lots of hope and some quiet tests about item level shelf tags (still not item level tagging) etc. Infosys is also playing with the 360 degree conglomeration of older technologies.
Fresh new technologies without the need for the complete conversion of either retailers or manufacturers are emerging in 2008 and will come to the industry with less expensive answers, requiring little or no change in process, IT infrastructure or manufacturing. Companies like Ferveotech and ShelfSnap. And they are not taking tens of millions from VC/PE firms.
I agree that 2008 is the year that RFID got a foothold in the retail industry. There are many pilot projects moving forward that will ultimately prove a ROI and become wide spread. As with any new technology, however, this evolution always takes longer than visualized at the early stages of the technology development.
One of the major problems with the use of RFID technology has been its cost of acquisition to create the necessary infrastructure to track tagged products. The original thrust was tracking pallets and cases in the supply chain–they are already very efficient. Adding a large cost to get a 1% or 2% improvement in supply chain efficiency is very difficult to justify.
The best place to make any retail supply chain more efficient is in the store–the closer the visibility to consumer demand, the more accurate the product forecast, and the more efficient the supply chain. RFID solutions will work best when they can access the data from item-level tags at a low cost directly from the retail shelves. Tomorrow’s Mother (TM), a manufacturer and retailer of maternity clothes has installed RFID technology within some of its display fixtures and can retrieve the inventory by UPC at any periodicity it desires, currently 4 times per day. As this capability matures, TM will develop accurate inventory information from which to manage its in-stock position more clearly which will drive their replenishment more accurately. American Apparel has found improved store execution by having item-level tags for their apparel in the backroom. The data on changing inventory positions will also give them insight into consumer demand by UPC. Other pilots are in varying stages of evolution.
As these technologies mature, the retail industry will look back at 2008 and see that the transition to item-level tagging and in-store execution began in 2008.
RFID has been ready for a takeoff since 1992, when Walmart and IBM announced their (later killed) partnership. Great technologies don’t take 16 years to ascend.
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I was surprised to read “this was the year for RFID” this morning, as I just finished telling a business partner that I have seen many of my clients who once prioritized marketing their RFID capabilities, dial their efforts way down. It just seems they haven’t been able to achieve the profits they had hoped for by selling RFID products and services. This says to me that it has not been the year for RFID….
Add me to the roll of skeptics. I’m more comfortable with Ron’s timetable.
I’m one of a team that has been querying retail CIOs about their opinions on item-level RFID. Nearly all of the CIOs we’ve spoken with want to implement item-level RFID sooner than later.
Their pilots point to sales upticks due to better product availability. They anticipate faster turnover of items, which can be found more easily. They look forward to the promise of leaner inventory, and fewer items languishing in the back of the store. They want 10-minute inventory counts.
There are a lot of reasons why RFID is so rare in retail, and 2008 is not the turning of the corner. But there’s pent-up demand.
The American Apparel experience seems to be focused on improvement of their in-store processes. Specifically, how they manage their backroom to shelf procedures. This is such a relative factor, that depends significantly on individual starting points, that it is difficult to extrapolate one retailer’s results onto the general population.
What were the procedures that American Apparel already had in place? Were they monitoring POS transactions against in-store display allocations? The truth is that if a retailer already has in place a perpetual inventory on their POS system, the only thing that RFID can do is reduce the “buggy factor” and shrink. The buggy factor addresses items that have been removed from the shelf but not yet recorded at checkout, but this requires RFID readers at the shelf edge. Consumer related shrink has already been addressed by various security tagging, but RFID can address the shrink caused by misidentification during order picking and receiving errors.
As I learn more about RFID and a lot of very smart people are out of work in the economy, I become more concerned about using RFID at checkout. Security people always say there are three ways to confirm identity: something you own, something you know, or your physical characteristics. For humans these translate to an ID Card, a password, or your fingerprint. For an inanimate object the password or knowledge based characteristic does not exist. The other two ways for confirming identity translate to a “license plate” and the physical characteristics of the object. Barcode based shelf checkout systems recognize this by cross checking the UPC against the weight and dimensions of the item passing through the system or place in bags. In the case of RFID, we give up both the knowledge based and physical characteristics check. The consumer walking through a checkout with various items in their hands offers no opportunity for verifying anything but the RFID.
There are some options here, such as maintaining a list of all the RFIDs received in the store and then validating each sale against the IDs to check the serial numbers. This requires significant upgrades to POS systems. In the meantime, it is pretty easy to counterfeit an RFID. A modestly sophisticated teenager can purchase an RFID printer and flood the market with counterfeit tags. What would be their incentive? It could be as simple as “because they can.”
This has been said every year for the past five years and it is still being said. Until companies see direct ROI for them, they are not likely to make the switch. Unfortunately, it does end up as a chicken and egg argument. Until the warehouses and retail outlets utilize RFID, the vendors don’t get much return. Until the vendors are using RFID, the warehouses and retail outlets don’t get great return. Until something breaks the deadlock, we will be reading the same statement year after year–this is the year for RFID.
Five years ago, on this site, I predicted the following:
The timeframe I see for the CPG industry, and this is different than what Accenture recently published, is chips on most pallets by 2008, chips on most cases by 2012 and chips on (or in) most individual items by 2015.
At this point, I would tack on 3 to 5 years to each of these estimates. It’s interesting to note that Accenture’s forecast was much rosier than mine.
Hard to say. Even Wal-Mart has backed off on some of its tagging requirements for manufacturers.
Frankly, the retail industry has bigger fish to fry when it comes to technology. It’s surprising to see how many old legacy systems are out there and software more suited to 20th century technology. As such, I think capital expenditures will be focused on rebuilding or updating IT infrastructures. Without that, you can’t do things like wireless networks and RFID technology.
Widespread item-level tagging is still a few years away unless you’re selling Prada handbags. For mass retail, the emphasis will, of course, be on pallet-level tagging. The recalls of the past year have put the spotlight on traceability and the ability of companies to track product throughout their supply chains–not just one step forward or back.
The Produce Marketing Association has adopted GTIN numbers for its Produce Tracing Initiative on all shipments. Eventually this is going to lead to RFID tagging.
There is the old Catch-22 about there not being widespread use of RFID tagging until the cost of the tags come down and the cost of tags won’t come down until usage increases. I’m not sure if this is really the issue any more.
Oh good grief.
I am very bullish on the potential for RFID, more so of late as as I have thought it through a bit more, but I have been hearing “this is the year” for RFID annually since 2004.
In certain sectors, such as asset tracking and health care, which are unrelated to retail, RFID-based systems continue to move forward. There is also a reasonable amount of activity in “closed-loop” manufacturing systems (shop floor tracking, etc.)
But what happened in 2008 to say it was a turning point in retail? In late 2007, Wal-Mart announced it was dramatically changing its approach, and the original strategy is for all intents and purposes, dead for now. There is a Sam’s Club pallet tagging requirement of modest impact that just kicked in–let’s see where it goes.
No other large retailers I am aware of have made any public moves. Many, for sure, have looked at the technology, and most were waiting for Wal-Mart to do the dirty work of forcing compliance and learning from Wal-Mart’s mistakes at the same time, but right now there is no action act Wal-Mart’s regular stores nor these other chains.
It was in 2004 that Target announced an initial compliance program. Dropped, and nothing since then.
There is some action for sure in apparel, and a pretty good value prop. American Apparel is a vertically integrated chain, and can obviously decide to tags the goods it makes and use through point of sale. Sounds like a good ROI from what I have seen, and the general consensus, especially for apparel specialty chains, is that the inventory control benefits are very high in a sector where not having the right size loses a sale, and lost/misplaced inventory ultimately results in a big mark down.
But 2008 as the year RFID grabbed its foot hold in retailing? You’ve got to be kidding me.
Pundits seem to think, as I have seen over and over again, that saying “this is the year” will entice others to make RFID moves because they are afraid of being left behind or something. As if the big retail chains don’t move at their own pace, and know fully well what is going on. The pundits would be so much better off simply citing real examples of where value is being achieved, and/or real economic models by industry/application of the ROI. The American Apparel example has been beaten to death–the Great White Hope.
RFID will take off in retail when big chains start enforcing tagging mandates, and I think that is now several years away, or manufacturers start pleading with the retailers to add RFID readers so they can track goods better–but outside of promotional displays, they simply aren’t doing so.
Eventually, this will change our entire thinking, as we know where everything is all the time, and that change will be profound. But the rocket certainly did not leave the launch pad in 2008.
In the US, there have been very few RFID retail pilots at all, let alone at the item level.
The exception, as I noted previously above, is in specialty store apparel, where there have been a number of promising pilots.
Some of these specialty apparel retailers have even been fairly forthcoming in 2008 about the pilots/benefits.
So I think the business case for RFID in that specific retail category gained some important support in 2008, and that this will be the retail sector where we first see some real roll-outs/deployment. I can imagine CIOs in that sector (but not others) putting RFID fairly high on the priority list. A key barrier is the challenge of source tagging items correctly in Asia/low cost country sources, which struggle today with bar codes.
In sectors outside of specialty apparel there have been almost no pilots in the US other that Wal-Mart’s mega-pilot, which is what it was, and when RFID comes to many other sectors you will have to move through the pallet, case, item hierarchy, as noted above by others. Staples Canada is an exception, which did in 2008 have what it says is a successful item level pilot, interestingly using re-usable tags in store that it applied to some SKU categories itself (electronics, etc.).
There is more pilot activity in Europe, and Germany’s Metro Stores is far and away the retail pioneer/leader, charging fairly full speed ahead (though still slower than initial projections) while Wal-Mart and Tesco stumbled. There have been a few other full retail roll-outs in Europe, such as a Dutch (I believe) book seller, but think again it tagged goods itself in the DC, and did not rely on supplier tagging.
2008? Well it was the year that money flowed into RFID companies again. Near as I can tell about 75 Million into Altier, Goliath and others… Lots of hope and some quiet tests about item level shelf tags (still not item level tagging) etc. Infosys is also playing with the 360 degree conglomeration of older technologies.
Fresh new technologies without the need for the complete conversion of either retailers or manufacturers are emerging in 2008 and will come to the industry with less expensive answers, requiring little or no change in process, IT infrastructure or manufacturing. Companies like Ferveotech and ShelfSnap. And they are not taking tens of millions from VC/PE firms.
I agree that 2008 is the year that RFID got a foothold in the retail industry. There are many pilot projects moving forward that will ultimately prove a ROI and become wide spread. As with any new technology, however, this evolution always takes longer than visualized at the early stages of the technology development.
One of the major problems with the use of RFID technology has been its cost of acquisition to create the necessary infrastructure to track tagged products. The original thrust was tracking pallets and cases in the supply chain–they are already very efficient. Adding a large cost to get a 1% or 2% improvement in supply chain efficiency is very difficult to justify.
The best place to make any retail supply chain more efficient is in the store–the closer the visibility to consumer demand, the more accurate the product forecast, and the more efficient the supply chain. RFID solutions will work best when they can access the data from item-level tags at a low cost directly from the retail shelves. Tomorrow’s Mother (TM), a manufacturer and retailer of maternity clothes has installed RFID technology within some of its display fixtures and can retrieve the inventory by UPC at any periodicity it desires, currently 4 times per day. As this capability matures, TM will develop accurate inventory information from which to manage its in-stock position more clearly which will drive their replenishment more accurately. American Apparel has found improved store execution by having item-level tags for their apparel in the backroom. The data on changing inventory positions will also give them insight into consumer demand by UPC. Other pilots are in varying stages of evolution.
As these technologies mature, the retail industry will look back at 2008 and see that the transition to item-level tagging and in-store execution began in 2008.
RFID has been ready for a takeoff since 1992, when Walmart and IBM announced their (later killed) partnership. Great technologies don’t take 16 years to ascend.