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.
But if I am wrong, I want to know it, and that’s exactly what I told Keith Harrison, Procter & Gamble’s Vice President of Product Supply, a few weeks ago at the WERC conference in Nashville.
Long story short: That conversation led to a great interview with P&G’s Dick Cantwell, Vice President of Auto ID after coming on-board through the Gillette acquisition. He is also Chairman of the EPC Global Board, and well known to many as a strong advocate of RFID.
I had some tough question, and Cantwell gave some strong answers. We’re publishing the full transcript (which is long) in two parts. Part 1 is available here: SCDigest Unplugged Interview with Procter & Gamble on RFID. Highlights are summarized below. After we publish part two, I’ll come back and reassess my overall stance.
In general, I will say Mr. Cantwell is not only an articulate evangelist for RFID/EPC possibilities, but brings a healthy combination of bullishness with reality about where we are and how to think about that, a balance that has too often been missing from the discussion – maybe on both sides of the fence.
Cantwell says he understands the short term skepticism that I and others have had.
“I think we have all done things in 20/20 eyesight that we learn from and that’s the discovery process of this journey we’re on,” he said.
He notes that, “In the past, we were also doing all kinds of pilots and tests across the whole value chain and across many, many products, 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 an ROI.
“We were tagging pallets of commodity goods and not finding a business case. So we went sideways for awhile. We were being perceived as being among the skeptics at one point,” Cantwell said.
This point about the near term ROI challenge for basic products is of course crucial, and one that is still a real issue, as to the best of my knowledge Wal-Mart itself is not clearly pointing vendors in the direction of tagging high ROI items first (though they are open to discussion on this topic, we understand).
To that end, we asked 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 current investment and attention is now 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 capitol,” Cantwell 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, he said.
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,” Cantwell responded. “I’ve been in this industry with Johnson & Johnson, Gillette and now 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.”
My belief is that Wal-Mart has not handled all this as well as they might have, both from a PR perspective, and from managing vendor issues and questions. Specifically, they have often seemed too defensive about keeping to a schedule that in effect is no one’s business but there own, reacting to media reports at times almost like a politician. Even though I’ve had my questions, in the end, Wal-Mart should roll this out at whatever pace makes sense for them.
“I think Proctor & Gamble could have done a little bit better job too,” Cantwell said. Just like P&G, Wal-Mart “is going through kind of a trial and re-assessment, trial and re-assessment, constantly fine-tuning their lens on where they want to deploy and get the most value.”
I’ll 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?
That’s it for this week. Thanks to Dick Cantwell (as well as P&G’s Paul Fox) for spending an hour with me. I know you will enjoy the full part 1 transcript, which is quite interesting. More soon, including Cantwell’s take on why more retailers haven’t jumped on board – or have they?
What is your reaction to Cantwell’s perspective on RFID? Is the real key to making this work for everyone in retail is simply to roll it out at an ROI driven pace? Has the ROI case basically been settled for “Advantaged” products and events? Let us know your thoughts at the link below.