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November 10 , 2011 - Supply Chain Newsletter

This Week In SCDigest

bullet RFID in Consumer Goods to Retail - A Comeback? bullet SC Digest On-Target e-Magazine
bullet Supply Chain Graphic of the Week and Supply Chain by the Numbers bullet This Week In "Distribution Digest"
bullet Cartoon Caption Contest Winners Announced This Week! bullet Trivia
bullet New Expert Contributor bullet Feedback



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Material Handling and Logistics

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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."

-- 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.


"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"


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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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Supply Chain Graphic of the Week: Who Makes the Profit in the Consumer Goods to Retail Value Chain?

This Week's Supply Chain by the Numbers for Nov. 11, 2011:

  • Distribution Space Starts Getting Filled Again
  • Walmart's New E-Commerce Stores
  • Fed Highways Won't Toll for Thee
  • Cap and Trade in California to Hit Fuel in 2015


October 18, 2011 Contest

See This Week's Winner!

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Cultivating an Agile Supply Chain
in the Chemicals Industry

By Laura Rokohl
Chemicals Supply Chain Manager
Aspen Technology


Weekly On-Target Newsletter:
November 10, 2011 Edition

Last Chance Cartoon, ATA Taking Port of LA to Supreme Court
and more

Holste's Blog:Correct Poor DC Performance By Adopting The CSI Model


Top Story: Logistics Companies Challenge System Automation Providers For More Comprehensive "Plug & Play" Capability?

Top Story: Innovative App Store Concept for WMS Gaining Early Traction

Top Story: Automation In The Workplace Is Inevitable -- The Question Is: Are We Smart Enough To Plan For It?

Visit Distribution Digest


About what percent of physical goods consumed in the US are manufactured here?
Answer Found at the Bottom of the Page

Tuesday's Videocast Series:

The What, Why and How of Vendor Scorecards

Part 2: Effectively Executing the Scorecarding Methodology

Featuring David Schneider of David K. Schneider and Associates, David Barnard of IBM and Kevin Harris of Compliance Networks

Wednesday's Videocast:

Multi-Objective Optimization Technology to Address Options for Flexible, Customer Centric Supply Chains

How to Leverage Network Design and Sourcing to Create the Ideal Value Chain for your Customers, Partners, and Organizations

Featuring Dr. Michael S. Watson, Ph.D., Optimization & Supply Chain Team Lead


Featuring Gartner's Dwight Klappich
on 2011 TMS Magic Quadrant, RFID, Ocean Rates, plus the Supply Chain Week in Numbers


Tuesday, Nov. 15, 2011

Wednesday, Nov. 16, 2011


More this week of the several dozens letters on Gilmore's piece on Amazon's DC  Conditions.

You will see few selected below.


Just a few quick letters, courtesy from our partners at RetailWire, on our recent piece on accusations of poor working conditons at an DC.

Feedback of the Week: On Amazon DC Conditions:


After many dealings with Amazon, this is a difficult article to believe...although it may indeed be true; the actual question is how much of the "hearsay" is valid and how much is subjective? Many of the quotes are very dubious about the true importance here; Amazon is already reacting and putting A/C in their warehouse. Whether these efforts are sufficient is another story.

As a manufacturing president, who has installed A/C to keep the entire warehouse cool, determining effectiveness and employee comfort are often 2 different sides of the same coin. DCs are often in poor condition regarding temperature, but this is not unexpected when working in a DC compared to an office or another environment. Perhaps the true measure of this would have been to include interviews with the A/C companies who installed the units to get their perception on the units installed in these warehouses compared to other warehouses they have done over the years. Hmmmm....

Kai Clarke


Miraclebeam Products, Inc.



More on Amazon.con DC Conditions:


DCs are a rough work environment. Anyone who thinks that it's easy in a DC isn't working in a busy and efficient DC. As for the heat, etc, it looks like Amazon is taking the steps necessary to fix the problem but I don't agree with the hiring of temps. While they may save money in the short term, Amazon has go to know that it is costing them to hire, train, fire and rehire, and retrain temps. Plus I question the overall quality of work and commitment by temps.

Doron Levy


comma Working in a DC is not an easy job to begin with. In this case, I am led to wonder what took so long for it to surface if paramedics had previously had to bring people out in wheelchairs. It appears Amazon got caught with their best face reddened. I also think this will pass quickly. Amazon has too good a name to allow it to linger. They will make the needed changes.

Ed Rosenbaum


The Customer Service Rainmaker

comma Without a thorough, impartial investigation, it's hard to know what really went on there. If this was a union shop, it's hard to believe this was as bad as it says, unless the union steward was being paid off by management. But it's hard work, as Doron said. When I was a kid I worked in a retailer DC that was roughly as described here. If the union steward didn't like you, you got a "mule job" that was so hard it was designed to break you. Never can forget the day a guy dropped dead and a boss came over, covered the guy with a big cardboard box, and told us to stop looking and get back to work. Not making that one up, folks.

Warren Thayer


I am not defending Amazon, but are the work conditions any different than the factories across the country? (Or maybe I should say those that remain.) I commend Amazon for adding the AC units.

To me the bigger issue is the use of temporary employees. I can understand that in December, but in the summer? Come on Amazon, I know you don't want to charge state sales tax, but you can at least do a better a job of contributing to the state and local economy!

Doug Fleener




Q: About what percent of physical goods consumed in the US are manufactured here?

A: Amazingly, the current total is still about 75%, according to government statistics.

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