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June 7, 2007 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

Procter and Gamble "Unplugged" on RFID

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.

Let us know your thoughts.

Want a printable version? Go to:

www.scdigest.com/assets/FirstThoughts/07-06-07.php

 

Dan Gilmore

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NEWS BITES

This Week’s Supply Chain News Bites – Only from SCDigest

June 3, 2007
Global Logistics: European Supply Chains Threatened by Inability to Expand Ports

SCM STOCK REPORT

It was a great week for our Supply Chain and Logistics stock index with alll 22 stocks recording some degree of upward movement.

Software provider Logility emerged as the big winner for the week with a climb of 13.8%, followed by JDA (6.4%) and Ariba (6.3%). In the hardware group, Zebra led with a gain of 4.9%. The big gainers in the transport and logistics stocks group were Prologis (up 5.7%) and FedEx (up 5%).

See stock report.

NEWS AND VIEWS

RFID News: SCDigest Unplugged Interview with Procter & Gamble on RFID Transcript Part 1

We Have EPC Questions; P&G’s Dick Cantwell Has Answers

EXECUTIVE VIEW

by Gene Tyndall
Gene Tyndall

Comments from AMR Supply Chain Executive Conference

Didn’t Make it to Phoenix? Our Gene Tyndall was There

EXPERT INSIGHT

by Mark Fralick

SOA: Walking the Walk, or Just the Talk?

If Supply Chain Software Vendors Use Their Own SOA Tools to Build Functionality, That's a Good Sign

YOUR SUPPLY CHAIN QUESTIONS ANSWERED!

Have a supply chain or logistics related questions you need answered?

Ask our panel of experts. See our growing list of questions and answers - share your insight.

Reader Question: Can we implement WMS and Labor Management at the same time?

New reader response from Dave Erickson... read and add your insight.

SUPPLY CHAIN TRIVIA

Q. What was UPS finally able to achieve in 1975?

A. Click to find the answer below

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YOUR FEEDBACK

Feedback is coming in at a rate greater than we can publish it - thanks for your response.

A eclectic blend of feedback this week. That includes our feedback of the week, a letter from Kimberly Littmann of Lamplight Famrs, who applauds the moves by Wal-Mart and Home Depot to add more eco-friendly products. We have Dean Frew of Xterprise commenting on our piece suggesting the lack of RFID enablement in currently installed Warehouse Management Systems is sort of the unspoken elephant in the room, and to short comments on our review of the WERC 2007 conference.

Finally, a positive comment froma reader who found some of our material on ERP versus best of breed software. That gives us a chance to remnd you there is a wealth of information on the scdigest web site, easily searchable by content category, text or by topic. Looking for info? You'll find it there.

Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the Week – Wal-Mart and Home Depot Going Green

Kudos to Wal-Mart and Home Depot for offering easily identifiable eco-friendly products!  It’s about time that consumers have the options they need to live greener and reduce their impact on planet earth.  My family has been living green for years now.  We don’t do it because Al Gore said so-shame on Scott Rothbort for suggesting that anyone who begins to live green is bandwagon jumping.  We do it because it is the right thing to do to preserve the earth for our children, grandchildren, and the other animals that also call earth ‘home’. 

Until recently, it has been difficult for consumers to identify or afford products which are earth-friendly.  Thanks to companies like Wal-Mart and Home Depot, now these products are becoming more available and affordable.  I think many families in the U.S. would like to be greener but do not know where to start.  Wal-mart and Home Depot have given them the information they need.   Some other countries have much tougher controls in place to preserve air, land, and water quality.  Earth-friendly products are difficult to identify since there are no government regulations related to this claim.  This is one area where the U.S. is truly backwards.  

Kimberly Littmann
WMS Administrator
Lamplight Farms

On ERP versus Best of Breed software:

This is for an article written in 2005:

Great article written by Dan Gilmore on the ERP v. BOB decision for supply chain technology.

Thank you for this piece.

Stu Peterson
RC Willey

On WMS and RFID:

Nice piece on RFID and WMS.

We have not see a lot of CPG companies thinking a lot about this. There is a significant value proposition for cross dock activity using RFID in non-CPG space…

We are seeing interest in companies bolting RFID systems underneath and integrated with WMS/ERP more than replacing WMS or upgrading their WMS…too big and hairy…but it will come.

Dean Frew
President & CEO
Xterprise

On WERC 2007 Review

Interesting Summary of the WERC Conference.

Would you know if the complete Report (or a more extensive summary) on “Import-Driven Warehousing” is available for download? Thanks.

Irwin H. Sllberman, Ph.D.
Bureau of Transportation Statistics
US DOT

Editor's Note: It does not appear this report, sponsored by Prologis, is yet available. We will do a review and alert readers when it is.

Excellent article from Dan.  I was part of the WERC group as a participant years ago. I'm glad to see this organization improve.

Bill Von Bramer
Logistics Manager
WW Transportation and Warehousing


SUPPLY CHAIN TRIVIA

Q.  What was UPS finally able to achieve in 1975?

A. Regulatory permission, in the controlled transportation environment of the time, to serve all of the 48 contiguous states, a capability fought by the USPS and other competitors.

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