This November German supermarket group Metro announced it had completed the first phase of a plan to equip all its locations in Germany with radio frequency identification (RFID) technology by next year. The project is Europe”s largest roll out of the technology in the grocery sector.
The move has been hailed as a break through for RFID in Europe where the technology has been dogged by concerns over cost, problems with the regulations relating to radio frequencies and technical difficulties.
”This is the most significant deployment in Europe because Metro is using the full stack of standards,” claims David Lyons, EPC global business manager at GS1, the barcode and RFID standards organisation. ”People are waking up to the fact slap and ship is not the way forward. The net cost makes it worthwhile to put in the infrastructure. It is now a question of improved management efficiency.”
One of the main drivers of Metro”s investment in RFID is the prospect of reducing out of stocks and thus increasing sales volumes. Softer benefits include improved customer loyalty and a better customer experience.
”RFID has the potential to significantly increase efficiency along the entire supply chain due to faster and more transparent processes,” maintains Martin Brüning, a spokesman for the company. ”RFID helps to reduce inventories and costs. Moreover, the technology enables a further improvement of quality insurance and an improved service to the customers.
”These benefits can be extrapolated from our RFID trials and the results have convinced us that RFID has the potential to revolutionise the retail sector. First of all, this pioneering technology will fundamentally transform the supply chain. Thanks to RFID, it will now be possible to seamlessly trace the route of a product, from its manufacturer to the store. ”And also incoming goods and inventory management processes are significantly improved. The improved processes help prevent incorrect deliveries and increase the accuracy of the inventory information.
”But there is more to it than that: this technology will offer several new applications in the stores as soon as it is used on item level. For instance, think of a smart shelf that automatically recognizes when an article needs to be replenished.”
Some 180 locations in the Metro Cash & Carry and Real chains have already been equipped with readers that identify incoming pallets, record deliveries and match them against orders at goods-in gates. The same system tracks goods from Metro”s warehouses to its stores.
The 2007 operational roll-out of the technology in Germany includes all Metro Cash & Carry wholesale stores and about 100 Real hypermarkets and distribution centres. In 2008 the remaining German Real markets will be equipped with RFID readers at the incoming goods gates, bringing the total to more than 400 locations in Germany alone.
Metro is operating tags conforming to the Electronic Product Code (EPC) standard in some very hostile environments. For example, 11,000 storage locations and 15 forklift trucks have been equipped with RFID systems in a frozen foods distribution centre in Hamm, Germany. The company is testing how the technology works in temperatures in the facility that can be as low as -24°C.
”Readers heat themselves sufficiently within their housing,” observes Christian Plenge, Metro”s head of research and innovation. ”We know we can read the positioning tags well. We don”t know how well we can read the tags on the pallets.”
More than 180 suppliers are already involved in Metro”s project and discussions are under way with other suppliers. Some 650 companies are expected to be on board by January and Metro has said it will penalize those that do not adopt RFID by charging them for untagged consignments.
”It is our goal to increase the efficiency of our processes through – among other measures – the use of RFID”, explains Brüning. ”In doing so, we need to adapt our processes accordingly as more and more suppliers deliver their goods with RFID transponders on the pallet.
”This means that any supplier not using RFID will eventually cause costs because shipments need to be processed manually. In the future we will therefore charge a fixed rate to compensate for those additional efforts, negotiated bilaterally with the respective supplier.”
Metro is taking a tougher stance with its suppliers than the US supermarket giant Wal-Mart, which introduced the first so-called mandate on RFID tags some four years ago. Although the company would not confirm the rates that will be charged for untagged pallets, observers have suggested it could be from two to as many as €50 per consignment.
The grocery firm is also deploying radio frequency technology internationally. Starting from 2008, around 100 Metro suppliers from China and Vietnam will participate in a RFID pilot project called Tag it Easy. They will tag their export packages with RFID transponders.
Software for the RFID rollout has been supplied by IBM and Checkpoint with readers from Intermec Technologies and Sirit. ”For us it was important to be able to rely on competent general contractors for the realisation of our concept,” comments Dr Gerd Wolfram, managing director of Metro Group Information Technology and the man responsible for the RFID programme.
Metro”s investment in RFID (the company has so far declined to put a price tag on the technology push) is likely to have a ripple effect across Europe, as other companies respond to Metro”s move. ”The Metro deployment is a good signal that a lot of the hurdles can be managed and that UHF RFID can be done,” says Jonathan Collins, senior analyst at ABI Research.
”The reasons for thinking RFID is a better investment are becoming clear. I think it”s fair to say that in the first half of next year you will see other European companies making similar announcements. Maybe they won”t have the same teeth as the Metro programme.”
One of the companies sure to be taking a keen interest in developments at Metro is Tesco, the UK supermarket group. The company has been using RFID for at least five years including an early experiment in tagging high value items such as razor blades which was cancelled after complaints from consumer groups.
This was followed by ambitious plans to equip 1,400 stores with readers, however the initiative stalled after Tesco experienced a variety of difficulties. Since then the company has concentrated on using RFID to track roll cages from distribution centres to stores, testing the technology at a distribution centre in Antrim, Northern Ireland, that serves some 40 local stores.
Tesco had problems with errors in the packing and delivery of roll cages for stores served from multiple distribution centres. Mistakes in loading of the roll cages would leave one store with too much stock of a particular line, while another did not have enough because it did not receive the correct delivery.
If an operator loads the wrong roll cage onto a truck, a stack light and an LCD display attached to the reader alerts him or her that the wrong cage has been loaded. Similarly, readers on the receiving doors at stores ensure that the right roll cages are delivered to individual stores.
”We”re clearly not as far advanced with RFID as we had envisaged 4-5 years ago,” acknowledges John Garrett, Tesco”s enterprise architect for radio bar-coding. ”What perhaps surprised us was how far from operational the standards were, and the degree to which the lengthy process of getting standards and regulations changed and implemented would delay us in being able to prove the business case.”
Tesco”s Group IT director, Collin Cobain made it clear in a recent interview that the famously pragmatic company is still not fully convinced about large scale roll outs of RFID. Cobain cited restrictive wireless frequency regulations and poor read rates from equipment as barriers.
The business case
”It”s really going to come down to what the business case shows,” he told his interviewer. ”We do things to make things better for our customers, simpler for staff and cheaper for Tesco.” But he said the company was still aiming to roll out the technology across 1,400 stores and 30 distribution centres nationwide. A plan first outlined two years” ago.
However, improvements in RFID technology may play an important part in persuading European grocers to invest in tags. Until this year users wishing to operate more than 10 readers in close proximity could not do so because European radio regulations only allowed ten channels.
However, the European Telecommunications Standards Institute (ETSI), developed a ”listen before talk” (LBT) system, under which each reader in a ”dense reader” environment must automatically ”listen” before transmitting in order to find one of the 10 available channels free. LBT technology greatly increases the number of readers that can use the radio spectrum that is allocated to RFID. With the new standard it is possible to accommodate 50 or more readers – the number required to service the average warehouse.
Another big problem faced by European RFID adopters is the interference caused by materials such as metals and liquids which cannot easily be penetrated by radio waves. These materials can act like a cage, keeping signals out.
However, technologists have been working hard to overcome the laws of physics. Metro acknowledges that the five per cent of tags it cannot read are attached to pallets containing cans, bottles or jars. The company has solved many of these problems by positioning tags in different places or persuading suppliers to change the way they package products. For instance, a confectionery supplier improved the readability of its tags by changing its packaging from metal foil to plastic.
Lyons claims that many of the technical difficulties experienced by grocers have been overcome. ”Interference is a myth now,” he says. ”And your readers will be able to see that at our UK centre in Winsford, Cheshire. The methods commonly used involve creating a separation between a tag and the metals or fluids that might cause interference.”
The cost of tagging is one issue not so easily solved. With individual tags still costing 15 euro cents, the original claims by the Massachusetts Institute of Technology”s Auto ID centre that we were on the verge of an internet of things looks like a pipe dream. Item level tagging is confined to high value items such as clothes and electronics. For instance, the food and clothing retailer Marks and Spencer ”We”re clearly not as far advanced with RFID as we had envisaged 4-5 years ago,” says John Garrett, Tesco”s enterprise architect for RFIDhas successfully tagged many of its clothing lines and has been using tagged trays for fresh foods.
The dominant US player, Wal-Mart, continues to lead in RFID, but even there the pace is flagging. Although the number of Wal-Mart stores using RFID has increased ten times to over 1,000 since the equipment first went into the stores in 2004, and the company will equip another 400 by the end of 2007, the number of Wal-Mart distribution centers with RFID is less than the retailer”s original plan.
While Wal-Mart has released some highly publicised studies on the out-of-stock benefits realised from RFID, says AMR Research, the advisory company believes that a halo effect has occurred around some of the stores in Dallas, Texas, which has exaggerated the results.
”We have not reached a critical mass yet,” acknowledges Lyons of GS1. ”But a number of suppliers are looking at this in its own right not just because of the mandates from supermarkets.”
Some experts point to particular applications of RFID: in helping to track in-store promotions and ensure that they are restocked quickly or enabling fresh meat or milk to be tracked and recalled if there is a problem with supplies.
”There is no one-size-fits-all return on investment or benefit analysis to RFID deployment,” cautions AMR. ”The ROI varies by category, by channel, and by the sophistication of current processes to work with retailers to do store merchandising. The analysis has to start with a true understanding of a company”s out-of-stock performance.”
Benefits can be seen from our RFID trials and the results have convinced us that RFID has the potential to revolutionise the retail sector
Martin Brüning , Metro
People are waking up to the fact slap and ship is not the way forward. The net cost makes it worthwhile to put in the infrastructure.
David Lyons, GS1