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First Thoughts
  By Dan Gilmore - Editor-in-Chief  
  Nov. 11, 2011  

Supply Chain News: RFID in Consumer Goods to Retail - A Comeback?


As I have written before, the RFID/EPC saga in consumer goods to retail is easily one of the strangest stories of all-time in supply chain.

Let's quickly review:

• Late 1990s, researchers at MIT's Auto ID Labs see huge promise for improving supply chain efficiency and visibility in consumer goods to retail from RFID, but only if tag costs come way down. The concept of the relatively inexpensive, "passive" tag that would not need to hold that much information (the Electronic Product Code, or EPC) is born. So also is the vision of the holy grail of the "5-cent tag."

Gilmore Says:

You could easily associate RFID-tagged items inside a case with the UCC128 bar code identifier upon initial DC receipt, and then use the RFID numbers the rest of the way without ever tagging a carton. In fact, you might argue there is no real reason to - a virtual RFID license plate.

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Over the next few years, participation by major consumer packaged goods companies and retailers in various studies and pilots at MIT and internally grows, as do expectations and hype.

• In 2003, Walmart announces a case-level RFID mandate for its top 100 suppliers, and later MIT turns over the Auto Labs and EPC "ownership" to EPCglobal, a newly formed arm of GS1. At the packed fall conference announcing the change as well as a number of related technology initiatives, electricity is almost literally felt in the air. The consumer goods to retail supply chain will be dramatically changed. (That clearly is where most of the focus is, though the US Department of Defense is also in the hunt, its RFID program champion ubiquitous at every RFID event known to man)

• RFID vendors see a Walmart-driven gold rush. Investment from venture capitalists pours in, in the billions. Other retailers, such as UK's Tesco and especially Germany's Metro Stores, also jump in with both RFID feet. Metro displays its RFID-heavy "Store of the Future" prototype. RFID dominates the subject matter at most industry conferences. The material handling show ProMat, for example, gives every attendee an RFID badge so we humans can walk through a portal reader in a large area in the center of the floor (an expensively produced RFID themed video playing in the background) to see ourselves automatically read. It works about half the time, if we walk slowly through single file. The fluids in our bodies are the issue, we are told.

• Greatly summarizing, many consumer goods companies start balking at carrying the cost burden for the tags and tagging processes by themselves. Walmart can't seem to get its RFID story straight. Other US retailers wait for Walmart to do the dirty work. Walmart executes the program poorly. By 2009, RFID for consumer packaged goods to retail in the US is virtually dead. Tesco similarly drops out. Metro Stores keeps a few candles burning, but not much.

As my friend Dean Frew of Xterprise keeps reminding me, however, the gold rush period and subsequent investment dramatically moved the technology along, even if most of those investors lost their shirts. RFID did start to expand in a number of other areas outside of consumer goods to retail.

And then, over the past two years, comes a new Great White Retail RFID hope - item-level tagging for apparel (meaning an individual product itself, not a pallet or case). And suddenly, just over the past few months, after some fits and starts, we appear to have reached an inflection point - a level of RFID critical mass never seen before.

At one level, that RFID may first succeed here is not surprising. People may forget that it was the soft goods sector that largely drove the initiatives in the 1990s around UCC128 carton labeling tied to advanced ship notices. Why? Because the handling units in this sector are almost always at a case-level at best (versus say pallets of Kleenex), and often at the item-level. Mixed-SKU cartons are commonplace (one of this, three of that). The style-color-size nature of a base SKU means just a handful of a given sub-SKU may be in a store - and the financial hit of the count going to zero means a lost sale in a more compelling way than say laundry detergent (sales price and margin, less customer substitution, more impulse buying, etc.)

Studies started showing up a few years ago demonstrating a real value prop for item-level apparel tagging, mostly around highly accurate perpetual inventory counts, meaning replenishment orders and in-stocks were therefore much improved, plus dramatically more efficient cycle counting processes in-store. Combined, this meant retailers could really know what apparel items they had in store where - for the first time ever.

This time, it's a good value for suppliers as well. They too really benefit from better inventory accuracy, and in most cases are already marking the product with a hang tag or label to which RFID can be added, or RFID may be combined with EAS security tags, so the extra handling costs associated with RFID are small for most.

Walmart jumped back in, with a deliberate, more well thought program that initially focused on just three SKU categories. That program is alive right now in some 3500 US stores. Specialty retailer America Apparel actually led the charge before that. And now, a new gold rush. In September, Macy's announced a program that will RFID-enabled all of its 800+ stores by late 2012. Last month, JCPenney surprises everyone with the news it has RFID for a few categories running in 1100 stores, with aggressive plans for more, when everyone thought it had just a pilot with a few dozen stores going. A stealth program for competitive reasons?

Sources tell me we will see item-level RFID system RFPs from at least half a dozen major retailers in the first half of 2012.

So, here is the thing. This will start to make RFID in retail commonplace - just as the item-level UPC bar code pre-dated the UCC128 case code. For mass merchants such as Walmart and others, once the RFID infrastructure is in place (largely just handheld readers tied wirelessly to revised backend systems), the effort/pain to roll out new categories is simply not that much.

And very notably, in early 2012 Walmart is rolling this out to two non-apparel categories: tires and some consumer electronics (again, note the individual item handling orientation of both of these).

This, I submit, will inevitably flow back into carton tracking. In fact, you could easily associate RFID-tagged items inside a case with the UCC128 bar code identifier upon initial DC receipt, and then use the RFID numbers the rest of the way without ever tagging a carton. In fact, you might argue there is no real reason to - a virtual RFID license plate.

The story is of course different with traditional consumer packaged goods, which won't be tagged at an item level for a long, long time.

But is this setting up a return in mass merchandisers for a relook at case level tagging as these item-level programs mature?

You betcha. And you heard it here first.

Do you see these item-level tagging programs in apparel eventually driving renewed interest in case-level tagging? Or are the dynamics in consumer packaged goods just too different? How do you see this playing out? Let us know your thoughts at the Feedback button below.


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