Compiled by Theresa Gilmore

Supply Chain Digest Editor, Dan Gilmore, sat down to discuss RFID with Dick Cantwell, Vice President of Auto ID at Procter & Gamble. He is also Chairman of the EPC Global board. Cantwell has been very active in the Electronic Product Code (EPC) community, and also been a vocal proponent of the potential of RFID/EPC in the consumer goods-to-retail supply chain. Gilmore has questions, Cantwell has answers, in Part 1 of this two-part Unplugged interview. Part one of the full interview transcript is below. For Gilmore’s commentary see:  P&G Unplugged on RFID

Cantwell Says:

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. What do you say? Send us your comments here

Gilmore: Long term, I have been very bullish on RFID, and am bullish right now in many applications. But in consumer goods-to-retail, for a variety of reasons, I am a bit skeptical in the short term.

Cantwell: I have a lot of sympathy for your skepticism. I don’t think there is anybody who doesn’t believe RFID is going to happen and is going to be a technology that is going to revolutionize the future. The question is how long is it going to take and how is it going to play out. 

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.  So there are no real absolute right and absolute wrong answers to the discovery process that has allowed us to continue to make the technology more reliable, more predictable, more robust.  And as we have gone from the early days of seeing this technology that was about all things, all the time, to right now, where we have evolved to prioritizing the opportunity so we can deploy the technology where we can get value in the short term. 

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.  Now we’ve narrowed our focus and we are going much deeper into specific applications, and we’re getting value.  Proctor & Gamble has already achieved several million dollars of incremental sales.  And that’s just from a number of tests sites we’re deploying in. I have demonstrated over and over again that the return easily exceeds the minimum of our company’s financial hurdle rate for invested capitol. 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. 

Fast forward into the future: tag prices come down, there are more sites, and tag application is more automated. My ROI is going be significantly higher.  So, I am feeling like I used to be bushwhacking through the jungle, which is what we were doing 5 years ago. Now, I feel like we’re on the road, headed in the right way. It’s a journey and there’s discovery, and discovery brings new ways of looking at the benefits. 

I’ve often been asked, Why hasn’t Wal-Mart slowed down?  Why has Wal-Mart not done what they said they were going to do?  Why have they changed their tone?  And my answer to that is it’s a discovery process.  We’re inventing something that no one knows what it will look like.  This isn’t looking in the rear view mirror and rolling out a new enterprise system, or a new warehouse management system based on incrementally improving what we have. 

We’re inventing a new way of doing business and as our group president for North America says, “We only know what we don’t know.”  And with that kind of paradigm, we have a 24-month road map. We look out to the next 6 months with very finite plans, and during that process we learn things, and then we adjust.  Move 10 degress to the right and then 10 degrees to the left.  

Pretty soon, the opportunities we are shooting come into full view. It might be different than what we thought 6 months ago, but they are real. We have a much better shot of achieving them based on the work we have done.  And I think that is what Wal-Mart is going through.  They’re 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. 

Both Wal-Mart and P&G, and any other manufacturer or retailer in the CPG category, is faced with the fact that in our individual operations, the management that is in charge of those facilities have to be convinced that they’re going to get value from the technology.  You can’t just toss it over the fence and expect that they’re going to plug it in and embrace it overnight. There has to be a process of socializing it and convincing the people it will work and having them own the process change that is going to drive value. 

And what we’re seeing now within our organization, within Wal-Mart’s organization, are more and more people are saying “If I’m going to hit my objectives, in terms of driving sales, reducing inventory, limiting shrink, hitting my cycle times on new items in displays, reach my business objectives, I’m going to have to use this technology, so how do I do it?” The more progressive people are getting behind it. And that’s going to be a continually evolving process.

Gilmore: I think if Wal-Mart had articulated the scenario as you have just done, and stopped acting, what has seemed to me, to be more like a politician trying to justify to the media what’s happening, we all would have been better off.  I think they got too defensive about the whole thing.  They should have said “It’s nobody’s business but ours how we roll this out.  Leave this alone and we’ll tell you when we’re done.”  I think that would have been a better approach for Wal-Mart and this industry – and to admit the uncertainties.

Cantwell: I think Proctor & Gamble could have done a little bit better job too.  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. Now, we’ve gotten ourselves back on the road. We’re focused on a strategy that’s looking at opportunities where we can deliver value now. We’ve taken advantage of all the advancements in EPC technology, and we’re producing our return for the company. We have a business plan that shows a positive return on investment.  So now we’re becoming more vocal and more interested in communicating that this is absolutely something that works.

Gilmore: At the opening of Alien’s RFID Lab, I heard for the first time the notion that P&G has 3 levels of products classification when it comes to RFID potential. Can you just take me a little deeper? What do those designations really mean?

Cantwell:  Sure. We did a portfolio analysis and we ranked our products and our marketing events, such as marketing a new product launch or promotion, based on the value proposition. In other words, how quickly could we leverage EPC to provide value to our customers and to P&G. We also cross referenced the product characteristics that made RFID technology friendly or not.

Gilmore: The RFID technology friendliness being purely from a readability perspective, based on packaging and materials and other factors?

Cantwell: Yes. There are obviously products that are easier to read and products that are more difficult to read.  Products that have more value going into the market place, products that are more commodity products. So we want to find the lowest cost solution so that we can put more tags on the commodity products, but at the same time we want to make sure we engineer around the laws of physics to be able to put tags on products that are high in metal, liquid, packaging that make reading more difficult. 

So we created what we call the “EPC Advantage” strategy.  At the top of the pyramid are Advantage products - higher value products or higher value marketing scenarios that deliver a business case for EPC right now.  For example, promotional displays are a huge opportunity that is advantaged.  In the CPG industry, our life blood is new products and promotions. We take consumer insights, turn them into new products or new line extensions, bring more benefits to consumers, and then we put them into the marketplace with displays, and splashy launches and put some advertising behind it.

It keeps our brands fresh, and it gives the retailer what they need to create excitement within their store. This is the engine that drives our categories.  To be able to get more executional excellence out of our new product launches and our promotional display events is a huge advantaged benefit.  The nice thing about this is that, generally speaking, you’ve got a  corrugate shipper that has numerous items in it, so we only have to put one tag, and that one tag on the outside of the shipper can be amortized over all the products in the display.  It returns an ROI more quickly than putting a tag on an individual item of toothpicks, or whatever. 

Also in the advantage category, are high-margin, high-velocity products like Gillette razor blades, Crest white stripes, Duracell batteries.  So, given the state of play, there is more than enough we can do to build the infrastructure and the process to get value out of these advantage products. 

The next are Testable products.  These are products that are on the bubble.  They need more work to establish value. They need a price of entry, the price of the tag has to drop a bit more to make the ROI work here.  Maybe there has to be more process change in place to make these work or a few technical bugs that have to be worked out. 

The last category is Challenged products.  They don’t have a business case yet.  There are technical handling obstacles that have to be overcome.  For example, a box of Cascade dishwasher detergent – it is like a block of metal.  The crystals themselves have certain properties and then they are wrapped in foil, and the foil is put in a foil box, and it is a tough nut to crack.  That would be an example of a challenge product.  We spend our budget probably 75% against the advantage products and probably 15% against the testable products, and 10% against the challenge products. It’s something like that. 

We’re constantly using what we learn from our advantage products to demonstrate business value, give us new business case learning.  That then generates more value, more opportunity, which drives volume, lowers cost, and provides funding and resources to mine the challenged, and the testable opportunities. 

Gilmore:  When it comes to promotional displays and out-of-stocks, many retailers have a store execution issue, it seems obvious to me.  Is the way to solve that store execution issue to go spend billions of dollars on RFID infrastructure?

Cantwell: In a word, Yes. I’ve been in this industry with Johnson & Johnson, Gillette, and now P&G 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.   

What we discovered in 50 or so individual pilots and research, all showing very reliable, repeatable results, is that only about 45% of our displays are actually being executed according to plan in the store.  If you had asked us even with all the programs we had in place in order to correct that before RFID, we would have said 80-85%. 

With only 45% of our displays being correctly implemented, that’s a huge opportunity cost, and also huge in terms of shopper satisfaction.  What we’ve also found is that 30% of our displays that we ship in, where we pay the customization cost to build them, get broken down and the display merchandise is used to stock shelves.  This is because perpetual inventory is inaccurate, and the displays provide a convenient source of inventory to put on the shelves.  But, it’s also because there is no automated process for finding displays and getting them out to the store floor where they belong.

Gilmore: What if a retail store manager has an electronic list that would list the 6 displays that have to be on the floor today or your bonus gets docked? Wouldn’t you try that first before you tried RFID?

Cantwell: It has been tried. We’ve had a number of very significant launches – The Fusion razor (from Gillette), the Sensor razor before that; these launches are backed by hundreds of millions of dollars of marketing support - advertising on the Super Bowl – no company is as good as Gillette at surrounding the consumer with that initial product message. 

I can tell you that down to the aisle clerk in the stores on Day 1, they are anticipating and ready for the displays to be there.  And we get 85%, maybe 90% compliance on a good day.  This is a one-off launch that happens only every 4-5 years, one of the biggest things for Gillette, one of the most important events that our retailers do. 

But we have hundreds of other events, that when you combine it with the hundreds of thousands of other events that our competitors are also putting out there, despite the fact we know we can apply manual pressure and the store manager can generate lists, and the store manager can crack the whip, the fact of the matter is, half of these displays do not get put up correctly. 

Let’s take out the portion that they eventually get put up, but maybe they are late, you are still talking about 60%-80% compliance.  My answer to your question is, if you are relying on a manual process to do that, given the motivation and the chaos and the low wages of the people doing the picking and the placing, you are going to run into errors, noncompliance, lost goods, and RFID takes that out of the equation.  It gives you an automated system where you come to work and there is an automated report that says do this.  And if it isn’t done, the store manager knows and the regional headquarters knows, because they can tap into the same automated system to monitor this kind of performance.