They`re small, techie and revolutionizing pick-and-pack and warehouse operations
By Paul Demery
Most direct merchants prefer nice orderly warehouses—a place for everything
and everything in its place. But not FigLeaves.com. The U.K.-based, fashion-driven
retailer of intimate apparel prefers a jumbled system that randomly stores products
in whatever bins are available.
“Our warehouse is dynamic,” says Daniel Nabarro, chairman and founder of the
fast-growing FigLeaves. “There’s no point in having a warehouse with empty space,
so our whole warehouse is always optimized to new stock. We never have to worry
about creating space for different categories, because we just stick products
in any old bin.”
While it sounds like a sure way to mess up orders, Nabarro reports FigLeaves.com
exceeds 99.9% accuracy in order filling. Its key to success: It uses radio frequency
identification, or RFID, along with bar codes to quickly find and sort products
to fill orders efficiently and accurately, Nabarro says. The intentionally unorganized
system maximizes use of the company’s single, small warehouse, where managers
avoid dedicating space to any one product or category because of constantly
changing demand for its many varieties of intimate apparel.
New urgency
While the challenge of moving and organizing products fast enough to get the
right ones in front of consumers at the right time is as old as retailing itself,
it has taken on new urgency in the world of web-based retailing where fast,
accurate order fulfillment is crucial to success as well as in store-based retailing
where the fast pace of product introduction and changing consumer tastes has
mandated quicker movement to stores.
The
retail industry has made great strides with supply chain and warehouse management
systems that give retailers more control over the way products flow from production
to warehouses and into store and online displays. But merchandise often still
moves too slowly and remains too far out of sight, such as when a pallet of
containers must be unloaded to scan dozens of difficult-to-reach bar codes.
But now, RFID tags on products and shipping materials, under a system called
electronic product code, or ePC, and strategically placed RFID readers report
the movement of products to a dock worker’s or back-office manager’s computer.
Those workers then get a real-time look at a product’s key data, such as SKU
and serial numbers as well as current location and intended destination.
Although it’s still at an early stage of use in the retail industry, RFID
is already supporting several retailers’ efforts to increase visibility and
efficiency in the way they move goods, both at the distribution center level
and at the b2c fulfillment level. RFID has been an integral part of manufacturing
for years to track the flow of products in high-priced assembly operations,
such as automobiles. But the cost per tag has only recently declined to where
it can be economical enough to track a general range of goods in retail supply
chains. And with further declines, it’s just a matter of time before more retailers
like FigLeaves use RFID on every product, analysts say.
The web goal
Although projections of the retail industry’s investment in RFID are sketchy,
it’s easy to see how fast the technology will grow, says Peter Abell, a supply
chain analyst for AMR Research Inc. Wal-Mart Stores Inc. has said it plans to
have all containers and pallets it receives RFID-tagged by early 2005. “That’s
tens of billions of tags, and that’s just Wal-Mart,” Abell says. And with other
large retailers, such as The Home Depot Inc. and Target Corp., signed up as
members of the Auto-ID Center, an industry group committed to RFID’s development,
the use of RFID systems will mushroom over the next several years, he adds.
Right now, most RFID projects operate over private networks. For example,
a pallet of RFID-tagged containers passes by a reader when it arrives in a store.
The reader identifies and records the products’ SKUs and serial numbers on a
screen. It also forwards that information over a private network to update a
corporate database, such as in a merchandising management system, or to pull
more information from a database to further describe the products in the containers.
But RFID proponents foresee a more ambitious use that would send such information
over the Internet for a broader range of connections. That capability would
allow information on delivered goods to be exchanged with databases outside
a corporate network, such as in a supplier’s back-end system. So if a retailer
needs more information on what’s inside RFID-tagged containers, for example,
the RFID reader will identify the SKU and serial numbers and read any other
information on the tag, then pull additional information that’s still needed
through an Internet connection with the supplier’s databases.
“The vision of the Auto-ID Center is that objects will communicate through
the Internet,” says Greg Gilbert, director of RFID strategies for Manhattan
Associates Inc., a provider of supply chain software and a member of the Auto-ID
Center. “So when you read an RFID tag, you can communicate through Internet
protocols with a database that has the information you need.”
Connecting with suppliers’ databases, however, will require a level of cooperation
from suppliers that may not be easily obtained. Many vendors may be disinclined
to invest in the equipment needed to place RFID tags on their product containers.
To make it easier for suppliers to participate with RFID, Manhattan Associates
has released a test version of a web-based application, Infolink, in which a
retailer provides the RFID infrastructure.
Retailer’s initiative
It works like this: the retailer provides its suppliers with blank RFID tags
and a printer/encoder from Zebra Technologies Corp. The supplier accesses the
retailer’s web-based Infolink application to access the retailer’s order information,
such as the number of products to be shipped and their identifying SKU numbers.
The supplier then clicks on the printer/encoder to encode the information on
the RFID tag’s silicon chip as well as print out human-readable information
on a paper label. The RFID tag is generally attached to the back of the label.
No companies have implemented the Infolink RFID system yet, though Gilbert
says several companies are talking with Manhattan Associates about conducting
pilots. Because Infolink is still in a test phase, Manhattan Associates declines
to give a price. Gilbert says the cost will vary based on the number of suppliers
and the number of transactions as well as the amount of information stored on
the tag’s silicon chips.
Broad RFID usage is still a few years away, so analysts expect RFID to appear
more in customized deployments designed to smooth out particular challenges
that retailers face, such as speeding up the process by which shipments of products
are checked in and warehoused. “They’ll pick a pain point to where RFID produces
the best ROI,” says William Allen, marketing manager for Texas Instruments Radio
Frequency Identification Systems, a division of Texas Instruments Inc.
At FigLeaves, the pain point was operating an efficient pick-and-pack system
in its randomly filled warehouse. The e-retailer carries 108 brands and 18,000
SKUs, and sales have been surging, doubling for Christmas 2002 over the year
before. Yet even with all that activity, the FigLeaves system of storing products
randomly in its warehouse has proved to be highly effective, Nabarro says. “The
only way we find anything in our warehouse is through complete computer-tracking
of each item, so any SKU can be in any location,” he says. “Less than one pick
fails per 1,000; it’s more like one per 5,000.”
Multiple picks
To make it all work, FigLeaves has undertaken several initiatives that require
communicating information to a database and then marrying that information with
other information. For starters, FigLeaves scans the bar codes on all products
as workers place them in bins. The scan reader reports the location of products
to a database. FigLeaves also has placed RFID tags on totes, or plastic containers,
that pickers use to fill orders from warehouse stock. The tags carry numbers
that identify the totes.
When a customer places an order, the database links the order with the product
location information. When the order is ready to be picked, the system assigns
a tote number to the order. The database then reports via a computer on the
tote trolley to pickers which products are in an order and where to find them
in the warehouse. An employee picks an item from a bin and scans the bar code.
The system identifies the correct compartment by reading the RFID tag, then
activates a light on the compartment.
Before FigLeaves deployed RFID tags, warehouse employees would pick individual
orders separately. Now, with RFID tags enabling the company to track each tote,
pickers fill multiple orders simultaneously and accurately, Nabarro says. Each
FigLeaves tote has eight compartments for different orders, and there are three
totes on each trolley that pickers push through the warehouse. So each trolley
has 24 orders to fill.
When the filled trolley arrives at the packing department, employees read
information connected to each tote’s RFID tag to identify each order before
packing and shipping it. A networked computer or handheld device pulls additional
information about the order to create the packing slip and shipping label. Nabarro
says the picking and packing systems are so easy to operate that new employees
learn how to use them in minutes.
In the same way that FigLeaves uses RFID tags to identify totes, U.K.-based
retailer Marks & Spencer is placing RFID tags made by Texas Instruments
on more than 3 million trays used to deliver chilled foods to its grocery departments.
The RFID tags are replacing bar codes because they are faster to scan, more
durable and reusable, says Allen of Texas Instruments. The trays, which are
delivered in batches of 24 on trolleys, can be scanned automatically all at
once by passing through an RFID checkpoint, instead of being scanned individually
and by hand when outfitted with bar codes.
Traveling manifest
Jim Evans, an RFID technology developer at RFID system provider Intermec Technologies
Corp., says the Marks & Spencer project could become common in the grocery
industry, where the need to track trays of fresh produce is critical due to
sanitation requirements and the limited time within which fresh produce can
be sold. “If a retailer gets a produce shipment too late, it may not be able
to accept it,” he says.
Produce display trays are typically reused after being returned to a supplier,
but only if retailers and their suppliers can verify they’ve been sanitized
before being refilled. Verification can be time-consuming and difficult. But
with production supervisors using handheld devices to record information about
each tray, with identification based on the RFID tag, regarding when they were
cleaned and when produce was picked and shipped, a retailer can see all that
information when checking a shipment into a store. “So the retailer gets a traveling
manifest of what’s in the shipment, where it came from, and when it was shipped,”
Evans says.
Eventually, RFID proponents say retailers and their suppliers will place RFID
tags on each product instead of just on containers. Nabarro of FigLeaves says
placing RFID tags on each of his apparel products will make it easier and faster
to scan each item when it’s stored as well as when it’s picked to fulfill an
order. Unlike bar codes, which require a scanner to point right at them and
nearly touch them, RFID tags can be read by simply waving a wand within three
feet of a product, regardless of whether the tag is in view. When checking hundreds
of products, that difference can save a huge amount of time, Nabarro says. Under
his current system, even though the computer system tells a warehouse worker
where to find ordered products, pickers must still scan the bar codes on individual
products to enter their identifying information to the FigLeaves computer system.
But for FigLeaves and many other retailers, putting RFID tags on individual
products will first require a reduction in the price of tags, which now cost
FigLeaves about 35 cents each, Nabarro says. The price varies depending on the
amount of information that’s stored on them; the more information, the larger
the silicon chip, which drives up the cost.
Falling prices
Although RFID tag prices have fallen in recent years—with common prices declining
from about $5 a couple of years ago to under $1 today—Nabarro and others say
they’ll consider tags for each product when the price gets closer to 5 cents.
Some industry experts say it’s difficult to predict at this point when, or if,
prices will fall that far—at least for most retailers. For large companies that
can buy in bulk, several industry experts say, per-tag prices can already get
to 10 cents or less, though this could require ordering hundreds of millions
of tags.
AMR’s Abell, however, projects that as Wal-Mart and other large companies
begin to deploy immense numbers of RFID tags and readers over the next several
years, prices will drop significantly. He figures it’s possible that, within
10 years, per-tag prices could get as low as 2 cents, making them cost-effective
for most products.
In an ideal RFID project, RFID readers (currently priced at $300-$500 or more,
but expected to drop within a few years to $100) positioned throughout a supply
chain, in warehouse and distribution centers, and even on store shelves, could
track tags placed on individual products. Each time a tagged product passes
a reader, a signal could flash to a manager’s computer screen as well as to
a back-end database to provide real-time information on product movement and
location. So a store manager could check to see where a product or container
of products was en route to a store or distribution center and corporate managers
could access a web site to check on the status of merchandise throughout the
chain.
In one test conducted by a national U.S. apparel retailer, the company realized
a 12% increase in sales when it used RFID readers to monitor the movement of
RFID-tagged shirts and bluejeans as customers picked them off store shelves,
sending information on product movement to a back-end database to support a
more effective replenishment system, says Allen of Texas Instruments.
That retailer, which Allen says he’s not at liberty to name, has put off further
testing or deployment of that system, but other companies are already beginning
similar tests.
Alerts
The Gillette Co. recently began to test the deployment of as many as 500 million
RFID tags on retail packages of razor blades and other products to track their
movement from production to the point of sale. The project, using RFID tags
manufactured by Alien Technology Corp., is being developed in cooperation with
the Auto-ID Center and the Massachusetts Institute of Technology.
As in the apparel retailer’s test, Gillette will use RFID tags and readers
to monitor when products are removed from store shelves and forward that information
to retail managers’ computer screens as well as to back-end databases. At least
some of its RFID tags will also be designed to activate anti-theft alarms, such
as those many retailers already have installed near their exits. “It will alert
retail staff when stocks become low or are being stolen and will enable automatic
re-ordering of products,” vice president Dick Cantwell, who’s heading up Gillette’s
RFID initiative, said in announcing the project in January.
By offering visibility right down to store shelves and making that sales activity
easily accessible over the web, retailers can better manage distribution throughout
an entire chain of stores, Allen says. “If a national retailer sees that a particular
area of the country has a sharp increase in sales of particular items, and that
another part of the country has low sales of those items, it can shift inventory
to the stores that need it most,” he says.
Allen notes that by enabling retailers to closely monitor the movement of
products and containers, they’ll be able to reduce shrinkage and, therefore,
lower the amount of inventory they have to keep in distribution centers. “Now
they have to keep more inventory in the supply chain in order to make up for
the fact that, on average, they don’t now where 15% of their inventory is,”
he says. “But RFID will help everyone along the distribution line know where
cartons are supposed to go, so they don’t get lost in the first place.”
As retailers begin to realize the opportunities RFID offers in saving operating
costs and increasing sales, the perceived value of RFID will rise, says Abell
of AMR. “Even at 10 cents, 15 cents, or more, tags are cheaper than the cost
of not fixing the problems that the technology solves,” he says. l
paul@verticalwebmedia.com
