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The art of handling bricks, clicks, swipes and more: RFID enhances omni-channel operational agility

How to outshine your competitors in online and omni-channel operations should be the question for all retailers today.

The question "to exist on the web or not" is no longer valid the way it was when Amazon.com first went online in 1995. Back then online shops were mainly perceived as additional places to purchase items - as alternatives to brick-and-mortar stores in fact. These days e-commerce is a must for any self-respecting specialty retailer and luckily it is also one of the fastest growing areas of business for many. For example American apparel retailers reported an overall growth of 20% related to their online operations in 2012.

The current challenge is the amount of touch points a retailer needs to hold with its customers. A recent study shows that 30% of all traffic to websites origins from mobile devices like smart phones and tablets. Today's consumer expects to see and experience any brand and retailer the same way in the physical store, websites, social media and media. As the consumer may choose where she shops, the success lies in serving her the best. Interesting new omni-channel services are introduced to the market place on almost a weekly basis. Only in the beginning of the month two British retailers announced their new offering: 

Selfridges, department store presented a concept of drive-thru click-and-collect service:  http://retail-news.net/2013/05/03/selfridges-to-launch-drive-thru-click-and-collect-service/

Littlewood, an online retailer, will launch a fashion-line available for purchase in Facebook: http://www.retail-week.com/companies/littlewoods/littlewoods-aims-to-monetise-facebook-with-shopping-tool-debut/5048834.article?blocktitle=Multichannel-Retail-News&contentID=663

The importance of agility in Fast Fashion

Fast fashion products have a short lifecycle, they are prone to impulse shopping, their demand is rarely stable and the consumption is difficult to forecast. A look worn on the red carpet by a Hollywood star will start a rush to stores in order to buy the same and sometimes an item will be sold-out in hours.  All this is in contradiction of having to place orders for spring 2014 already now - a year ahead, yet very often the ordering months early is a reality. Quick Response strategies were developed to help with this already in the 1980's and are still being further developed.

"The faster a returned item is placed back in the correct channel, the better the sales price."

These days brands and retailers need to make new styles available on a weekly basis. Most fashion retailers fill their stores with new merchandise at least five times per week in Europe these days. Success lies in the speed of 1) recognizing what will sell and 2) delivering the desired items to the store. Hence many have some sort of QR Strategy in place and the current trend is to move production closer to home - ie to manufacturers willing to produce small batches in Southern Europe or Northern Africa. This for many has complicated the supply chain even further.

When it comes to multi-channel operations, speed has yet a further impact: the faster you fill the CORRECT CHANNEL, the more you are likely to sell. Additionally, the SLOWER you react to reverse logistics issues such as online returns, the more you will have to sell on DISCOUNT. The faster an item is placed back into the correct channel, the more likely it will sell at full price. Unfortunately the returns' handling in many places is still slow and may cause a delay of 2-8 weeks and the understanding on the market is that an item returned in pristine condition will sell at 10% - 25% of the retail price.

Agile supply chain

A group of scholars in 2004 suggested that an agile supply chain in the fashion industry bases itself on four building blocks: 

  • market sensitivity, which is understood as capturing trends and transforming them faster to products or pushing the correct products to the market place faster
  • virtual integration, which is enabled by the key players in the fashion value chain sharing information and working with the same information
  • based on networks, which means that the retailer / brand owner uses a wide network of suitable and flexible partners to enable fast response to consumers
  • internally and externally aligned processes, which the retailer typically builds in order to avoid delays caused by hand-offs or buffers between players

 Agile -supply -chain -pic (3)

RFID impact to the above

Market sensitivity

RFID enables full inventory visibility at all times. This means that the retailers and brand owners have a true understanding of items in the store. Furthermore the continuous counting and registering of individual items produces information on

  1. The time individual pieces are stocked in a particular store. Some styles might sell in days; others might stay in the store for weeks. Such data are extremely valuable for trend recognition as well as filling the store with correct items ie items that will sell in that given store.
     
  2. Exactly what items are missing and when. This allows the retailer to recognize when shrinkage happens, in which part of the store (e.g. front of the store / back room) shrinkage happens, which items are prone for shrinkage and finally which items to fill the store with.

    In non-RFID situations the stores may often be filled with wrong items due to stock being registered wrong. For example a size M t-shirt will be registered as size S → store will be filled with another size M t-shirt, now the store has 2 x M and no size S. This will cause an out-of-stock situation, which in 55%-80% of cases may mean no purchase in that particular store.
     
  3. Additional information on what interests the consumer: RFID allows the retailer to collect information on which items are taken to fitting rooms. When this information is combined with PoS information, the retailers may analyze trends such as: 
  • item is tried on all the time, but never purchased à something must be wrong with price / design etc
  • item is tried on, but the size next to it is purchased à the sizing on the item is wrong
  • item is never taken to fitting room, although it exists in the store à item is not interesting for the consumers or item is wrongly placed and consumers do not find it

Additionally RFID allows the retailers to build new consumer interaction points to the stores. An example could be smart mirrors or smart screens, which recognize the items with the help of RFID. The consumer sees additional data of their desired item and may connect to social media and comment /share the information.

Virtual integration

As retailers and brand owners perform full scans of their inventory on at least a weekly basis, the partners in their network have much more accurate information on stock levels. This allows the network to react faster to market demand and helps to automatize replenishment processes to speed them up even further.

Networks

Retailers work with more and more suppliers, making it complex to follow the network of suppliers. When items manufactured by any supplier are marked with RFID, the retailers and brand owners are able to follow the individual items throughout their supply chain, allowing them to have better understanding on when items will arrive at DC's and stores. Additionally sharing the information of the daily counts will help the networked partners to act immediately to demand - allowing them to deliver items faster. 

Process integration

One part of having aligned processed with external parties is to co-manage the inventory as well as to collaborate in product design. Using a commonly accessible RFID database allows an easy way to share RFID data and hence the partner network benefits from knowing 1) the current market demand and 2) potential issues related to product design.

The partner network often takes care of the supply process towards the retailer as well. With the help of RFID the reverse logistics can be significantly quickened and hence more items would be sold with full price, which in effect benefits all parties. The current cost of a return is 2-3 times the cost of the outbound shipment. This cost should drop thanks to RFID helping to recognize 1) which item has been returned and 2) to which channel the item should be placed for best potential re-sell price (this information of course analyzed from the "what is selling now"-trend info based on RFID reads).

Sources & other interesting information: 

Study on mobile traffic to websites: 

http://www.reuters.com/article/2013/05/07/pa-branding-brand-idUSnPNNE09038+1e0+PRN20130507

OR:  http://share.brandingbrand.com/Branding_Brand_Mobile_Commerce_Index_April_2013.pdf

About Omni-channel growth and operations: 

http://www.tradecard.com/wp-content/uploads/2013/03/OMNI-Channel.pdf

Research on Agile Supply Chain: 

https://dspace.lib.cranfield.ac.uk/bitstream/1826/2651/1/Creating%20agile%20supply%20chains-fashion%20industry-2004.pdf

Numbers on online returns: Retail Week FEB 1/2013, Supply Chain supplement

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