Making Informed Decisions in a Market Clouded by Hype

By Martin Brewer

The drive for efficiency in the retail and supply chain industries has never been greater. The undeniable truth is that labor rates will continue to rise, and the amount of customer allegiance that solely depends on traditional values such as service and personal attention has largely shifted and become the exclusive territory of specialized outlets.

Competition in the retail industry has led to many innovations that, at the end of the day, are there to cut costs. On average, stores are now larger than ever. Consumers are no longer surprised to both check out and pack their own groceries. However, beyond these measures, what else can be done to improve margins for the retailer, while at the same time ensuring that competitive consumer prices are maintained?

For these reasons, manufacturers, retailers, and logistics companies have looked at ways of improving the processes that get a product from producer to consumer. Before we start looking at technology, it's worth examining a sample of the myriad of problems the supply chain faces and the applicability of RFID to those problems.

Defining RFID solutions

Out-of-stocks — Out-of-stocks is the most visible of problems. The item is not on the shelf and the consumer is forced to change brand or shop elsewhere. Retailers have performed exhaustive analysis of this problem and have hard evidence that shows the loss in business this contributes to their balance sheets. On the face of it, the problem is quite simple—how to get goods from the store room to the shop floor when replenishment is needed. RFID might be just the solution, since the biggest challenge in this case is finding the right box in the store room quickly—a problem that may play into the non-line-of-sight nature of RFID when used in combination with a mobile reader.

Availability of stock — A second area of focus directly related to out-of-stocks is about ensuring that the store room has available stock in the first place. Our attention now shifts to tracking product as it moves through the supply chain. The majority of large retailers today have very little visibility into what, precisely, is en route. The store knows what's been ordered and when shipments arrive, which is correlated and checked in. However, by gaining visibility into where a product lies physically between the store and the factory provides a number of advantages:

• Customers waiting for product can be provided with accurate delivery information.
• The time from stage-to-stage in the supply chain can be measured. A store can now proactively predict when to order product so out-of-stock scenarios are avoided.
• A manufacturer can now get real-time information on how their product is selling, allowing better management of raw material supply.

RFID, when applied to logistics, can be deployed such that it requires little human intervention. When a pallet moves through a door in a warehouse, it's tracked. And with case level tracking, when an old pallet is replaced, the new pallet is tracked.

Asset tracking — The third area to focus on is avoiding costly mistakes. The supply chain is labor intensive since it involves moving large amounts of product from place to place. On occasion, product is delivered to the wrong location. This can cost the retailer dearly, since only they know how much of a product can be sold at a given location in a set period of time. If the product is time-sensitive, seasonal, or perishable, these types of mistakes can add up quickly. In addition, manufacturers who supply the wrong quantity or deliver to the wrong distribution center can end up with a bill for storage while the mistake is resolved. Again, how can processes and technology help reduce these problems? And again, when deployed correctly, RFID can provide additional checks and measures to signal process problems precisely when they happen. Such process improvements help companies avoid the costly remedial action that would have to be taken later.

Streamlining — Lastly, there's the existing processes used in the supply chain for goods tracking. For example, pallets upon arrival at a depot are checked in and cross-referenced with Advance Shipment Notifications. However, the time it takes to do this can be significant and mistakes can be made. It's quite common for items to be checked-in as "available" for picking, but the product isn't on the shelf or is misplaced. Can technology come to the rescue?

When is RFID the best solution?

None of the problems described here are new and all have been central to the case made for solutions powered by RFID. But one question that must be asked is: although RFID purports to address each of these problems, is it the only technology for the job? Perhaps other technologies and processes used in concert with RFID might yield better results and cost less to implement.

A more realistic and pragmatic approach would be to take a step back and first determine the problem without eyeing a solution. Only then should you think about which technology to apply. If efficiencies can be realized through additional tracking information, then barcode technology may well be a better choice, as it might be able to utilize equipment you already own. RFID is often hyped for its ability to track individual items uniquely because of the additional information held in the tag. In essence, RFID offers more granularity than its UPC code counterpart. But comparing UPC barcodes to RFID EPC codes isn't really a fair comparison since there's no rule anywhere that says barcodes can only be UPC codes. They can be used to track as much data as you're prepared to print on a label. If a business case relies solely on tracking, then RFID is an answer, but not the only answer. If, however, you want to reduce the time it takes to track shipments, then RFID might offer some real advantages.

Taking the issue of pallet stock check-in times, RFID holds a lot of promise. In an ideal world, the pallet truck driver simply passes the stock through a portal and all of the goods, each with their individual serial numbers and item codes, are read in a matter of seconds. However, we don't live in an ideal world. RFID tags fail and are occasionally placed in areas the portal can't reach; plus, some materials pose problems for RFID signal penetration. There could be problems down the road as well.

Getting an RFID portal to operate effectively is not an exact science since it relies on efficient radio energy transfer between a tag and a reader. As reader portals are added and tag inventory builds up in a warehouse, tag, and reader noise become a real issue, resulting in poor performance. This manifests itself through increased portal check-in times and manual intervention through increased exceptions. Exceptions, such as a reader that is simply unable to read all of the tags on a pallet, shouldn't happen too often, but they are costly to remedy over time.

The RFID business case

Does this all mean that RFID is an exercise that might cost more than it saves? If your business case relies on 100% reliability and doesn't allow for some of the inherent weaknesses that might present themselves, then you may be disappointed on the return on investment. But when you consider that the supply chain today has very little visibility at all, your application (even with dips in efficiency due to exceptions and other issues) may still yield real returns.

This would be a convenient place to stop and wish you well in your RFID endeavors, but there's something very obvious that you need. The business case for RFID will need metrics in order to determine how effective it is. Let's go back to our pallet check-in system. Metrics must be ongoing, since a measurement of RFID efficiency on January 1st might be very different from that seen on December 24th. Pallet shipments change depending on the season and that will have an impact on the performance of your system. Having a management system in place to provide the necessary data about check-in times, exceptions observed, the kind of exception handled, and even reader faults enable your organization to adapt to the changing dynamics of the system and ensure that it's running within the design limits to yield a positive return on investment.

By using common sense and a sound business case, RFID technology can be applied successfully in many aspects of the supply chain and retail markets. By employing technology to applications based on merit rather than hype, businesses can yield the best returns from their existing investments while applying RFID in a pragmatic manner that plays to the strengths of the technology. Combining that with metrics that show clear process improvements will ultimately lead to an improved bottom line, loyal customers, and happy shareholders.

Martin Brewer serves as the Director of New Product Development at Wavelink, with more than 13 years of experience in both wired and wireless data communications. He has held many senior positions with technology leaders such as Siemens, 3Com, Packet Engines, Alcatel, and Vivato. Most recently, Brewer has been providing leadership for next-generation products with particular focus on RFID. At Wavelink, Brewer is now examining every aspect of the RFID-enabled supply chain to find compelling value through both evolved and new products in the Wavelink portfolio. Contact Mr. Brewer at at mbrewer@wavelink.com.