Supply Chain Digest: Procter & Gamble ‘Unplugged’ on RFID

Discussion
Jun 15, 2007

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?

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5 Comments on "Supply Chain Digest: Procter & Gamble ‘Unplugged’ on RFID"


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Gene Hoffman
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Gene Hoffman
14 years 11 months ago
UPC finally succeeded when grocery leaders in the 70s on both sides of the aisle carved out a path in a world of chaos…and changed the capacity of the food industry and the entire world. Now RFID awaits. Today’s efforts to establish RFID techniques in the marketplace attempts to build to same industries-wide partnerships…and it faces many similar problems such suggested in this debate. The “price removal” questions that the acceptance of UPC faced are, I believe, instructive for dealing with the privacy and ROI issues that are deviling the acceptance of RFID today. Hopefully, I believe we have the ability to create an industry consensus around RFID issues and it’s important to do so. Every pro and con position has merit and must be considered. But on and off the shelf is where the major returns from RFID will be found. Can we we expect today’s leadership on the retail and supplier sides of the industry to cut through the conflicting messages and cohesively step up to the task? I hope so.
Kai Clarke
Guest
14 years 11 months ago
I disagree with Mr Cantwell on RFID. Unfortunately, history is on my side, and the future is clearly not on his (at least in the short term). RFID is very expensive, regardless of the class of products you implement, because it still has a high system cost just to implement the RFID system. There are also issues which were not addressed in the article, the foremost of which is personal privacy and security issues. Using RFID to track products in a store is not only expensive, but asks the consumer to give up many of their personal privacy rights and to sacrifice individual security concerns that have already presented a major hurdle towards system-wide RFID integration. We tend to forget that RFID has its roots in the military where costs are often pushed aside and personal privacy is not a concern. The costs are still too expensive, and this is many years after RFID was supposed to become a “standard.” Until costs fall to equal those of simple bar codes or other tracking systems, the… Read more »
James Tenser
Guest
14 years 11 months ago
Count me among the skeptics, although I share some of Mr. Cantwell’s hopes that RFID-generated data flows might eventually help support improved in-store implementation and display compliance. It is important to pin down some context if the dialog is to progress. Item-level RFID tagging is still in the vision stages, it seems to me. Its hypothetical value would be to eventually let us know the physical location and count of every SKU within the store, eliminating the present “blind spot” at the shelf. This of course would necessitate not only the application of a tag to every unit of merchandise, but also the installation of a system of in-store sensors that continually monitor the movement of each tag. We’re not sure yet how we would handle the resulting data flows or implement against them in the stores, but in theory at least, this could make the blind spot go away. That scenario may remain a bit SciFi at present, but also we hear of some promise for RFID-tagging and tracking whole pallets or even cases… Read more »
David Biernbaum
Guest
14 years 11 months ago

RFID is a major step forward to help retailers and suppliers know where products and displays are in real time. To this extent RFID helps to answer a problem that all of us continually experience without any other real workable solutions to date. However, I’m not yet an RFID advocate because the cost cannot be absorbed by smaller companies, niche brands, or entrepreneurs, and that’s bad for the business, the industry, retailers, and most of all, consumers.

Bill Akins
Guest
Bill Akins
14 years 11 months ago

The real value will be shown when users of this technology can establish business rules in their tracking systems to get rid of all the “garbage data” weighing down the analysis. If a case pack is too close to the stockroom reader and the floor reader, it can scan wrongly up to 60,000 lines of data in an hour. Once the proper line flow from receiving dock to box crusher is clean, you will see a rapid increase in the strategic usage of the data versus it being primarily tactical today.

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