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Getting to the Tipping Point

Apparel retailers and manufacturers will soon be engaged in a "virtuous cycle" that will lead to item-level tagging throughout the supply chain.
By Bill Hardgrave
Jul 28, 2013

Most apparel and foot­wear retailers that are using radio frequency identification to improve inventory accuracy and reduce out-of-stocks are tagging items at their own distribution centers or stores. While this approach works for pilots, it is not a time- or cost-efficient way to deploy the technology enterprisewide. The only sustainable strategy is to tag items at the point of manufacture (or as close to the source as possible).

As more retailers move from pilots to deployments, it is time to get suppliers engaged. Of course, this is easier said than done. The business case for suppliers is only now being developed. In 2011, a report released by the University of Arkansas' RFID Research Center and Auburn University outlined 60 potential use cases for item-level RFID in the supply chain, but these have not yet been fully tested (see University of Arkansas Study Finds 60 Ways to Use RFID in Apparel Supply Chain).

Nevertheless, a phenomenon I call the "virtuous cycle" promises to propel item-level RFID throughout the apparel and footwear supply chain. Here's how it will unfold.

ABC Shirt Maker is RFID-tagging men's T-shirts, SKU 123, for Retailer XX. ABC Shirt Maker also sells SKU 123 to many retailers that are not using RFID. So instead of RFID-tagging items at the source when other labels are applied, products for Retailer XX are diverted and tagged either before the products leave the manufacturing facility or at the supplier's DC. This adds another step—and more cost—to the manufacturing process, which is either absorbed by the supplier or passed on to the retailer (and consumer).

Then, several other retailers ask ABC Shirt Maker to tag SKU 123. Suddenly it's cheaper to tag all SKU 123 items. Now, retailers that are not using RFID are receiving "free" tagged items. Retailers MM and PP have been considering piloting the technology, and the free tagged items provide the incentive to install an RFID infrastructure at their stores. After these retailers begin using RFID and recognize its benefits, they ask other suppliers to tag additional SKUs. And so on and so on, until all suppliers are RFID-tagging all apparel and footwear for all their retailers.

The tipping point—when it is cheaper to RFID-tag all SKU 123 items, rather than to divert and tag some products for select retailers—varies from supplier to supplier. I have worked with several suppliers that hit the tipping point when they began tagging approximately 30 percent of a given SKU. Other suppliers report their tipping point was a little higher than 50 percent and some say it was as low as 20 percent.

We have not yet entered the virtuous cycle, but we are close. Item-level RFID is gaining momentum and will continue to accelerate during the next few years. If you are a retailer or supplier, embrace RFID. Fighting it will only leave you woefully behind and, perhaps, unable to catch up.

Bill Hardgrave is the dean of Auburn University's College of Business and the founder of University of Arkansas' RFID Research Center. He will address other RFID adoption and business case issues in this column. Send your questions to hardgrave@auburn.edu.

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