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RFID: from marginal to mainstream - The tipping point for RFID adoption

With dropping costs and entire product lines "ready-tagged", RFID is rapidly finding it's way into the inner core of the fashion retail sector.

Author: Carl Michener

1960s sociologist Morton Grodzins coined the phrase the tipping point as a way of explaining how uncommon sociological phenomena rapidly became generalized. It's a phrase that regained popularity when journalist and author Malcolm Gladwell published his book, The Tipping Point: How Little Things Make a Big Difference, in 2000.

When it comes to RFID use, a little bit of technology certainly does make a big difference, namely increased sales and other efficiencies. Integrating RFID with inventory management and point of sale systems (POS) increases accuracy for accurate reordering, reduces out-of-stocks and makes inventory counts a breeze.

RFID is becoming more and more pervasive, especially in fashion, but not all major retailers have adopted the technology, let alone the smaller chains in Europe, the U.S. and elsewhere.

The benefits of the technology are indisputable, but the question is: have we reached a tipping point in retail?

Inventory edges out asset tracking

In a 2005 report, Aberdeen Group found that "…asset management was, by far, the leading application of the technology [....] followed by production, transportation and security." How RFID use has changed in the ensuing seven years says something about its evolution. JP Kamel, a Principal at RFID Sherpas LLC, explains that asset tracking, though still important, has been superseded by inventory tracking, in pure numbers if not in dollar value.

"Asset tracking has always made sense. Because you control an asset from the beginning to the end of its lifecycle, affixing an expensive, ruggedized RFID tag to an important asset was a good move economically. In 2005, attaching an RFID tag to a garment was cost-prohibitive. That has changed, with a far higher number of inventory tags and implementations."

The first change involved supply chain logistics, where RFID labels were affixed to items or, more often, boxes or pallets at a distribution centre, adding visibility for better economy of movement. Once a shipment reached the store, the venerable barcode would take over. Since the early days of RFID-enabled inventory management, however, the technology's role has changed again. Now that the incremental cost of adding a passive RFID tag to a garment label at source hovers around the ten-cent mark, tag price is no longer a big obstacle.

A high point: fashion retail

No one can sing the praises of RFID in fashion retail better than Jorma Lalla, CEO of Nordic ID, a mobile computer manufacturer located in Finland. "In Europe, Nordic ID has been involved in 80% of all RFID pilots and rollouts in apparel, and based on our experience the benefits of shop floor RFID are incontrovertible," he says. "We see retailers move from 70% or 80% inventory accuracy to 99%; a twentyfold or better reduction in stock-taking man hours; vastly improved confidence in inventory numbers; and a reduction in out-of-stocks that lifts sales on the order of 10%."

Most RFID implementations in fashion retail are retailer-driven, with RFID tags affixed at point of manufacture or soon thereafter. Tagging items earlier in their journey also gives retailers full item-level visibility into a product's journey from manufacture to sale. RFID can show precisely when a specific item was put on a truck, when it arrived at the distribution centre, and at the retail stockroom. RFID is now being used to complete the journey to point of sale, increasing visibility in-store, including when the item was moved from the back of the store to the front and when it was sold. Metrics like these can help achieve far greater efficiencies.

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Despite increased visibility and happy results, however, retailers that pioneered the use of RFID to increase supply chain efficiencies only use the technology selectively beyond the stockroom. According to Patrick Javick, Vice President, Retail and General Merchandise for GS1 U.S., the worldwide supply chain standards organization, these retailers are using RFID to track apparel and general merchandise where conditions for use are optimal. "Switchability is the key to making RFID work in retail right now," he explains. "Where there are hundreds of SKUs for similar items, like clothing or tires, RFID helps tremendously in preventing stock-outs. Retailers like Walmart base decisions on select product matrices."

Theo Lutz, Team Leader in the department of Information Technology Management, Institute for Industrial Management at Germany's RWTH Aachen University, adds another perspective: read ranges and materials also make apparel and the like ideal for RFID. "In today's existing retail applications, there are hardly any metals or liquids involved to complicate reading," says Lutz. "If there were, you would need to go to quite a bit of trouble to select the optimal tag for each product, to find out where to put a transponder for best results, how to orient the product to increase readability and so on."

THE TIPPING POINT

So RFID works very well in fashion retail where there are thousands of SKUs, a short shelf life and season-specific inventory challenges that makes just-in-time replenishment an attractive option. There are other industries where it doesn't work as well. So where does that leave us in terms of adoption?  Are we almost at a tipping point, or is that something we can even detect?

According to Kamel from RFID Sherpas, one sign of the tipping point's arrival is that certain suppliers have started putting tags on entire product lines because it's cheaper to do so than to tag selectively. "At that point, a retailer is paying for the tag in the cost of goods whether they use it or not," he observes. "And it is starting to happen-the tipping point is upon us. On the supply side, one well-known maker of undergarments made this decision within the past 18 months. With such a large proportion of product being shipped to retailers like Walmart, JCPenney and Macy's, it made sense to tag those product lines in their entirety."

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Inventory confidence key to new models in retail

The benefit of RFID to fashion retail and similar business models is evident, but not everyone has jumped on the bandwagon. What's holding them back? Lutz of Aachen University offers an academic perspective. His findings show that store managers often look at RFID implementations for the wrong reasons. "A motivation for many use cases seen is 'trying RFID out'. That was reasonable at the very start of the RFID era, but to be successful nowadays you need to address specific business problems," he finds. "Sometimes it is better to solve problems with organizational changes and use RFID to gain insight into processes. Being solution-driven, not only benefit-driven, is the key to success."

Kamel thinks along the same lines. "People have to stop focusing on the technology, and instead focus on the business problem that we're trying to solve: improving confidence in inventory accuracy." He sees business cases built around RFID every day, and most of them have to do with inventory accuracy and visibility. "If you are offering 'buy online, pick up in store', you need to have very reliable inventory data. If the customer comes in to pick up an item and it's not available, there is a 50% chance they will never shop there again. That's a scary statistic if you have 70% inventory accuracy, like most retailers do. To keep that from happening, most retailers set a safety threshold, but then you're five-deep in every SKU just to be sure."

GS1's Javick notes that a move to RFID is also sometimes delayed because of departmental alignment. "RFID benefits are rarely manifested in the IT profit and loss bucket, even if that's the department that makes the initial investment. This disconnect between departments has some companies struggling to see the big picture.  But since results are proven, the number of labels moving to RFID is experiencing exponential growth in the U.S," he says. Javick finds that smaller players are getting into the game now, too; one-off stores have implemented RFID, as have big chains with thousands of stores. He acknowledges that there are still some big companies holding out. "Some of those holdouts have piloted RFID, some have not," he says.

Cost and complication of implementation decreasing

It's certain that the cost of RFID tags is no longer holding anyone back, but the cost and complication of implementation sometimes is. Until recently, an implementation consisted of tags, readers and software to get tags to talk to readers.  A large-scale, chain-wide implementation would often take about a year. More recently, however, deployments have become less expensive and more agile thanks to increased co-operation between software, hardware and tag providers. By optimizing their products to suit each other and offering the whole packing under the same joint roof, the solution becomes easy to implement and cost-efficient.

Interviewed for this article:

Jorma Lalla is CEO of Nordic ID, a leading manufacturer of handsets for mobile data collection based in Salo, Finland's Silicon Valley and home to mobile phone giant Nokia.

JP Kamel is a Principal at RFID Sherpas LLC, a North American consulting practice focused exclusively on the retail sector.

Patrick Javick is Vice President, Retail and General Merchandise, for GS1 U.S., a global supply chain standards organization.

Theo Lutz is Team Leader in the department of Information Technology Management, Institute for Industrial Management, at Germany's RWTH Aachen University.

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