Retailer’s Roadmap to Value with RFID
In this section we describe the typical progression of use cases addressed with RFID, in alignment with the reader form factors that best address these use cases. This provides a potential roadmap to help achieve greater value sooner from an RFID deployment.
Retailers Using Handheld Readers in Inventory Mgmt. for Quick-Win ROI
Part two of this series describes proven strategies for achieving profitable fulfillment, including segmentation and orchestration of fulfillment service providers, optimizing postponement with outsourced partners, and multi-party inventory pooling. Here in the third and final article in this series, we look at the underlying capabilities needed to enable those strategies.
Enablers of Profitable Fulfillment
Up to now, handheld readers overwhelmingly dominated as the form factor of choice in retail RFID implementations. Handhelds ‘deliver the goods’ in achieving high levels of inventory accuracy (95% to 98% or more), provided the retailer does a good job at change management — i.e. ongoing education, training, and compliance monitoring of store management and associates on the importance and proper methods of cycle counting and shelf replenishment.1 Handheld readers are easier to get started with than other technologies that require installation of fixed infrastructure. Handhelds also provide more flexibility when store layouts change, or if the retailer decides to try tagging a different department or location (because there is no fixed infrastructure to move or duplicate), or when retailers need to support inventory processes that integrate both barcode and RFID labels. Further, handheld readers are one the most proven reader technologies in retail.2
Figure 2 below illustrates an example roadmap that generates value early and then builds on it. For each use case, the most suitable and common reader types are shown in yellow on the right side of the roadmap. The starting point for the vast majority of retailers has been well established — store inventory management using hand held readers. As far as what comes next, each retailer will take their own path. Many factors come into play, including the store formats and size, type of merchandise, role of omni-channel, the mix of private label vs. national brand merchandise, nature of loss prevention challenges, ability to train and monitor associates, and much more.
Building on the Inventory Management Foundation
Once a retailer has established the foundational value of RFID for inventory management, other use cases can be layered on as natural next steps for increasing the value of the existing RFID platform.
Having a highly competitive omni-channel strategy and execution excellence has become a critical success factor for virtually all retailers. Omni-channel success requires many different capabilities — one of the most central being the ability to pool and use inventory from across the retailer’s network and supply chain, including their stores, DCs, suppliers, and in transit. In order to do that, retailers need accurate SKU/item-level3 inventory counts at each location and in transit. The store, which typically has poor inventory accuracy, is often the Achilles heel. For an increasing number of categories, such as apparel and footwear,4 RFID offers a valuable solution.
Handheld readers, combined with good compliance disciplines and analytics, can provide the inventory accuracy required for successful omni-channel order fulfillment. When combined with reliable POS data, made available to the omni-channel system in near real-time, the system can reliably know what inventory is available (or not) for order fulfillment at each location. Additionally, handheld readers can often be used in ‘find it’ mode, whereby the reader can use audible and visual cues to seek out and find specific RFID tags, making it easier to find and locate product that needs to be fulfilled from a retail sales floor or backroom.
In some cases, POS data is not available in real time, but only uploaded in batch (typically nightly). In those environments, overhead readers hold the promise of near real-time visibility of on-hand inventory in order to completely optimize omni-channel order fulfillment systems. Because they provide continuous inventory location information, overhead systems can also aid in omni-channel execution such as more efficient order picking and/or finding items for ‘click and collect’ orders quickly before the customer arrives to pick them up. However, a number of challenges are still being solved for overhead readers, as described on page 13 in Getting to a Continuous Real-time Vision.
A number of retailers are using RFID to manage the sales floor displays of shoes or other items (such as handbags and luggage) where there is a ‘floor model’ on display and the actual stock of items to be sold are kept in the back-of-store. Tracking the display model is essential, as a customer cannot buy an item if they cannot find it on the sales floor. RFID helps ensure that the right items are out on display, lets the store associate instantly see if they have in stock the specific size and color that the customer is requesting, and helps the associate locate that item quickly. Lord and Taylor (see sidebar) and others have seen promising results from this application. These inventory applications may also be integrated into a broader set of retailer applications to support omni-channel order fulfillment or even endless aisle and customer experience.
There has also been interest in using RFID for managing promotions. Some of the biggest issues with the performance of promotions have to do with execution; not receiving the promotional merchandise on time, not setting up the displays on time or in the proper location, and not keeping them properly stocked with merchandise. These issues can negate the potential value of an entire promotion. For quite a while, retailers have been experimenting with RFID to monitor the proper set up and stocking of promotional displays, to ensure timely and accurate execution that follows the promotional plans. This can be done using the same handheld infrastructure being used for cycle counting, but may require additional software and integration. However, we have yet to see large rollouts for this use case.
RFID in the Supply Chain
Another area that some retailers (especially private label) look at next is improving supply chain performance. As retailers scale up RFID adoption, they usually find it is much less expensive to apply RFID tags at the source, within the manufacturing operations, than it is to apply the tags at the retailer’s own DC or stores.6 Once a retailer is doing source tagging at the beginning of the supply chain, it becomes possible to read those tags to confirm that the correct items and quantities are being picked, packed, shipped, and received throughout the item’s journey from factory to store floor.
A retailer often starts these verification processes simply as a single step in the supply chain, either 1) in the DC pick-pack operation (verifying that the right items and quantities are packed), 2) DC shipping (verifying that the right items and quantity are put on the truck), or 3) store receiving (verifying that the right items/quantity have been received) — or some combination of those. Retailers, especially if they are private label retailers with strong influence over their suppliers, sometimes also ask their suppliers to use RFID during pick, pack, ship operations to reduce shipment errors. The infrastructure for the supply chain use case often includes handheld or tabletop readers for pick/pack verification; handheld, conveyor, or dock-door readers for shipment verification; and handheld or dock-door readers for store receiving.
In our surveys, loss prevention is one of the most popular use cases cited. However, it typically needs to be combined with store inventory management to achieve a compelling enough ROI. In early stages of deployment, RFID-based LP is frequently used to complement EAS systems, not replace them. While EAS alarms communicate that an active EAS tagged item has breached the exit of the store, RFID allows a retailer to collect item-specific information about what has been stolen, in real time.
RFID can also practically eliminate uncertainty about whether inventory count discrepancies are caused by shrink or other sources of error. For example, if 100 of a certain item are expected but only 95 received, and if that discrepancy is not caught by the existing receiving process, then the store inventory count would show five units more than actually were in the store. Without RFID, that error would often not be distinguishable from the theft of five of that same item. RFID-based receiving verification when the item enters the store ensures that the system sees the exact number actually received, thereby distinguishing between receiving errors and actual theft. Receiving verification can be accomplished with handheld readers or dock door readers. A door-mounted reader between the back and front of the store can further track the journey of the item, to know when it is actually put out on the sales floor and transitioned from the backroom, providing more specificity about where shrink is occurring (back vs. front of store).
On the store floor, handheld readers generally provide only after-the-fact information about theft. Putting RFID readers at all exits provides more real-time visibility, enabling an understanding of time-of-day, as well as faster replenishment of missing items, thereby reducing lost sales. Putting overhead readers throughout the store takes this real-time visibility a step further by potentially showing the paths and patterns that stolen items take. Depending on the visibility required, a retailer might consider putting overhead readers only in the critical zones of the store, such as where high value merchandise is kept and/or in areas of high conversion, SKU-intensive, high mix complexity categories with higher out-of-stocks. In some cases, such as jewelry shelves, some retailers are using shelf-integrated readers to track the high value merchandise in real time.
In the end, no system will ever be 100% effective in preventing theft or shrink, but RFID can supply additional information about the location and path an individual item has taken in its journey, providing a richer understanding of how loss occurs, and how to prevent it.
In the fourth and final article in this series, we will look at what it takes to get to continuous real-time visibility using overhead readers, the role of big data analytics, and how hybrid infrastructure approaches will dominate.
1 There must be an ongoing commitment to training, managing, and monitoring compliance, otherwise initial positive results (in inventory accuracy and sales uplift) can begin to deteriorate over time. — Return to article text above
2 There is a tremendous amount of pre-existing field experience with the technology, meaning there are quite a few people and organizations that already have the experience and know what it takes to make the technology work well. — Return to article text above
3 Down to the individual size/color/style. — Return to article text above
4 For other categories (e.g. grocery or general merchandise), RFID may not be as cost effective and retailers may instead need to improve the robustness and accuracy of their store receiving processes, POS systems, and LP programs to reduce the degradation of perpetual inventory accuracy between inventory cycle counts. For example, when an item is stolen, it not only is a revenue loss, but also makes the inventory count wrong and the store may think they have items in stock when in fact they are out of stock. — Return to article text above
5 We have heard numbers generally in the 40% to 60% range for the tipping point at which suppliers decide to tag everything. — Return to article text above
6 This is due in part to the generally lower labor costs at the manufacturing locations, but also due to the very repeatable and therefore highly efficient processes that are possible in a manufacturing operation setting where they are usually already applying various tags to the merchandise. — Return to article text above
To view other articles from this issue of the brief, click here.