Italian Retail Pilot Quantifies RFID's Many Benefits

Almost the same case-level accuracy performance applies to the receiving portals of the two stores, with 94 percent and 91 percent accuracy at case level, respectively. As far as the replenishment process is concerned, performance was not accurate enough to estimate reliable sale data. At the store in Curno, for instance, 75 percent of cases received were seen in transit from the back room to the store floor. Conversely, the trash compactor read point showed nearly perfect accuracy, with 99.5 percent reads of expected cases.

The use of RFID led to a 68 percent reduction in the time required to check the quantity and mix of goods shipped, as well as an 80 percent reduction in the time necessary to receive them. The results were calculated by comparing the time needed for the RFID-based processes with that required for the usual receiving processes, such as manually counting and identifying boxes on pallets.

The results were based on the 578 pallets shipped when the process worked properly, and omitted situations in which pallets were shipped when the software was experiencing a glitch, or when the work process was temporarily changed. Rizzi and his team then took the pilot results and applied them to the business case. "We wanted to know what the results would mean for the manufacturer, for the retailer and for the supply chain as a whole," he says.

Antonio Rizzi

From a managerial perspective, the pilot showed, through various calculations, that by employing RFID, a food manufacturer like Parmacotto could reduce the cost of order selection processes and save approximately €52,000 ($65,000) on an annual basis. That figure is based on roughly €65,000 ($81,000) in savings, offset by €13,000 ($16,000) in additional costs. Savings took into account a reduction in the time needed for such processes as bar-code readings during the picking process, and the manual counting of pallets. Savings from a reduced number of shipping mistakes and lower out-of-stock periods were also calculated into the benefits. Added costs resulted from the time required to utilize a handheld reader to scan the tags manually in order to improve the 86 percent accuracy of pallet reads from RFID portals.

By automating receiving, a retailer could save €141,000 ($175,000) by reducing the time necessary to receive products at the dock door, and by eliminating the need to manually input data for bill of ladings at its DC, since that information was available online. This value was determined through a similar calculation, as described above. What's more, actual receiving time was reduced from 9.5 minutes to two minutes per pallet. "The benefits of RFID look like an iceberg," Rizzi says. "The biggest benefits are not visible." These include reduced safety stocks, the automation of administrative processes and improved customer service.

One hidden benefit would be a 30 percent reduction in the amount of safety stock a company must hold in reserve to meet changing demand. The savings come from real-time visibility of stock levels provided by RFID at the store. This visibility reduces the so-called bullwhip effect the manufacturer faces, by meeting demand based on order forecasts, rather than on actual sales. Rizzi calculated that safety stocks could be reduced by almost 30 percent, by forecasting demand through RFID-derived sales data instead of orders placed every two days. This reduction, he says, could save a manufacturer like Parmacotto roughly €52,000 ($65,000) each year.