At New York’s prestigious National Retail Federation show in January this year, Tesco’s IT director, Colin Cobain, captured the media headlines with his announcements of both an extension in the company’s item-level DVD RFID tagging scheme and one of the largest ever orders for EPC-compliant RFID readers and antennae – some 4,000 readers and 16,000 antennae from ADT – for the company’s major supply chain project.
Add to that:
- extensions of Marks & Spencer’s food supply chain project and its item-level programme;
- news that Metro Group in Germany is now live with 20 suppliers sending RFID-tagged shipments to a growing number of regional distribution centres (RDCs); and
- studies that suggest that up to 40 per cent of major European retailers are planning RFID pilots this year,
and it is hardly surprising that enthusiasts are already declaring 2005 as the year that RFID ‘caught on for real’.
The positive reports, however, mask a raft of problem areas still to be resolved – both technical and to do with cost – that could significantly slow progress as the technology moves towards maturity.
‘RFID is now happening in that the big retailers have committed to big spend,’ says Martin Swerdlow, chief executive of Integrated Product Intelligence (IPI) – a consultancy which has been involved with many of these early retail pilots, ‘but in Europe there are still some very challenging issues to resolve. We have to remember that it took 25 years for barcodes to become established and with RFID it will take at least ten.’
Tesco are raising the stakes
Technical issues aside, companies like Tesco are raising the stakes with high volume orders and the raft of venture-capital funded start-ups, which have until now dominated the RFID market, are giving way to the likes of Sensormatic, Intermec, Symbol, Siemens and other mainstream players.
‘We’re starting to see retailers move to larger scale pilots,’ says Craig Backham, EMEA business development manager for retail at Intermec. ‘But it is still a minority of the major players that are actively looking at RFID. We expect more interest to develop as the year goes on with larger pilots starting in 2006.’ Tesco’s major RFID equipment order is with Tyco Fire & Security’s ADT Security Division – which acquired Sensormatic in 2001 – and is for Sensormaticbranded readers and antennae.
‘At Tesco we continually look at ways in which we can make life better for our customers,’ says Colin Cobain. ‘Radio barcode is a technology that we believe can help us do this. ADT’s pan-European capabilities are key to meeting our roll-out plans.’
The aim is to equip goods-inward doors at 1,300 Tesco stores and 35 RDCs with the RFID systems by autumn 2005 in what is termed the ‘first phase’ of the three-year contract. As well as helping to reduce supply chain errors, so cutting stock-outs, Tesco’s RFID plan also forms part of the company’s ‘Secure Supply Chain’ project aimed at cutting shrinkage.
While Tesco will be starting to tag its own reusable food trays and dollies from April, it announced last year that it will ultimately be asking suppliers to label cases and pallets as well, although this is unlikely to start much before the end of the year. Build-up towards the latter part of the year is not simply a matter of phased strategy – it also reflects time scales in volume production of Gen2 RFID tags since the standard was agreed late last year.
If all goes well with the UK implementation then Tesco is likely to extend the RFID-tagging project to its international operations. With readers currently priced at e1800-3600 an order for 4,000 of them gives some indication of Tesco’s commitment to RFID.
One frequency; one infrastructure
Tesco’s item-level trial – a DVD-tagging project in conjunction with MeadWestvaco’s Intelligent Systems division – is also to be extended to ten stores from the current two pilots with a shift from the current 13.56 MHz passive tags to the same sort of UHF technology being used in the tray/carton tagging project. ‘We want to use one frequency and one infrastructure through our entire operation,’ says Cobain.
The move sparked protests from US lobby group Caspian (Consumers against supermarket privacy invasion and numbering) in February with calls from the group’s founder, Katherine Albrecht, for a worldwide boycott of Tesco stores. The consumer group argues that live tags could be used to track consumers to their homes – although the technology does not actually exist to enable this to happen.
At Tesco, the DVD tags are used purely for replenishment and have improved on-shelf availability at the test stores by 50 per cent – although, as Cobain admits, with year-on-year sales of DVDs increasing by 35 per cent accurate estimates of improvements due to RFID are difficult. Tesco will be attempting some level of control in this wider 10-store pilot to try to quantify the exact benefit of RFID.
It is a problem which Entertainment UK has also addressed and found the benefits not proven: the company supplies Tesco with its DVDs and carefully monitored the results, with the help of Imperial College, London, when the trial first started back in July 2003.
Overwhelmed with data
‘Initially we were overwhelmed with data,’ says Phil Streatfield, supply chain director at Entertainments UK, ‘and it certainly seemed that RFID had managed to improve on-shelf availability, but when we looked more closely at the processes involved we found that similar improvements in availability could be achieved without the tags by changing in-store and supply chain processes. From our point of view there were very small potential wins attributable to RFID.’
Streatfield cites the ‘Hawthorne Effect’ as being responsible for much perceived improvement due to RFID. This is a work-study phenomenon which goes back to 1927 when workers in a US factory (Western Electric at Hawthorne, Illinois) improved productivity whatever new management technique was tested – so demonstrating that simply focusing attention on an activity brings about improvement. Streatfield also suggests that pressure pads on shelves could be just as effective at monitoring stock movements as RFID, while changes in business processes could cut human errors, so improving supply chain accuracy to a level that would not be achievable with current RFID technology. A 99 per cent read accuracy for RFID, he points out, could still lead to a discrepancy of two million units p.a. on annual stock flow of 200 million units.
Tesco’s decision to go with reusable containers in its supply chain project shows a similar approach to Marks & Spencer’s strategy. Over the past two years the company has successfully rolled out 3.5 million tagged returnable food delivery trays giving more accurate information on demand trends that are available six times faster than previously, so significantly reducing wastage and enabling later despatch times – a benefit for food suppliers who thus have greater flexibility in matching production to the latest consumer preferences. The scheme started at the company’s Barnsley depot and has now been rolled out to five others: Crewe, Cumbernauld, Faversham, Hemel Hempstead and Thatcham.
When it was launched in 2002 Marks & Spencer’s application was the largest in the world. It obviously predates the current round of EPCglobal standards and uses older technology; however, there are no signs that this approach is likely to change. ‘We know we can do RFID at reasonable cost,’ says James Stafford, head of RFID developments at Marks & Spencer, ‘and that there are significant improvements in product availability.’
Stafford is equally enthusiastic about Marks & Spencer’s item-level tagging trial which began in late 2003 at its High Wycombe store, and has now been extended to a total of nine stores. Men’s suits and accessories are being tagged with nightly stock checks to improve overnight replenishment accuracy and increase on-shelf availability. Around 700 lines can be scanned in 30 seconds and the improvement in size choices available has significantly boosted sales of the tagged merchandise in trial stores.
Promising results at M&S
Latest additions – three stores added to the first group of six last November – included the flagship Marble Arch outlet. According to M&S the results continue to be very promising although there is as yet no decision on further roll-out. Unlike the food tray project, the garments are labelled with more modern UHF tags operating at 868 MHz: tag supplier for both projects is Intellident.
Metro Group in Germany is another that has also experimented with a mix of carton/pallet-level tags for its supermarket business and item level for clothing. Its high profile scheme began roll-out in November 2004 with 20 suppliers shipping a range of goods to three of its divisions:
- grocery and general merchandise from 12 suppliers are being sent to one RDC and two stores in Metro’s Cash and Carry division;
- three apparel and textile suppliers are shipping tagged products to five RDCs in the Kaufhof department store group; and
- the Real hypermarket division is receiving tagged grocery shipments from four suppliers into three RDCs and delivering these consignments to 11 RFID-equipped stores.
With the help of a number of IT vendors, Metro has also established an Innovation Centre where it is testing a raft of experimental RFID technologies including RFID-enabled store checkouts (from NCR) and automatic hanging garment sortation systems.
‘We are already seeing faster unloading and checking-in for RFID shipments of around 15 to 20 minutes per truck,’ says Gerd Wolfram, IT strategy director for Metro’s IT subsidiary, MGI Metro Group Information Technology. ‘We are also able to identify and eliminate weak spots in our handling processes more effectively.’
Like Marks & Spencer, Metro began its RFID scheme before standards were completely settled and is currently using tags based on Philips’ UCODE 1.19 design, although it wants to move on to EPC Generation 2 tags as soon as possible: ‘We will start using them in the second half of this year,’ adds Wolfram – although it is as yet unclear how this transition will be achieved.
Metro has worked with consultants, Kurt Salmon Associates, to quantify the precise benefits of RFID tagging at both carton and item level based on preliminary results from its Future Store at Rheinberg. These include:
- 17 per cent reduction in labour costs,
- 11-18 per cent reduction in theft, and
- 9-14 per cent improvement in on-shelf availability.
Metro has been keen to persuade suppliers to join the project voluntarily and has fought shy of issuing any sort of ‘mandate’ as Wal-Mart has done. ‘Suppliers see RFID in terms on RoI issues,’ says Gerd Wolfram, ‘whereas at Metro we regard it as a strategic development in terms or RoO – return on opportunity; as an investment for the long-term future. We want to emphasise collaboration with our suppliers rather than issuing a mandate; we want them to see that they will have benefits too.’
Metro has said it wants 100 of its suppliers to be taking part in the RFID schemes by the end of this year and KSA has undertaken an extensive survey of its supplier base to identify those most willing to join the scheme. Three groups were identified:
- leading adopters (two per cent of suppliers questioned)
- fast followers (18 per cent), and
- late adopters (80 per cent).
‘Item level tagging will bring us the greatest benefits,’ adds Wolfram, ‘but we will start with pallets and move to cases and traded units during 2005. The easiest way to learn about RFID is to start using it.’
Although the current focus is on carton-tagging, Metro has tested item level tagging both at its Future Store in Rheinberg (near Düsseldorf) and in its department stores division in conjunction with fashion chain Gerry Weber. In this preliminary pilot, RFID tags also acted as electronic article surveillance (EAS) labels to improve in-store security. This is also the approach adopted in a Wincor-Nixdorf development initially for Deutsche Telekom’s phone shops.
Security and product information
Here mobile phones were individually tagged for instore display in five pilot installations including Berlin, Munich, and Potsdam. Removing the phone from the display was also linked to stock records for inventory control: ‘The Deutsche Telekom evaluation largely focused on stock availability,’ says Klaus-Peter Röhl, project manager with Wincor-Nixdorf’s retail division in Paderborn, ‘and that makes it very expensive to cost justify, but if you add in other attributes – such as security and product information – then the system becomes more viable.’
Wincor-Nixdorf has subsequently developed the same application for DVDs, concealing the tags inside the boxes, as an EAS control, and linking the merchandise display shelf to a screen which automatically shows product information when the item is lifted from the unit. The system then monitors how many people look at the product and either buy or return it to the display to help marketing and product selection. This type of application has also been trialled by Metro, although as yet there are no commercial applications.
Others, too, have found it difficult to justify RFID investment over time. Woolworth received plaudits for its innovative solution tagging dollies and cartons with a mix of RFID and barcode labels on a hierarchical ‘Russian doll’ principle that each higher level label included all details of that immediately below (i.e. dolly RFID tags contained detail of tote box bar codes, tote box codes contain detail of carton barcodes and so on). However, although Woolworth was reportedly losing €72.6 million year in supply chain shrinkage it now appears to have shelved the scheme on the grounds of cost and technical issues.
Despite such setbacks, interest in RFID technology in the retail sector remains high.
A survey by Gartner last September of large European and North American retailers [see diagram] suggests that 30 per cent expect to be using case or pallet level tagging by late 2006 while 14 per cent put item level tagging into this same time frame. ‘Item level tagging is on the radar,’ says John Davison, vp and research director for retail at Gartner G2. ‘It is going to be difficult but it is certainly on the agenda.’
This is the first part of a two-part feature originally published in Logistic Europe’s newsletter, RFID Executive Briefing. To get a regular copy of the newsletter go to www.rfid-executivebriefing.com