Dec 21, 2011Following a nearly 12-month study involving 15 apparel supplier locations within the United States, as well as two third-party facilities, researchers at the University of Arkansas' RFID Research Center have determined that the use of item-level RFID tagging can provide a return on investment (ROI) for suppliers, by reducing costly errors resulting from mistakes made during the packing of shipments. The greatest benefit that radio frequency identification can offer to suppliers is accuracy, the team reports, enabling companies to save money despite the added expense derived from applying RFID tags to thousands or millions of garments. The researchers found that although tags add a cost that might exceed what a company typically spends to manually verify shipment accuracy (that is, without the use of RFID), the reduction in claims costs resulting from inaccurate shipments can be greatly reduced via RFID. Consequently, the technology's deployment could result in overall savings.
The purpose of the Research Center's Phase II study—funded by national trade association American Apparel & Footwear Association (AAFA) and standards organization GS1 US—was to determine whether item-level RFID technology could provide benefits to suppliers, and if so, to quantify those benefits.
Thirteen global apparel suppliers participated in the study, which was conducted by a research team from the university. As part of the project, these suppliers offered researchers access to 17 distribution sites, all based within the United States. The size of each supplier varied, from $37 million in annual revenue to more than $10 billion. While all companies were tagging some of their products for specific customers, two of the supplier-operated distribution centers had RFID interrogators installed, and were reading tags for their own purposes. Researchers studied the two RFID-enabled sites, comparing their auditing results against those of the 13 other supplier-operated locations. In addition to these 15 facilities were two run by third-party logistics providers, says David Cromhout, the RFID Research Center's research director. The study's results will be released at the National Retail Federation's Big Show 2012 exhibition, being held on Jan. 15-18, 2012. At that time, the research will be described in a white paper titled "RFID Item-Level Quantity Auditing for Apparel Supplier Distribution Centers," which will be posted on the RFID Research Center's Web site.
Some of the researchers' key findings were discussed at a webinar hosted last week by AAFA. The webinar's presenters included Cromhout, as well as Shawn Neville, the group VP of Avery Dennison Retail Branding and Information Solutions; Brent D. Williams, a University of Arkansas assistant professor of supply chain management; and Jay Craft, the VP of product development at VF Corp.'s VF Jeanswear Limited Partnership.
Since January 2010, researchers at the University of Arkansas have shifted their initial focus from retailers to suppliers, in order to determine the return on investment that suppliers might expect to achieve from the use of item-level tagging. In January 2011, Cromhout and his colleagues published a paper singling out 60 unique use cases (see University of Arkansas Study Finds 60 Ways to USE RFID in Apparel Supply Chain).
During Phase II, the group focused on one specific use case in depth: the quantity audit of product by staff members at the DC, and how RFID could improve on that process, thereby increasing accuracy and reducing costs. A supplier's DC typically conducts quantity audits in order to ensure that the proper amount of goods are being received and shipped, and that the correct product styles and sizes are included in that shipment. Quality audits, by contrast, are conducted to ensure that products are free of flaws and meet quality standards. The research team carried out visits to distribution centers, which Cromhout declines to name, throughout the United States.
Unexpectedly, the group found that shipping accuracy is, in fact, higher than the level of inventory accuracy usually found in the retail sector; however, a secondary factor was just as important: the confidence (or lack thereof) that a supplier has in its accuracy. Confidence in accuracy is critical, according to the research team, because even with a high degree of accuracy, suppliers are likely to be on the losing side in disputes if they lack sufficient confidence. Simply put, a supplier unsure of whether its shipment is accurate is less likely to defend itself against a customer's complaint. By deploying RFID, however, suppliers could raise their confidence in a given shipment's accuracy, based on RFID reads of the item-level tags within any particular order after it is packed.
The study further found that suppliers use a variety of techniques to ensure high shipment accuracy, as well as confidence in that accuracy, during the audit process—often at multiple processes within a DC. Typically, a sample is taken from a batch of items, such as from a single carton, and each product from that sample is then checked for accuracy. If the number of errors within that sample exceeds the supplier's predetermined acceptability level, the batch is rejected and the shipment is halted. Otherwise, the batch is accepted and the distribution process continues.
Each participant in the program had at least one audit station for the manual counting of items packed within cartons. (Such a station might consist of nothing more than one or two employees walking along a conveyor belt on which packed cartons are placed, destined to be loaded onto pallets, and removing samples.) More typically, the DC maintains three auditing stations: one for auditing goods received from the manufacturing site, one in the pick/pack area (where cartons are first loaded for a shipment) and a third at the shipping point (before the goods are loaded onto a truck bound for a retailer).
Because two DCs already had RFID readers operating downstream from the pick/pack process, the researchers compared the RFID-derived quantity audit data from that process (as opposed to shipping or receiving) against non-RFID audits.
Every supplier involved in the study is receiving RFID-tagged inventory at its U.S. DCs. During the study, data from the RFID conveyor read points (at the two RFID-enabled DCs) was collected, analyzed and compared with information culled from manual item-level pick/pack audits along the same conveyor lines. The RFID system identified up to 4.8 percent additional instances of pick/pack inaccuracy that had been missed during manual auditing.
While the team found that the cost of tags nearly equaled or surpassed that of employing auditors to perform item-level quantity manual audits on all inventory, the researchers report, the reduced error rates can make the use of RFID a financial benefit. Based on data collected from the participating apparel suppliers, the team calculated a supplier's cost of errors for items valued at $2 apiece (a typical cost for replenishable items, such as underwear and socks). Assuming an annual throughput of 100 million products, each valued at $2, for example, with an error rate of 5 percent, the researchers estimated that a supplier's total costs from retailers' claims would be approximately $10 million. On the other hand, the error rate when RFID was used in the same $2-per-item scenario was only 0.01 percent, which—assuming an annual throughput of 100 million items—would result in a total claim cost of only $20,000. What's more, the study found, supplier confidence increased with the use of RFID—a benefit that can not easily be measured, Cromhout notes. Nonetheless, he believes that this increased confidence would help a supplier to more successfully defend itself against a customer's complaint.
"If there is a river of tags passing through your DC, put a reader in there," Williams stated during the webinar. "It just makes sense."
Craft noted that although VF Jeanswear's use of RFID technology commenced in 2005 (see VF Contracts for Millions of Tags), "We still have a lot we're learning." His company, which utilizes EPC Gen 2 RFID labels supplied by a service bureau, is continuing to evaluate the gains that it could obtain from implementing RFID within its own operations.
The company is now investigating tag-encoding programs to enable a supplier to print tags on demand itself, at its DCs. "We are considering bulk encoding of tags for products inbound to the U.S.," Craft said, adding that some tagged items are being sent to the two retailers that want apparel items to be tagged, while others receive their garments untagged. As more retailers begin using RFID tags, Craft said he hopes they will focus on a single tag form-factor.
Eventually, Craft said, he expects the tags will be used by the retailer to track goods to the shelf level. In that way, VF Jeanswear would have such information as when an article of clothing was picked up by a customer, how often that garment was moved into a dressing room and when it was sold. "That would help us know what's happening at a retailer level," he explained.
Neville commented that while item-level RFID may provide such future retail benefits as electronic payments, security and customer service features (smart mirrors, for instance), those applications might still be several years from widespread rollout. However, he noted, on a more immediate level, there may be supply chain benefits that could be derived at the manufacturing level, by reducing inspection costs, improving loss prevention and speeding up processing times.
According to Craft, VF believes that RFID deployment "will be most successful when thought of from end to end. It has the potential to help radically improve the performance of the entire supply chain."
