Dec 15, 2005This article was originally published by RFID Update.
December 15, 2005—The manufacturer's struggle to derive benefit from retailer RFID mandates is well-documented. A compelling business case for use of passive RFID within a plant's four walls is virtually unattainable for all but the least automated operations, so collaboration with supply chain partners is a necessity for driving payback. Most leading manufacturers, however, already employ sophisticated, bar code-based auto ID systems that provide much of the supply chain information promised in EPC justification, so for them the incremental supply chain value proposition can be minimal. Leading-edge EPC RFID adopters are instead focusing their EPC justification on one of the last frontiers of the manufacturing-retail supply chain: inside the retail store itself.
Inability of most manufacturers to cost-justify EPC RFID for internal use within manufacturing operations is often testimony to the sophisticated processes already implemented by leading retail suppliers. Instead, many of the "four walls" justification stories are from lower-tier manufacturers who may be leapfrogging conventional auto ID and deriving the type of benefits currently associated with bar code-based auto ID systems.
The sophistication of the bar code systems already employed by most upper-tier manufacturers minimizes the incremental value proposition for EPC RFID because of the plant and/or warehouse visibility these systems already afford. This translates to less-than-compelling potential savings for manufacturers who "may be able to save half a guy" in their warehousing operations.
The lack of perceived EPC RFID value proposition in areas where optimized auto ID systems are already in place, or where the business value of the data generated at the plant or warehouse level does not outweigh the cost of implementation, leads many manufacturers to adopt a minimalist philosophy when it comes to EPC RFID. There are lessons to be learned, however, from the benefits being pursued at the retail level by upper tier CPG, food, and OTC pharmaceutical providers.
For P&G/Gillette, Kraft Foods, and other leading-edge adopters, EPC RFID is the mechanism for ensuring the holy grail of retail availability: that the right product is in the right place, at the right time, and at the right price. Reduced stockouts and their inverse, retail availability, are one of the most ubiquitous benefits cited by Tier 1 manufacturers in their pursuit of EPC RFID. Wal-Mart itself says that, on a given Saturday afternoon, a full one in twelve products is out of stock on their store shelves. This eight percent average for stockouts is an approximate norm for the retail industry, but one that varies widely by product type.
The quantifiable benefits of in-store product data generated by EPC RFID are not limited to retail availability. In-store data access offers a means of both solving ongoing problems, such as display compliance, product velocity, or shrinkage, as well as the ability to manage infrequent events such as product recalls or warranty returns.
The salient characteristic of most of these benefits is that the information necessary to enable their execution was previously not available to the extent offered by EPC RFID. Retail suppliers should therefore take note of the actions of early adopters, such as P&G's alliance with T3Ci or Kraft and other manufacturers' planned integration of EPC data with their SAP systems, with an eye toward reaping the type of benefits these suppliers expect to derive at the last frontier of the retail supply chain.
This "lesson from the leaders" has tremendous implications for other manufacturers subject to retailer mandates for EPC tagged cases, pallets, and ultimately items. Manufacturers in general recognize that EPC ROI will be derived from collaborative rather than solely internal efforts, so retailer cooperation in providing timely "data from the trade" is required when focusing the search for benefits on product visibility at the retail store. With the bulk of EPC benefits derived at the end of the supply chain, manufacturers who do not implement the collaboration and infrastructure necessary to take advantage of EPC data at the retail level will be left with a pure cost-adder and greater distance between the haves and have-nots in the retail supply chain.
