Supply Chain Digest: Procter & Gamble ‘Unplugged’ on RFID
By Dan Gilmore
Through a special arrangement, what follows is an excerpt of a current article from Supply Chain Digest, presented here for discussion.
As SCDigest readers have been well aware, I have been at times a skeptic on the short term sense of RFID/EPC in the retail-to-consumer goods supply chain. There have just been too many questions about the ROI, the approach Wal-Mart has taken, why other less costly alternatives to solve some of the problems have not been better explored, the hype machine, etc.
I took my doubts to Dick Cantwell, P&G’s vice president of auto ID as well as chairman of the EPC Global Board, and a well-known advocate of RFID.
Mr. Cantwell said he understands the short-term skepticism around RFID.
“In the past, we were also doing all kinds of pilots and tests across the whole value chain and across many, many products,” he said. “But we weren’t getting any real value. We were just learning how to use the technology.”
That includes perhaps spending too much time on products that couldn’t generate any ROI.
“We were tagging pallets of commodity goods and not finding a business case. So we went sideways for a while. We were being perceived as being among the skeptics at one point,” he said.
This point about the near-term ROI challenge for basic products is of course crucial, and one that is still a real issue. To that end, we asked Mr. Cantwell about P&G’s classification system of products and marketing/promotional events. It’s based mostly on potential ROI, filtered a bit by the technical friendliness of the product for RFID readers.
Advantaged products and events have a high, immediate ROI even at current tag prices (more on that in a moment);
Testable products are “on the bubble”;
Challenged products will have to await much lower tag costs, or possibly more radical process change.
Most of P&G’s current investment and attention is on the “advantaged” category.
So is the ROI really there right now?
“I have demonstrated over and over again that the return easily exceeds the minimum of our company’s financial hurdle rate for invested capital,” he said. “That’s with tag prices that I know are going to drop, and with retail sites that I know are going to expand, and that’s without benefit from further economies of scale. That’s with just certain products and using still a semi-automated tagging process.”
Promotional displays are a perfect example, not only because of their huge impact on sales, but because the cost of RFID is low, as the tag on the shipper is in effect amortized over all the display inventory.
But can’t we simply give an electronic “to-do” list to the Wal-Mart store manager, and use carrots and sticks to make sure he or she gets the displays to the floor? Do we really need massive spending on RFID to solve what seems to me to be basic store execution issue?
“In a word, ‘Yes’,” said Mr. Cantwell. “I’ve been in this industry with Johnson & Johnson, Gillette and P&G now for over 25 years, keeping up on both the marketing and the supply side. I’ve seen every plan in the book to get better retail execution, and I’ve not seen anything that had ever lived up to its expectations. What RFID does is it gives you for the first time real, actionable visibility. It gives you the systems to really know where your products and displays are.”
Note in our 10 Things Necessary for RFID/EPC to Thrive,
we listed, “Roll-outs should be pushed at a measured, ROI-driven pace” as among these keys. Seems obvious, doesn’t it?
Discussion Questions: What is your reaction to Dick Cantwell’s perspective on RFID? Is the real key to making this work for everyone in retail simply to roll it out at an ROI driven pace? Has the ROI case basically been settled for “Advantaged” products and events?