While retailers and manufacturers have often had reason to quarrel, radio frequency identification may bring them closer together.
The need for retailers and manufacturers to collaborate on the development of this technology was an important theme at the EPCglobal US Conference 2005, held Sept. 13 to 15 at the Georgia World Congress Center in Atlanta.
Why do retailers and manufacturers need to collaborate on RFID? The reason is that the technology is being applied to streamline the supply chain shared by both parties. They have thus become partners in managing and exploiting the reams of data generated through RFID applications that track the movement of products from plant to shelf. And, of course, they are both trying to prevent out-of-stocks (or over-stocks) and thereby maximize sales of the same products.
"Collaboration between trading partners is key," said Steve Rehling, director, information and decision solutions, Procter & Gamble, Cincinnati, speaking at the conference. "You can't do everything unilaterally. Each party has something to bring. If it's a joint effort, you're more likely to reach your goals and get results."
Overseeing and supporting this process is EPCglobal, the global organization responsible for commercializing the application of RFID technology based on the EPC, or electronic product code, the digital enhancement of the bar code. The U.S. arm of EPCglobal, EPCglobal US, a division of GS1 US, Lawrenceville, N.J., is spearheading this effort in the United States.
So far, Wal-Mart Stores, Bentonville, Ark., has been the prime retail pioneer of RFID technology in the U.S. In October, its RFID program, which has focused this year on 104 stores, 36 Sam's outlets and three DCs in northern Texas, will expand to 500 stores and five DCs, moving to other parts of Texas as well as to Louisiana and Arkansas. The number of top suppliers sending RFID-tagged pallets and cases to Wal-Mart will grow from 137 to 200 or more by January.
Besides Wal-Mart, Albertsons, Boise, Idaho, has started an RFID program with its top suppliers in recent months in the Dallas area. Earlier this month, Larry Johnston, chief executive officer, Albertsons, said the RFID pilot will be expanded to the chain's Acme division, with 15 stores scheduled to be added this year and the remainder to be added in 2006.
Other food retailers like Hannaford Supermarkets and Publix Super Markets have announced RFID tests, while many other chains are said to be quietly testing RFID applications. On the other hand, a Food Marketing Institute survey revealed that some retailers are pulling back on their RFID investment (see story, Page 88).
Manufacturers have been far more active in RFID, mostly by necessity as they have responded to retailers' mandates to take part in their RFID programs. "Wal-Mart pushed us," said Herbert Markwardt, project leader, Tyson Foods, Springdale, Ark., during a panel discussion at the EPCglobal US Conference. "We weren't investing in it before Wal-Mart tapped us on the shoulder."
Some of these manufacturers have complained about the cost of their RFID programs and the questionable return on investment. However, a number of manufacturers speaking at the EPCglobal US Conference, while not understating the challenges of the technology, struck a more positive note about its actual and potential usefulness. "We've gone into it whole hog," Markwardt said. "We look at a broad spectrum of products."
What may ultimately help both retailers and manufacturers with RFID is the development of the "Gen 2" standard -- short for UHF Class 1 Generation 2 -- unveiled last year. This standard, which governs the makeup of RFID tags and readers, is described as a major step up in technological power from its predecessor -- enough to make a real difference in RFID implementations.
At the EPCglobal US Conference, seven reader vendors were awarded the first EPCglobal "Certification Marks" denoting that their equipment complies with the Gen 2 standard. (See story, this page.)
GILLETTE SEES ROI
Gillette, Boston, one of the early supporters of EPC-based RFID technology, has found collaboration with retailers to be a critical component of its RFID implementations, said Dick Cantwell, Gillette's vice president, global value chain, EPC and retail availability, and chairman of the EPCglobal board of governors.
"As we map the value chain, 90% of the benefits have been in collaboration between Gillette and retailers," Cantwell said in a session at the EPCglobal US Conference titled "The Case for EPC." Gillette is deploying RFID in concert with "a number of retailers," he added.
In particular, the areas that have been addressed include invoice deductions, out-of-stocks and inventory reductions, with out-of-stock reduction paying the "greatest dividends," Cantwell said. He anticipates Gillette will garner an ROI of "greater than 25%" over the next decade.
Using RFID, Gillette has been able to break down and quantify the average time it takes a shipment of razor blades to move from its DC to a retailer's DC and to a store. The DC-to-DC period encompasses three days and three hours; followed by another three days and seven hours for the complete stocking of a shelf. "This new information was like a crystal ball on product flow, so we could work to identify specific applications," he said.
One of those applications is making sure that promotional merchandise is moved out to the sales floor in a timely fashion. That can fail to happen, Cantwell noted, when displays are lost or mislabeled. In one case, Venus razor blades in displays not visible to stockers were found via "EPC reads," he said. "We alerted store personnel that they were in the back room." The result was a "28% week-on-week" sales increase, confirmed by point-of-sale data.
In another instance, Gillette, while launching an expensive TV promotional campaign in support of a new disposable razor system, found through EPC reads in a test store that one-third of displays "were not moved from the back room to the store," Cantwell said. That presented the possibility that consumers would see the product advertised and yet fail to find it in stores.
In a more recent example, EPC technology was able to provide Gillette with visibility "for the first time" in a Father's Day promotion of Braun electric razors. The company set up a 19-store test to determine whether stores would set up promotional displays in the appointed fashion within the prescribed lead time.
The results, as verified by EPC data: Six stores put displays up at the right time; five did not place them "until Father's Day or after"; and eight stores were "late or very late" in placing displays. Sales for both the stores and Gillette were "sub-optimal," said Cantwell.
By allowing Gillette to know when promoted products get to the sales floor, and to be able to estimate how long that takes, RFID is helping the company "measure sales better vs. forecasts," Cantwell said. In addition, reorders can be made more accurately. As a promotional baseline for forecasts, "EPC is the gift that keeps on giving," he observed.
RFID may also help clear up a long-standing point of contention between retailers and manufacturers: invoice deductions by retailers who claim they did not receive certain goods at the DC or at stores. "By using EPC, retailers and Gillette can agree on inventory received," said Cantwell. As a result, "we don't lose sales through deductions or not get paid for inventory checked in wrong. And the administrative research needed to investigate claims is significantly less."
As part of its aggressive approach to RFID, Gillette has developed an "EPC Appliance" for tagging pallets and cases. The appliance, which consists of a number of components, allows the company to cede responsibility for managing its RFID equipment to a single vendor.
For Johnson & Johnson, New Brunswick, N.J., the importance of RFID is centered on its ability to prevent the counterfeiting of prescription drugs through track-and-trace processes, said Mike Rose, the company's vice president of RFID EPC global value chain, who participated in the session with Cantwell. "RFID is critical for the health care industry," he said. "It's about patient safety."
J&J has worked on RFID programs so far with Wal-Mart, Target, CVS, Metro Group in Germany and Tesco in the United Kingdom.
Rose also stressed the importance of collaboration, both internally and with external organizations. He specifically mentioned collaborative efforts with Jack DeAlmo, vice president, store replenishment and inventory management, CVS, Woonsocket, R.I. J&J is also being careful to implement RFID "in a secure way that respects privacy and meets regulatory requirements," said Rose.
SEEKING ROI
Like many manufacturers that have met RFID compliance mandates, Del Monte Foods, Pittsburgh, is focusing on "finding the business case," said James Lamagna, the company's application project lead, information technology. "We have high-volume, low-margin products, so it's extremely important to find an ROI," he said. "We want to determine what to do with the information to improve our business before we do a rollout."
To find an ROI, Del Monte, which has shipped three RFID-tagged SKUs to Wal-Mart, Target and Albertsons, is focusing on reducing deductions and out-of-stocks, Lamagna told SN.
Another manufacturer in the ROI-search process is World Kitchen, Reston, Va. "Up till now, it's been an engineering project; we've been in gadget heaven," said Randall Peterson, director, application services. "Now we're in a data analysis project, which is where we get the ROI and earn the cost back." World Kitchen is importing RFID data from Target .
Tyson's Markwardt suggested only keeping a record of an RFID tag if "it has meaning." Otherwise, retailers and manufacturers should "limit the number of messages," he said. Tyson is developing an algorithm to "pull out clean data and ignore unnecessary data," he added.
Progress on the Technical Front
Since its inception last December, the "Gen 2" standard -- short for UHF Class 1 Generation 2 -- has been viewed as the solution to a host of technical ills besetting RFID (radio frequency identification). That view was amplified at the EPCglobal US Conference 2005, held Sept. 13 to 15 at the Georgia World Congress Center in Atlanta.
Gen 2, which specifically applies to the "over the air" interface between an RFID tag and reader, was touted at the conference as addressing performance issues for both tags and readers, particularly the readability of the tags. Moreover, seven technology providers were presented with the first EPCglobal Certification Marks, signifying that their readers comply with the Gen 2 standard.
The marks are intended to reassure users of the readers, such as retailers and manufacturers, that the readers have been tested against EPCglobal standards. The initial companies receiving marks are: Alien Technology, Applied Wireless Devices (AWiD), Impinj, Intermec Technologies, MaxID Group, Symbol Technologies and ThingMagic.
Erwin M. Veer, global RFID coordinator at Ahold, Zaandam, Netherlands, who attended the conference, told SN that he liked the certification program. "I can buy compatible equipment now," he said. Ahold is piloting RFID in some Dutch distribution centers, he added.
Also at the conference, EPCglobal awarded the first EPCglobal Performance Test Center Accreditation Marks to four testing facilities. The marks indicate that the testing sites are equipped to properly assess the readability of RFID tags based on the electronic product code (EPC) in various environments.
The facilities include Pacific RFID Performance Solutions, Hsinchu, Taiwan; Kimberly-Clark Auto-ID Sensing Technologies Performance Test Center, Neenah, Wis.; Metro Group AG/GS1 Germany RFID Test Center, Neuss, Germany; and RFID Research Center, a unit of the Information Technology Research Institute, Sam M. Walton College of Business, University of Arkansas; Fayetteville, Ark.
Last week, EPCglobal announced the ratification of a new software standard for EPC/RFID applications. The standard, known as the Application Level Events standard, or ALE, establishes the approach EPC-enabled software products will take in collecting, managing and routing EPC data.
The RFID landscape was further clarified this month as Intermec Technologies and Symbol Technologies settled their RFID intellectual property dispute. Symbol also joined 18 other companies participating in Intermec's Rapid Start Licensing Program, which provides participants access to Intermec's RFID patents. Other RFID patents will be made available through a new RFID patent consortium launched last month.
Despite the progress, comments made by manufacturers at the conference suggest that technical issues are still a concern among RFID users. "The hardest part for us has been the readiness of [technology] vendors," said James Lamagna, application project lead, information technology, Del Monte Foods, Pittsburgh. "Tags have not always been compatible with printers."
Lamagna also noted that read rates for Del Monte products -- which are packaged in cans and foil that can cause tag interference -- "are not yet where we need them. We need to get to 100%." Gen 2 tags are expected to have better read rates, according to several conference speakers. -- MICHAEL GARRY
