April 11, 2007
Supply Chain Digest: EPC/RFID Success Requirements Revisited
By Dan Gilmore, Editor-in-Chief, Supply Chain Digest
Through a special arrangement, what follows is an excerpt of a current article from Supply Chain Digest magazine, presented here for discussion.
In the last several weeks, the industry has seen a significant amount of discussion and controversy in both the general press and RetailWire around RFID, or more specifically the “Electronic Product Code” (EPC) version of RFID used in the consumer goods-to-retail supply chain (and by Wal-Mart and its suppliers).
The recent spike in debate was triggered by a Wall Street Journal article that painted a negative picture of Wal-Mart’s RFID rollout. Wal-Mart and others responded, with a letter to the editor from CIO Rollin Ford, who basically said the program is on track, vendors see the value, and it’s all about reduced out-of-stocks, not operational cost savings. Wal-Mart also mustered up support from a few CPG companies, such as a positive statement from Campbell Soup’s CIO Doreen Wright, who said, “It’s hard to dispute the value of this technology,” referring specifically to RFID use to track store promotional displays.
Almost in parallel, however, Sara Lee’s CIO said the timeframe for ROI for manufacturers was well off due to costs and technology performance, while an Information Week story also said ROI was not likely for manufacturers any time soon.
With all that, Supply Chain Digest took a fresh look at the list we compiled in 2005 of What is Necessary for ECP/RFID to Thrive in the retail supply chain. That list, with updated comments, still seems mostly right on target to us:
Clear identification must emerge of the incremental benefits of RFID over other auto ID technologies: The real economic benefits over bar coding are not clear.
Total supply chain costs must be reduced for manufacturers and retailers: If Wal-Mart saves money but it doesn’t reduce total supply chain costs, it’s a win-lose.
Reference to the “five-cent tag” should stop: This was positioned as the key price point needed to deliver value, but that was wrong, and we aren’t going to get there any time soon in any case.
Tag and tag application costs must come down: As Sara Lee’s CIO noted, ROI for manufacturers is just not possible at current price points.
Real global standards must emerge: The standards situation is still a little muddled, but probably not a big barrier today.
Technical performance must improve: It is still very difficult to read a full pallet of cartons reliably. Gartner group said the notion of “X-Raying” a pallet of cartons is not in the cards any time soon.
Rollouts should be pushed at a measured, ROI-driven pace: The timing of supplier mandates should be synched more specifically with the costs-benefit equation. This is actually the approach being taken by the UK’s Tesco chain.
Thought leaders need to share more specifics about finding the ROI: If it’s there, consumer goods manufacturers who think they have found it need to be more open. The lack of openness leads many to believe the ROI doesn’t exist. Most of the discussion now is around promotional items/displays, but that is a limited application.
RFID-centric business applications must emerge: Few companies have software that can truly take advantage of RFID data and capabilities.
Ecosystems to enable upstream tagging by suppliers to consumer goods companies must develop: Many manufacturers don’t even trust offshore suppliers to bar code correctly. Getting them to encode RFID tags correctly is a whole new challenge that will limit adoption for a while because the costs of hand tagging here are huge.
Discussion Questions: What would you add or subtract from this list? In which area(s) do you think the most progress is being made? How does the perspective differ from retailer to manufacturer?
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The RFID-EPC list of success requirements is sufficient as a preliminary consideration however the cost to the small manufacturer should be further measured. I have a growing concern that many of the newer costs for manufacturers to do business with large retail chains might hurt the chances for innovative entrepreneurial products to find their way on to the shelves. This is not good for the retailer, the small manufacturer, and especially not good for the consumer.
At the vendor level, I agree with the need to share best practices, struggles and successes. Too many vendors suffer in silence as they implement new initiatives; RFID and now data synch being the latest. They assume that someone else is getting it “right” or realizing ROI. Unfortunately, the highly-competitive (paranoid?), post-consolidation atmosphere at retail exacerbates the problem. No one wants to show weakness or give the other guy an edge.
Is there an RFID enabling company out there providing vendor forums in which vendors can safely share their RFID travails?
In the ’70s, a similar situation existed during the creation and implementation of the UPC. But it was not the technical expertise of food industry leaders that accomplished that task, rather it was the total inclusion of multiple sectors that engendered an unprecedented level of cooperation between food industry participants. This later translated into the Uniform Code Council and EAN management structure that refined, promoted and defended the basic system and programs over the many years since.
Today’s efforts to establish RFID identification techniques attempt to mold the same wide partnerships that will face many similar problems. We must again show the ability to create an industry consensus around this issue thus enabling vested-interest leadership and ROI demands to cut through the conflicting messages and complete the task. Let’s hope so–RFID awaits.
I like the list and agree with Nikki on the need for a variety of tags for a variety of applications. I did feel compelled to once again re-organize a list on this site based on my view of importance:
RFID-centric business applications must emerge.
Real global standards must emerge.
Total supply chain costs must be reduced for manufacturers and retailers.
The right tag for the right job.
Technical performance must improve.
Tag and tag application costs must come down.
Thought leaders need to share more specifics about finding the ROI.
Rollouts should be pushed at a measured, ROI-driven pace.
Clear identification must emerge of the incremental benefits of RFID over other auto ID technologies.
Ecosystems to enable upstream tagging by suppliers to consumer goods companies must develop.
Reference to the “five-cent tag” should stop.
I have kind of enjoyed the fact that up until recently RetailWire had ignored RFID after all the hoopla a few years ago. I think it is now obvious to just about everyone that the hype got far ahead of the reality (“the boxes told us”). The basic laws of physics have made the economics to build an RFID infrastructure too expensive…at this time. That is the key point. Eventually it will be possible and then benefits will accrue all along the supply chain.
What has been wrong up to now is that we have tried to jump to the end game without taking the “baby steps” that would make it economical to get there. First of all, let’s realize that Tags are just one part of the requirement. We need readers placed in stores and receiving docks. We need software upgrades that support event driven applications. And then we need the tags.
We should be focusing on getting readers in place by introducing applications such as asset tracking for shopping carts and store equipment. We can use this to monitor performance on end displays and floor cleaning and other in-store operations areas. We can put applications in place that support “serialization” by tracking coupons and putting RSS bar codes on perishables and high theft items. All this will take several years to accomplish and roll out, but by then the EPC should be ready for prime time and the infrastructure and applications necessary to achieve benefits will be in place.
I enjoyed the above comments on this piece that I contributed to RetailWire. Wanted to added one additional comment about the notion of adding “the right tag for the job” onto the list of success factors.
I agree wholeheartedly, both with the notion of getting the right tag for the job, and with the idea that there are a variety of potential retail applications for RFID (which may require different tag types).
That said, the controversy, if you will, really is about the basic tagging of (for now) pallets and especially cartons going to Wal-Mart. While different tags for that basic application from different vendors can perform differently, based on the product being tagged and other factors, they are all using the EPC Global Gen 2 spec.
Our “success requirements” were really geared specifically at that tagging requirement/opportunity/controversy.
There are many other potential uses for RFID (and different tag types) that may add more value in the short term for both retailers and manufacturers. Which is why we think that “Rollouts should be pushed at a measured, ROI-driven pace” is also so key, applying both the carton tagging and these other applications.
For WM, RFID is mostly about online sales. Their RFID initiative is a precursor to a bigger sales future via the internet, while its critics’ imaginations still are mired in the mud of brick and mortar applications. (Please excuse the “earthy” references.) RFID will enable WM to leapfrog over Amazon.com in online sales.
As always, retail icon Gene Hoffman (and one of my personal heroes) referenced the appropriate historical example. Barcode technology was introduced in 1964 as a striped bullseye. The supermarket industry endorsed the eventually-shortened code in the early 70s, and more than thirty years later they’ve almost completely integrated barcode technology into the U.S. retail system. Why do we expect RFID technology to be any different?
As much time and research has been spent on this already in the industry, there really needs to be a “best practices” guide for implementing RFID. Including cost of equipment and software to support the analysis of the huge amount of data a fully functioning RFID system/process will generate.
I would add to the list: The right tag for the right job.
One tag does not have to fit all solutions. People talk about tags as if they are all the same and they’re not. And, there’s real potential for different applications using different kinds of tags–counterfeit prevention for example, needs near field communication, not the 10-20 feet of passive supply chain tags.
No retailer in the world has greater resources than Wal-Mart. Yet Wal-Mart hasn’t installed RFID in 100% of its facilities and isn’t using 100% RFID in the supply chain it controls completely: its private label merchandise. If RFID was a financial plus, it certainly would’ve been installed in all facilities by now and all Wal-Mart private label goods would have it. Seeing the slow, incomplete Wal-Mart adoption, retailers of more modest means are unlikely to demand a position at the bleeding edge.
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The RFID-EPC list of success requirements is sufficient as a preliminary consideration however the cost to the small manufacturer should be further measured. I have a growing concern that many of the newer costs for manufacturers to do business with large retail chains might hurt the chances for innovative entrepreneurial products to find their way on to the shelves. This is not good for the retailer, the small manufacturer, and especially not good for the consumer.
At the vendor level, I agree with the need to share best practices, struggles and successes. Too many vendors suffer in silence as they implement new initiatives; RFID and now data synch being the latest. They assume that someone else is getting it “right” or realizing ROI. Unfortunately, the highly-competitive (paranoid?), post-consolidation atmosphere at retail exacerbates the problem. No one wants to show weakness or give the other guy an edge.
Is there an RFID enabling company out there providing vendor forums in which vendors can safely share their RFID travails?
In the ’70s, a similar situation existed during the creation and implementation of the UPC. But it was not the technical expertise of food industry leaders that accomplished that task, rather it was the total inclusion of multiple sectors that engendered an unprecedented level of cooperation between food industry participants. This later translated into the Uniform Code Council and EAN management structure that refined, promoted and defended the basic system and programs over the many years since.
Today’s efforts to establish RFID identification techniques attempt to mold the same wide partnerships that will face many similar problems. We must again show the ability to create an industry consensus around this issue thus enabling vested-interest leadership and ROI demands to cut through the conflicting messages and complete the task. Let’s hope so–RFID awaits.
I like the list and agree with Nikki on the need for a variety of tags for a variety of applications. I did feel compelled to once again re-organize a list on this site based on my view of importance:
RFID-centric business applications must emerge.
Real global standards must emerge.
Total supply chain costs must be reduced for manufacturers and retailers.
The right tag for the right job.
Technical performance must improve.
Tag and tag application costs must come down.
Thought leaders need to share more specifics about finding the ROI.
Rollouts should be pushed at a measured, ROI-driven pace.
Clear identification must emerge of the incremental benefits of RFID over other auto ID technologies.
Ecosystems to enable upstream tagging by suppliers to consumer goods companies must develop.
Reference to the “five-cent tag” should stop.
I have kind of enjoyed the fact that up until recently RetailWire had ignored RFID after all the hoopla a few years ago. I think it is now obvious to just about everyone that the hype got far ahead of the reality (“the boxes told us”). The basic laws of physics have made the economics to build an RFID infrastructure too expensive…at this time. That is the key point. Eventually it will be possible and then benefits will accrue all along the supply chain.
What has been wrong up to now is that we have tried to jump to the end game without taking the “baby steps” that would make it economical to get there. First of all, let’s realize that Tags are just one part of the requirement. We need readers placed in stores and receiving docks. We need software upgrades that support event driven applications. And then we need the tags.
We should be focusing on getting readers in place by introducing applications such as asset tracking for shopping carts and store equipment. We can use this to monitor performance on end displays and floor cleaning and other in-store operations areas. We can put applications in place that support “serialization” by tracking coupons and putting RSS bar codes on perishables and high theft items. All this will take several years to accomplish and roll out, but by then the EPC should be ready for prime time and the infrastructure and applications necessary to achieve benefits will be in place.
I enjoyed the above comments on this piece that I contributed to RetailWire. Wanted to added one additional comment about the notion of adding “the right tag for the job” onto the list of success factors.
I agree wholeheartedly, both with the notion of getting the right tag for the job, and with the idea that there are a variety of potential retail applications for RFID (which may require different tag types).
That said, the controversy, if you will, really is about the basic tagging of (for now) pallets and especially cartons going to Wal-Mart. While different tags for that basic application from different vendors can perform differently, based on the product being tagged and other factors, they are all using the EPC Global Gen 2 spec.
Our “success requirements” were really geared specifically at that tagging requirement/opportunity/controversy.
There are many other potential uses for RFID (and different tag types) that may add more value in the short term for both retailers and manufacturers. Which is why we think that “Rollouts should be pushed at a measured, ROI-driven pace” is also so key, applying both the carton tagging and these other applications.
For WM, RFID is mostly about online sales. Their RFID initiative is a precursor to a bigger sales future via the internet, while its critics’ imaginations still are mired in the mud of brick and mortar applications. (Please excuse the “earthy” references.) RFID will enable WM to leapfrog over Amazon.com in online sales.
As always, retail icon Gene Hoffman (and one of my personal heroes) referenced the appropriate historical example. Barcode technology was introduced in 1964 as a striped bullseye. The supermarket industry endorsed the eventually-shortened code in the early 70s, and more than thirty years later they’ve almost completely integrated barcode technology into the U.S. retail system. Why do we expect RFID technology to be any different?
As much time and research has been spent on this already in the industry, there really needs to be a “best practices” guide for implementing RFID. Including cost of equipment and software to support the analysis of the huge amount of data a fully functioning RFID system/process will generate.
I would add to the list: The right tag for the right job.
One tag does not have to fit all solutions. People talk about tags as if they are all the same and they’re not. And, there’s real potential for different applications using different kinds of tags–counterfeit prevention for example, needs near field communication, not the 10-20 feet of passive supply chain tags.
No retailer in the world has greater resources than Wal-Mart. Yet Wal-Mart hasn’t installed RFID in 100% of its facilities and isn’t using 100% RFID in the supply chain it controls completely: its private label merchandise. If RFID was a financial plus, it certainly would’ve been installed in all facilities by now and all Wal-Mart private label goods would have it. Seeing the slow, incomplete Wal-Mart adoption, retailers of more modest means are unlikely to demand a position at the bleeding edge.