RFID - Value for Money

Increased market value constitutes the ultimate goal of RFID implementation. In order to assess this value the technology needs to be rolled out and the data to be analysed. Hopefully, this will eventually result in the augmented market value pursued through the investment. Examples of this value are the subject of this article, where the Innovation-Lab Knowledge Exchange conveys Dr. Bill Hardgrave's bid for areas suitable for RFID implementation. Bill Hardgrave is the Executive Director of the RFID Research Center at the University of Arkansas

Submitted by Adam Thomsen on 3 January 2008.

Market value in the retail supply chain – out-of-stock products

Hardgrave explains that initialising their RFID project, Wal-Mart started out by focusing on a reduction in OOS products (Out-Of-Stock products). An average of 8% OOS in all the Wal-Mart stores represented a considerable problem since this equalled non-sale. Also, they saw this as an area where RFID could really make a difference.

Thus, one of the major questions was whether RFID could contribute to a reduction in OOS, and – hence – how. To better understand how, an explanation of Wal-Mart's product processing will be in order. Hitherto, this has been a manual process carried out by the employee in charge through inspection of the shelves by handheld scanner. Where the employee detects a shelf being 'near out of stock', he will scan the matching barcode from the shelf, and subsequently the scanner will inform him of the current inventory situation. In case the product is on stock, a 'pick list' will be generated – a pick list informing the warehouse clerk about the items in need of replenishment.

Already at this stage a problem will arise – for, according to Wal-Mart's own investigations, the inventory actually proved to be inaccurate in more than 55% of the cases. An incredulous Hardgrave informs us that, more than half the time, product ordering and replenishment are based on faulty figures.

The source of this inaccuracy can be attributed to anything from theft and other types of wastage to human errors, etc. The fact remains that this method is an unreliable one.

Having received the pick list, the warehouse clerk will then proceed to search for the product in the storage facility. Finding specific merchandise in warehouses as large as Wal-Mart's may frequently prove a futile exercise. In such cases, the clerk will set the inventory at 0, which will then release the automatic order to replenish the product in the relevant store. 

This is fine as long as you are out of stock. But, if a consignment has already been ordered, the system will translate this into sales figures and turnover of an incredibly large number of this particular product. The shelves, however, will remain empty, while – for a considerable time – no sale will be taking place. This will generate artificial fluctuations in demand – the demand constituting the basis of the number of units produced by manufactures.

This may perhaps not seem to constitute any major problem; but, considering the size of Wal-Mart, the problem suddenly becomes a very tangible one.

Due to the visibility developed by RFID, this could be a method to solve much of the problem. Where the RFID system registers a carton having arrived at the warehouse without moving any further, one thing can be safely predicted, namely that the product is still at the warehouse. If, at the same time, it can be registered how many products have left the store through sale or otherwise, pick lists can be automatically generated – unassisted by a manual scan. Further, using a portable RFID scanner, the warehouse clerk will be enabled to find the carton with the products, and he will cease to manually reset the inventory.

Hardgrave points out that not only will the OOS percentage be reduced, there will also be a simultaneous reduction in the number of manual orders – which will again mean fewer man-hours and minimization of payroll costs; and moreover, there will, at the same time, be a reduction in human errors. Preliminary study results from the RFID-enabled stores showed a 30% improvement and as much as 62% for products with a fast marketability. And this just by implementing RFID in the stores.

Business value in the retail supply chain – campaigns, recalls and reduction in wastage

Hardgrave states that, to Wal-Mart, another important area was the profitability of campaigns – i.e. advertising and special prices for limited time spans. In such instances, it is of particular importance that specific products reach the store during the campaigning period since, otherwise, it would not be profitable. Here, RFID will contribute not only to ensure that the merchandise will reach the shelf, but also to facilitate a central monitoring of the stores. Hardgrave mentions an example where two different stores were scheduled to conduct the same campaign. In one store, the product was for sale during the entire campaigning period, whereas the other had a backlog of two days; and this meant a drastic drop in sales. Using RFID, it was feasible to determine the cause of this drop in sales figures for the other shop.

Recall of faulty or hazardous products represents another area for improvement. Here enhanced visibility makes it possible to withdraw only the faulty products and not every product of the same kind. Barcodes does not enable Wal-Mart to see to where the single product has been shipped – only that certain stores have received a shipment of this type. Thus, it will be necessary to even recall products neither faulty nor hazardous. Exemplifying further, Hardgrave, recounts of a large manufacturer of peanut butter losing 15 million dollars on the withdrawal of a quantity of products from Wal-Mart. This, in fact, not counting the cost of bad reputation and lost sales; the figure only represents the value of the products actually withdrawn.

Yet an area where RFID can really make a difference is in reduction of wastage. Here Hardgrave once again points out the feasibility of detecting with pinpoint accuracy where the wastage occurs, rather than just 'somewhere in the store'. This can be done partly because registration of the products takes place at every store location, and partly because the number of times actually involving human action will be reduced. This not only minimises the possibility of deceit, but it will also make it possible to step in at the exact spot where intervention is needed.

Another benefit from RFID-enabled wastage reduction lies in a reduction of the 'buffer stock'. This represents the stocking of products with a high wastage percentage, and therefore such merchandise will have to be ordered in larger amounts in order to prevent empty shelves in the stores. The need for carrying a buffer stock will be reduced, in part due to less wastage but also due to improved management of the stock level. This, then, is a twofold benefit.

Business value in the distributive trades and in the transport business

Embarking on this subject, Hardgrave mentions the electronic proof of dispatch and reception as one of the foremost merits. This is not just a question of being able to document the dispatch of a certain number of pallets and cartons; it is also about what's in them. Where the dispatcher ships off 24 boxes of ordinary toothpaste and 24 boxes of whitening toothpaste, it may frequently appear as if the recipient have received 48 boxes of one type.

The explanation is that, most often, a manual scan will only scan the uppermost box. RFID will prevent such instances – thus enhancing precision considerably. This is yet another result of the visibility.

According to Hardgrave, precision is of immense importance to the transport business – alongside the loading and hauling of goods. Not having to scan every single shipment is a highly time-saving feature; and an automated system makes it much easier to ensure that the correct pallets and cartons will reach the relevant recipients.

One particularly problematic area for transport businesses is the management of maintenance of machinery, trucks, spare parts and tools. An automatic monitoring of the condition of wheels and subsequent booking of service checks could be one example. So, other than being applied in connection with registration of shipments, RFID could also be used for the safeguarding and maintenance of the transport company's own assets.

Business value for producer and wholesale trader

Also with respect to producer and wholesale trader there are areas capable of generating business value. This could, for instance, result in a more targeted use of sales representatives and consultants. Exploiting the visibility which RFID generates in the retail supply chain, you would only have to visit stores not selling well, or stores having empty shelves where your products ought to be. Should it turn out that there is a considerable wastage of your products, you could have one of your consultants look into the problem. In this respect, perishable goods in particular will constitute an area where enhanced visibility would be valuable. Hardgrave can relate about stores experiencing substantial wastages in their fruit and vegetables department. A visit from the supplier could reveal that the store in question was in the habit of shelving produce not tolerant of each other in close proximity – be that bananas and tomatoes, kiwis and cucumbers, or whatever: the main thing is that the problem was solved.

Recoverable packaging would also be an area of potential interest. If products are shipped in special boxes or containers which the manufacturer would like returned, precise registration of packages would represent a colossal difference. It would, in fact, make it possible to demand compensation from distributor, reseller or store, should they neglect to return the packaging.

Obviously, in many of these areas it will take a great effort to make this pay off. Some areas will even require RFID systems implemented throughout the supply chain. Yet, this technology comprises definite advantages not available elsewhere. This means that anyone on the lookout for means to improve their business should take a serious look at RFID.