Item-Tagging’s Barriers and Benefits

May 17, 2006Retailers that had planned carefully and taken a "launch and learn" approach have already proven there are real benefits to item-level tagging, according to RFID services provider VeriSign, item-level tagging platform provider Vue Technology and label systems provider Paxar.

RFID experts from the three companies, speaking at an RFID Journal webinar on Tuesday, discussed the benefits of item-level tagging for retailers, the perceived barriers and ways to surmount them, and the best practices of companies that have already piloted or implemented an RFID item-level tagging program at their stores, including Marks & Spencer and VF Corp. (see Marks & Spencer to Extend Trial to 53 Storesand VF Returns to Item-Level Tags).

Item-level tagging can offer a return on investment (ROI) for several reasons, says VeriSign principal consultant Paul MacKinaw. For one thing, it reduces out of stocks (OOS)—which, he says, currently cost the global retail market $120 billion each year—while also reducing inventory shrinkage (i.e., theft by staff or outsiders). Item-level tagging also limits excess inventory and offers improved customer service. Based on VeriSign studies of pilots already completed, MacKinaw explains, the technology reduces receiving time by 90 percent, and shrinkage by 20 to 50 percent. This happens through improved inventory visibility. MacKinaw recommends that any business determine the benefits it hopes to derive from RFID, then compare their business goals against their technology infrastructure, form an analysis phase and place the tags on individual items.

Commonalities were found among retailers that have successfully initiated RFID pilots in which individual items were tagged and tracked, the panelists agreed. Among such commonalities were the involvement and support of the retailer's management. Because RFID technology use affects so many different facets of the retail enterprise, the involvement of all the staff, coupled with strong oversight from management, is the only way to deploy it successfully.

"RFID has the tendency to change enterprise mentality," says Richard Bauer, who handles RFID global program development for Paxar. "The return on investment comes from a variety of places, and that is why you need a team approach, as well as support and vision from upper levels of management."

Many retailers have not yet reached the pilot phase of item-level tagging because of the perceived barriers to RFID, says Jamie Kress, Vue Technology's director of sales and marketing. Kress points to such technical roadblocks as concerns about reader density creating multiple reads, the high cost of tags, end-to-end gaps and hardware management complexities that have kept many retailers from launching their own pilots. While the cost of tags is dropping, he says, even at the current average price of 12 cents per tag, the ROI is there for retailers who choose to use item-level tagging on at least some of their items. He adds that EPCglobal's Gen 2 standard is helping eliminate the multiple standards and interoperability questions, bringing the read rate up to about 99 percent.

Kress suggests companies consider limited deployments, putting a solution in place in one area of a store or one kind of product depending on the needs of the business. This, he says, reduces the amount of tags needed because it focuses on putting tags on the highest-value retail items rather than on every product in the store.

Bauer cites five steps for successful RFID pilots. A company needs to put together a multifunctional RFID team that includes people from operations, IT, purchasing, distribution and finance. They must also have strong support from management to oversee the pilot's implementation, he says, because the technology affects so many aspects of a store's operations. That team then needs to develop a plan to work with company partners to analyze the flow of inventory, calculate the ROI and determine the optimal RFID tagging solution. The team needs to identify the main point of starting, an area where the company needs to see improvement.

Retailers must ultimately launch and learn. If a company has multiple stores, it should start tagging at only two to four location; if it owns only one store, it should start with one area of that store. It should take about two days to tag the items, then get them on the floor and start running the system, he says.

"Quickly implement the tagging over a weekend or a 48-hour period, work to a deadline and move forward," says Bauer, recommending "a review date every two weeks" to assess how well the system is working. Assessment is the final phase, in which retailers take the data back to their ROI calculators and look at the hard information their trial showed. "Conduct a solid management review," Bauer says.

The full webinar, "RFID with a Business Case: the Proven Benefits of Item-Level Tagging in Retail," will be available for on-demand viewing by going to webinar archive.