RetailWire Webinar: Getting Real with RFID
By George Anderson
As with any hyped anything, radio frequency identification (RFID) technology has its share of advocates and detractors.
The recent RetailWire Webinar on the subject of RFID looked to move past the rhetoric and provide attendees with a real world perspective on the use of the technology in retail settings.
For many on the supply side, the cost of implementing RFID has been a major stumbling block. In particular, the cost of tags has been raised as an issue by suppliers in the consumer products arena.
That view, however, may be shortsighted, especially in reference to promotions, according to Marc Osofsky, vice president, marketing and product management for OATSystems. The cost, 14 cents, for placing an RFID tag on a shipper is minor compared to the payback with the technology in place.
Mr. Osofsky and others pointed out that research demonstrated that in many cases promotional product is not getting on the floor in a timely fashion.
Mr. Osofsky said having an RFID tag on a shipper, case, etc. takes retailers and suppliers out of the blame game and provides them with the information they need to improve performance.
“You can change that dialogue, from one side blaming the other, into a joint examination of the actual data,” he said. “For example, you could have a promotion that missed the sell through target, but when you dive deeper into the data it is clear that stores that executed well actually exceeded their sell through goals and stores that executed poorly had fewer sales. With this fact-based approach you can work together to try to improve the performance.”
Dr. Sanjay Sarma, associate professor of mechanical engineering at MIT and chief technology officer with OATSystems, said he sees the clearest benefit of RFID in the last 100 yards on the supply side and the first 100 on the demand side.
“We have very few ways to observe the processes that occur in the stores. And in the spirit of scientific management, this opacity limits our ability to improve or monitor the way in which stores are operating and more importantly the accuracy of our demand measurements. So there’s this vicious cycle where if execution is poor, the POS numbers are going to go down. And we don’t know if that was because of poor execution of if the POS really was bad. There are so many reasons why this can go wrong but with RFID, you can really see why this is happening.”
Seeing what is really happening at store-level is a critical advantage of RFID, said Mr. Osofsky.
“Most companies today are paying third party brokers or their own sales folks to go out and visit stores every week, every two weeks, every month. With RFID, you can actually use alerts and have the store coverage folks only go to stores where they can have a positive impact. Only send them to stores where you know the promotional materials are trapped in the back room and where it needs help getting out on the sales floor. Companies are spending a lot of money these days sending out people to confirm things that are already being executed well.”
Ron Margulis, managing director of RAM Communications and a member of RetailWire’s BrainTrust, recently visited Europe and saw RFID in action.
“I was at several Tesco stores, including one in Leicester England, that tracks all its DVDs. There was a carousel and you were able to take the DVD that you wanted. You, the shopper, scanned it and presented your form of payment. It was a very effective use of RFID technology. On the back end, they were using the data to determine which DVDs were in stock, which needed to be restocked and when.”
Moderator’s Comment: Where do you think the greatest opportunities exist for RFID on the supply and demand side? –
George Anderson – Moderator
Some neat ideas and comments in the prior discussions…I don’t know Jeremy Sacker, but he is headed in the right direction. Think Profit Center, not Cost Center. Think about the Value that RFID might bring to the world of advertising, promotion and marketing. How can RFID help to sell products? When is the last time that any major CPG really hesitated to invest in an in store display, or on pack promotion, or consumer give-away? What if the RFID tag, in addition to providing supply chain tracking and metric information, could also act as an interactive tool to enable differentiation, shelf pop or provide consumers with real beneficial information? Even at $0.50…a small investment.
On another train of thought, the DoD has mandated RFID implementation by January 2007. For DoD contractors, we are providing on site audits and needs assessments, and helping to make them successful. In addition, we are working to establish a facility in the Midwest where DoD suppliers can ship their packaged products and we will handle all of the RFID, fulfillment and inventory management capabilities. In the world of technology changing frequently and third party outsourcing, why wouldn’t everyone avail themselves of such a pass through service?
Embrace change! Think differently! Lots of reasons to not do RFID…think about all the reasons to do it.
RFID can certainly show if merchandise is buried in the back or displayed in the front. Closed-circuit TV connected to the internet can also show that information, and a lot more besides, for a very modest cost. Retailers can buy off-the-shelf Panasonic cameras (price: low 3 figures each) at local Radio Shack stores that come with instructions for connections to the store’s router and a unique URL maintained (as part of the camera price) by Panasonic. Setting up a few of these at each store location will show store management and suppliers what the displays look like, whether the floors are clean, cashier line lengths, shoplifting, and staff activity. It’s easy to record the images with inexpensive personal computers or you can just watch the live images. This technology is sold as a hardware/software/installation/training package by Freedom Systems as well as dozens of other low-profile suppliers. Best of all, you can have it up and running in a day instead of the months (years?) it takes to get RFID up and running.
It will be extremely beneficial for retailers to track in-store customer behavior. This knowledge will take merchandising and customer service to a new level. Demand for certain products will be tracked with greater efficiency and the accuracy and timeliness of product replenishment will increase. We all already know many of the upsides of RFID, and as tag costs continue to drop and return on investment is demonstrated, the future is bright for supply and demand. Unfortunately, the present state of implementation is still looking a little foggy.
I like Mark Lilien’s approach. We use RFID, cameras and other technology to get the information we need. Too often people with a hammer think every problem is a nail. :>)
RFID is yet another example of my motto, practice perverts principle. There are lots of opportunities and strengths with this technology but also lots of threats and challenges. When it is good, it is very very good but when it is bad, it can be horrid. Just today I was reading about companies (in the U.S.) implanting chips in their employees’ arms to security check them before letting them do certain tasks or access certain areas of the company/store. The mind boggles at potential applications for this thing. We have talked about some of them before, tracking customers, for example, by what they have bought. It frightens me that people may come to accept this in time.
On a personal note, I am disappointed in you, Ron. All the way to England and not even a phone call? Admittedly my telephone has been out of order for the past few weeks but I do check emails daily and could have supplied a cell phone number. It really would be nice/useful to get together with colleagues when they journey to this side of the ocean.
I don’t know that you need RFID to track promotions. The important factor is the software needed to setup a project and the report distribution to the interested parties. As for data input, it could probable be emailed in if one had the right software.
The answer is YES! All the comments were right on target and it takes time for new technologies to be introduced, accepted and loved. Just look at how long the UPC code took. So things are moving forward. It will provide significant benefit across the supply side first. RFID will impact demand side early on the promotional side. We need to get rid of Holiday Season promotions before Valentine’s day. The bigger concern with the demand side is likely to come from activist groups who are concerned about privacy. As a ‘consumer understanding’ nut, I can’t wait to use RFID to be able to figure out what the consumers are doing with the products in their homes. This information is likely to give us some really good new insights and help us to deliver better products and packages. But I know the ACLU will be watching!
The opportunities that RFID presents are mind boggling. The supply side gains inventory accuracy and reduced shrink. Having held positions where these numbers were vitally important, I really have a hard time understanding why more retailers and manufacturers are not working harder to create the standards that are partially impeding RFID adoption.
The demand side offers the most exciting benefits to both retailers and manufacturers. As stated in the article, we learn about store performance, and potentially, consumer behaviors in the store. Can you imagine a day where you don’t wonder if the item you want is “in the back.”