We generated a tremendous response from readers thanking us for our summary of part 1 of my interview with Procter & Gamble’s Dick Cantwell on RFID, as well as the full transcript of that interview.
This week, we’re back with part 2, including a summary here, as well as the complete Q&A. I’m obviously biased, but I think this is the best interview in the industry to date on EPC related topics. Thanks to Dick Cantwell again, as well as colleague Paul Fox, who also contributes in part 2.
We left last time in part talking about the value of RFID for in-store execution of promotional displays, what P&G sees as clearly an “Advantaged” class in its internal RFID hierarchy. But from the presentations I’ve seen, it sounds like when P&G finds a display isn’t out where and when it should be, it contacts the store manager for action. That may work well in a pilot, but can we really have hundreds of vendors each calling thousands of Wal-Mart store managers trying to get their displays where they need to be?
“You put your finger right on the nub of the problem,” Cantwell said. “P&G has a huge advantage right now because we have a merchandising force that routinely calls on stores each day over a 3-4 week cycle.” Other consumer goods companies don’t.
“Longer term, what is going to happen and what we see beginning to happen now is the store itself – store personnel – are going to on-board the process that we are doing for them,” Cantwell added. “They are going to start generating automated data and directing their staff to do what we’re doing for them in these pilots.”
I still wonder whether some of this automation couldn’t first be tried without RFID data, but Cantwell in part 1 said it has been tried and consistently failed.
The data can also drive greatly improved effectiveness and productivity by merchandising reps when they visit a store. In fact, EPC data can help prioritize their store schedules, which for the most part are static milk runs today, and help them know what to do when they get there. Cantwell says early data shows that insight can raise sales at a store for each visit by a rep by a few hundred dollars. Added up over thousands of stores and visits, and it is millions in incremental sales.
My reaction to this in part is: Let’s accept all of these benefits for promotional displays and in the effectiveness of store rep visits. It makes sense. But this almost says to me, for now at least, EPC at retail is more for the chief marketing or merchandising officer than it is for the VP of Supply Chain. Maybe the wrong people are attending all these RFID conferences.
“That’s a very good point. I’ve always intended that this is a cross functional, shared opportunity and that needs to involve IT and operations and marketing people on the same team in the same room,” Cantwell responded. If marketers can use RFID to better measure the effectiveness of promotions, they are going to be able “to establish a set of best practices that tells you what promotions work best, what part of the store they work best in, how they should best execute it, etc.,” Cantwell continued, offering the potential to “really redefine in-store marketing execution.”
When it comes to ROI, Cantwell is betting that the costs of tags and applications will come down dramatically. “What is the cost of the tag? We are at the 15 cent range now and it’s dropping like a rock. If you came to one of our packing facilities now you would notice that we have automated that application of our tags on our high-speed packaging lines so that we can apply tags at a dramatically lower cost.”
He said corrugate companies are working now to embed tags as part of the carton manufacturing process, which will take the application cost of the tags to near zero. “That’s a pretty dramatic paradigm shift,” he said.
Paul Fox added a very interesting insight. Consumer research company Nielsen is developing a service similar to what it does to measure the “audience reach” of television programs to what is happening in-store. “A critical factor in establishing the store’s ability to reach a consumer is really a pretty simple equation – it’s the traffic, how many people were in the store, the aisle, the zone of the store, and what did they have the opportunity to see,” he said.
The implication: individual stores or whole chains that have trouble with out-of-stocks, or getting displays to the floor, will score poorly on this measure, which will influence where CPG marketers spend their dollars. This impact could be so huge that it alone will drive retailers and CPG companies to RFID.
Speaking of other retailers, why aren’t more jumping on the EPC bandwagon?
They are, according to Cantwell, just in stealth mode. “I can tell you that there is work going on that half a dozen retailers that I know that never gets the press, never makes the light of day,” he said. Part of the reason for the stealth is everyone’s fear of Wal-Mart, and a reluctance to disclose perhaps unique strategies too early.
Others may have elements of their supply chains in better shape, and “don’t see the low hanging fruit that Wal-Mart sees,” he added. He said other retailers, though, “are staying abreast of the technology without hopping in, but feel when it starts to accelerate they’ll have time to find one of the big consultants and get a turnkey solution to plug in. I’m a little more skeptical of that because I think you’ve got to have on-boarded RFID and have it in the DNA of your company to make it successful.”
Finally, the money question: if the cost for some CPG companies to distribute their product (DC activity) is at 20 cents per case or not much more, how can a fully loaded tagging cost of at least that much possibly achieve ROI? Would you rather have an entire DC operation, or tags on cases?
Cantwell’s response: tag and application prices will continue to drop, and you should amortize that cost across an entire supply chain’s worth of activities. For example, the checking process P&G has now with third party packagers takes 20 seconds per pallet. With RFID, it’s under 5 seconds, which adds up over a year to real money. P&G is also seeing benefits in the warehouse: early results are showing 20% productivity gains in the DC from RFID-based activities.
There is so much more in the full interview, including Cantwell’s thoughts on getting the CEO’s attention on RFID. We know you will enjoy the full transcript.
What is your reaction to Cantwell’s perspective on RFID? Is RFID aT retail more about merchandising than supply chain right now? Will lower tag costs and amortization across the full supply chain drive high ROI? Let us know your thoughts.