High frequency buzz

For all its promise to help retailers control the flow of products throughout the supply chain right to their in-store display shelves, radio frequency identification still appears a long way from becoming a ubiquitous tool in supplier-retailer-consumer relationships. Although the prices of both RFID tags and readers have come down to more manageable levels, practical deployments remain among a handful of large retailers, including Wal-Mart Stores Inc., Best Buy Co. Inc., Target Corp., Metro Group plc and Tesco plc, and their largest suppliers.

To be sure, these large retailers and a few others are beginning to get real value from RFID, such as tracking the shipment of goods throughout supply chains and checking the availability and status of in-store merchandise, assuring that goods received in backroom warehouses make it out to the selling floor, says Russ Klein, vice president and senior analyst for emerging technologies and information systems at research and advisory firm Aberdeen Group, a unit of Harte-Hanks Co.

A recent study by Aberdeen, “The RFID in Retail Benchmark Report,” notes that retailers considered best in class in RFID deployment have produced positive results; for example, a 30% decrease in inventory replenishment time, 42% fewer incidents of theft, 25% less customer wait time at the point of sale, and a 25% reduction in merchandise spoilage and price markdowns.

As word of such projects spreads, more retailers have begun allocating funds for RFID projects. The Aberdeen study found a steady increase in 2006 in the percentage of retail enterprises with budgeted funds for RFID projects, to 11.3% in the fourth quarter from 5.6% in the first quarter.

Still, most of the early RFID projects were highly customized to a retailer’s particular needs, providing few applications already tested and proven by the leaders that other retailers are willing to apply in their own settings, Klein says. “Just because a big retail pharmacy can do it doesn’t mean a grocer can,” he says, noting that pharmacy chain RiteAid Corp. has RFID and handheld RFID scanners to manage replenishment of some in-store items.

Lack of practical role models and confusion among retailers in how to derive value from RFID deployments explains why spending on RFID projects lags budgeted funding amounts, Klein says. In its study, Aberdeen found that while 11.3% of retailers had budgeted money for RFID as of the fourth quarter of 2006, only 6.5% had begun spending it.

Better reads

Meanwhile, some early problems with RFID deployments have been resolved through improved technology. Taking advantage of some related technological developments in mobile phones, wireless fidelity and global positioning systems, RFID technology vendors have been able to improve how RFID tags and readers communicate with each other.

“We can have more readers in the same location without interference between readers, and we can get closer to a 100% read on tags,” says Kevin Ashton, a founder and former executive director of the Massachusetts Institute of Technology’s Auto-ID Center, an early RFID laboratory, and now vice president of ThingMagic, a company that develops RFID readers and related products.

Tags run about 8 cents to 50 cents each depending on design and volume, a cost usually covered by a retailer’s suppliers, while a reader costs about $1,000, depending on the number of readers a retailer needs to deploy. A package including a tag printer, one or two RFID readers and imbedded software for processing RFID data can run under $50,000, says Winson Woo, director of supply chain management at Cactus Commerce, an RFID systems vendor.

But the cost of deploying a system of tags and readers is only part of the equation. To get real value out of RFID data, the information must be transmitted and shared over a company network and integrated with applications like inventory databases and point-of-sale systems.

“It’s not so much the costs per tag or reader,” Klein says. “That is disappearing as an impediment to RFID deployment. The real limiting factor is the integration cost.”

RFID systems are ideally suited for transmitting data on products—for example, their location, dimensions, product codes—over an Internet or intranet connection to a centralized database application, where the data can be integrated with other inventory data, analyzed and accessed through a web browser.

When products are delivered to a store’s backroom warehouse, then moved to the selling floor, RFID readers scan tags on containers (or in still rare situations, individual items) to record when they arrived and when they were moved to the floor. By transmitting that information over the web to a centralized database, the retailer can do multiple things: run store inventory against sales data to check for shrinkage, automatically trigger replenishment orders to suppliers, and let sales floor associates access the database via a web browser to check the availability of back-room inventory.

Beyond spreadsheets

Most current versions of major ERP systems including Oracle Corp. and SAP AB have built-in infrastructure for communicating with RFID systems, as do warehouse management and supply chain management systems from companies like RedPrairie Corp. and Manhattan Associates Inc. But many retailers still operate on in-house-developed software and other legacy systems that may not be designed to handle RFID data.

“The reader data needs to go somewhere, so if a retailer has a home-grown ERP system, it must deal with how the RFID data ties into it,” says Matt Ream, senior manager of RFID systems at Zebra Technologies Corp., a provider of RFID tag printers and other products.

Guide to E-Commerce Technology

Another option for retailers is to incorporate XML-based middleware applications from companies including GlobeRanger Corp. and OATSystems Inc., Klein adds.

Retailers launching RFID often first deploy limited, off-web projects, relying instead on manually copying scanned RFID data from an application onto spreadsheets. They then review a pile of spreadsheets at the end of a day, week or month to check things like inventory status and comparisons of inventory and sales data. “First they get comfortable with RFID data on spreadsheets, then when they realize a manager is spending too many hours looking at spreadsheets, retailers look into more automated, web-based deployments,” Klein says.

Nonetheless, interest in RFID remains strong. Helping support continued interest are new applications that address common retail problems and support sales. Significantly, businesses are developing RFID projects that meet particular needs, rather than just responding to broad mandates from companies like Wal-Mart to tag all cases and pallets in a supply chain.

Firing up promotions

Take in-store promotions, one of the most important tools used by retailers and their suppliers. In-store merchandise promotions help boost overall store traffic and sales as well as spark sales of promoted items. But they also can cause major headaches for both merchandisers and supply chain managers if anything happens that prevents promoted products from appearing in stores when customers expect them.

A truck gets mistakenly routed to the wrong distribution center or store; a store clerk puts the wrong products on display; or a store manager simply leaves the promotional display case in a back room after deciding there’s not enough space for it on the selling floor.

There are dozens of other reasons why a promotion misfires, annoying disappointed customers who take their hope for a good deal—and their wallets—to another merchant. Multiply those reasons by tens or hundreds or thousands of stores in a chain and the retailer and its promotion partner supplier are left wondering why the promotion on which they spent tons of money and time in product development and marketing fell flat.

This is where RFID can step in to help make promotions, and all the supportive supply chain and in-store processes, easier to control.

Nothing to sneeze at

Kimberly-Clark, the manufacturer of personal care products ranging from Kleenex tissues to Huggies disposable diapers, for example, recently deployed RFID technology from OATSystems to better control how product promotions are executed in retail stores. Kimberly-Clark often commissions third-party contract manufacturers to assemble and ship promotional displays complete with products to the company’s retail partners.

But it can be impossible to ensure each participating store puts out a promotional display on time, a challenge underscored by industry statistics that 15% to 40% of stores fail to get displays on the selling floor within a planned window of time, says Mike O’Shea, Kimberly-Clark’s director of auto-ID sensing technology.

Working with OATSystems, Kimberly-Clark customized an RFID application that, after RFID tags are placed on display cases, records when a promotional display is received at a store and checked into a backroom warehouse, and when the display reaches a designated sales floor. The application, operating as part of the OAT Foundation Suite, connects via the Internet RFID data scanned by in-store readers to corporate headquarters at Kimberly-Clark as well as display partners and the retailer.

Kimberly-Clark has increased compliance with its promotions from 55% to 75% of its participating stores, the company says. If displays aren’t handled according to schedule, Kimberly-Clark and partners immediately investigate the hold-up and, in some cases, use alternate plans after discovering a store does not have space to accommodate displays.

If the cost of RFID technology continues to drop, an increasing number of practical uses may emerge, experts say. “Each time the price of RFID takes a jump down, a whole new range of applications suddenly becomes economical,” Klein says. “More of the stuff that’s been waiting to happen becomes justifiable.”

On a similar note, retailers routinely guard their early technology projects so as not to tip off their competition about any technological advantages they may be developing. As more RFID applications become justifiable, retailers are more likely to begin sharing information after enough projects have proven to work and begin producing financial results, Klein contends.

“This year we started to see some open dialogue on RFID among retailers, which was very encouraging,” Klein says. “On a technology operations level, retailers don’t usually talk to one another. But when it hits the chief financial officer level with good results, CFOs do talk with one another. They play golf together, and when one says how RFID helped them solve problems, we’ll have more CFOs directing inquiries at their companies about how RFID can help them as well.”