The RFID chatter is getting louder. After conducting successful pilots of item-level RFID initiatives, Walmart, then American Apparel, and now Macy’s, Bloomingdales, Dillards and JCPenney have all announced plans to roll out EPC (electronic product code)-enabled, RFID technology at the item level in their stores this year.
For the RFID industry, this turn of events has been electrifying. Not only are these retailers driving RFID adoption, but they’re also propagating the benefits throughout each of their supply chains. This, in turn, creates opportunities for significant process and usage standardization across the industry with the mass adoption of the technology.
Many have already jumped on the bandwagon. An October 2011 study of 58 suppliers and 56 retailers across North America, conducted by Accenture on behalf of the Voluntary Interindustry Commerce Solutions Association (VICS) and its Item-Level RFID Initiative (ILRI), reports that the technology is at a “tipping point” with more than 50% of retailers and suppliers already piloting or implementing item-level RFID.
Joe Andraski, president and CEO of VICS, has no doubt. “The technology has been around for a while, but it hasn’t been used extensively because we haven’t done a lot of extensive tagging—until now,” says Andraski.
Michael Liard, RFID director for VDC Research, has been keeping a close eye on the technology for 12 years and sees the technology rapidly evolving and maturing. “We’re seeing significant developments in terms of innovation, price points coming down, standards being ratified and passed, and use cases being solidified.”
Many credit the groundwork laid by Walmart and the Department of Defense in 2004 where the focus was the EPC tagging of cases and pallets. True, it might not have reached the levels of success they expected, but it became the foundation that proponents have used to change the conversation and start tagging at the item level in what the industry overall is calling a “source-to-store” approach.
More item-level tagging
With multiple pilots completed and full roll-outs on tap, the expected benefits of item-level tagging have been well-documented. Inventory accuracy has improved to rates above 95%; the time required for workers to perform cycle counts in stores has decreased by up to 96%; and out-of-stock events have decreased by 50%.
According to Andraski, it’s the reduction in out-of-stock events that has been the biggest differentiator. “When a shopper goes to retailer X and the product’s not there, it’s a lost sale and it’s also a dissatisfied consumer.” In an RFID-enabled supply chain, shoppers would rather go to Macy’s or Bloomingdales where they know their favorite products are in stock.
This means more sales, which subsequently means more revenue to all trading partners within that chain. Andraski reports that research has shown increases in sales for stores with EPC tagging between 4% and 21% and averaging about 6%. “That’s huge,” he adds, “especially in this economy.”
What does the adoption of item-level RFID tagging mean to the many warehouses and DCs that support these retailers and their suppliers? It means streamlining DC operations to fully leverage RFID’s value. It’s leveraging RFID’s ability to capture information on multiple items simultaneously and remotely, without line of sight. It’s checking an order without opening a carton. It’s automatically identifying and counting groups of pallets, cases and items in one read where bar codes were previously used to manually scan them one at a time.
There is no bigger driver right now than item-level tagging initiated by apparel retailers.
Though most of the tagging is limited to the supply chains of replenished apparel such as jeans, underwear and socks, plans are underway to add more product categories. It’s especially straightforward in a closed-loop supply chain when the apparel manufacturer owns its supply chain from end to end.
“American Apparel is a perfect example,” says VDC’s Liard. “They manufacture their clothes; they distribute their clothes; they sell them in their own stores. That organization can use RFID at the point of manufacture, they can use it in the warehouses and DCs, and they use it in the retail store.”
Other item-level tagging initiatives have started as a result of anti-counterfeiting and brand protection programs for other types of products. “They’re using RFID at the item level in pharmaceuticals,” notes Liard. “As it gets manufactured and goes through the supply chain, there’s a chain of custody called its ‘e-pedigree.’”
Benefits of RFID
In an October 2011 survey of 58 suppliers and 56 retailers across North America conducted by Accenture on behalf of the Voluntary Interindustry Commerce Solutions Association (VICS) and its Item-Level RFID Initiative (ILRI), both retailers and suppliers ranked “improved inventory visibility” as their top realized benefit of having implemented item-level RFID tagging programs.
Here are some other expected benefits for suppliers and retailers within the four walls of RFID-enabled warehouses and DCs.
• An internal reduction of inventory levels as a result of greater inventory accuracy.
• An increase in speed and accuracy in materials handling operations by substantially reducing the number of touches per carton, resulting in a significant reduction in DC labor cost.
• An increased speed of cycle counts, decreasing the labor required while simultaneously increasing the accuracy of the count.
• A reduction or elimination of manual item-level audits of carton contents, thus minimizing the time and labor associated with the DC receiving process.
• The ability to audit each outbound pick-pack carton quickly to ensure a high degree of outbound accuracy and be able detect errors before they are found by the customer.
• A reduction in the number of claims or chargebacks by retail customers.
• The automatic ability to create an automated shipping notice (ASN) based on the products in the container and the time of departure of that
• The verification of an entire container manifest without needing to unpack the container.
• With consistent, highly accurate performance, it will allow a supplier to completely bypass the retailer’s DC, and instead ship direct to stores, avoiding any need to crossdock that merchandise at the retailer’s DC.
• A reduction in shrinkage due to customer and employee theft.
• Enable continuous quality improvement and result in fewer return-related costs and markdowns.
• By enabling tracking and tracing, RFID has the potential to reduce the cost of compliance with free trade agreements, governmental mandates and regulations while improving customs processes.
About the Author
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About the Author
Maida Napolitano has worked as a Senior Engineer for various consulting companies specializing in supply chain, logistics, and physical distribution since 1990. She’s is the principal author for the following publications: Using Modeling to Solve Warehousing Problems
(WERC); Making the Move to Cross Docking
(WERC); The Time, Space & Cost Guide to Better Warehouse Design
(Distribution Group); and Pick This! A Compendium of Piece-Pick Process Alternatives
(WERC). She has worked for clients in the food, health care, retail, chemical, manufacturing and cosmetics industries, primarily in the field of facility layout and planning, simulation, ergonomics, and statistic analysis. She holds BS and MS degrees in Industrial Engineering from the University of the Philippines and the New Jersey Institute of Technology, respectively. She can be reached at [email protected]