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June 21, 2007 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

P&G Unplugged on RFID (Part 2)

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.

Let us know your thoughts.

Want a printable version? Go to:

www.scdigest.com/assets/FirstThoughts/07-06-21.php

 

Dan Gilmore

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Driving Costs Out and Efficiency In with
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NEWS BITES

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

June 19, 2007
Changes at Material Handling Magazines May in Part Illustrate Struggles of Print Media

June 19, 2007
Global Supply Chain: Will Safety Issues with Toys Made in China Cause Regulatory Backlash?

June 19, 2007
Global Logistics: As Demand for Cargo Vessels Continues to Sizzle, Asian Ship Builders Move Construction to Land

SCM STOCK REPORT

It was a calm week for our Supply Chain and Logistics stock index with few strong moves up or down. Software provider Ariba led with a gain of 4.9%, while   Manhattan recorded the week’s biggest loss (down 1.8%).

Both Zebra and Intermec in the hardware group recorded positive movement for the week, as did Union Pacific and J.B. Hunt in the transport and logistics group.

See stock report.

NEWS AND VIEWS

RFID News: SCDigest Unplugged Interview with Procter & Gamble on RFID (Part 2)

We Have EPC Questions; Procter and Gamble's Dick Cantwell Has Answers; Maybe the Best RFID Interview Ever; Full Transcript

EXECUTIVE VIEW

by Gene Tyndall
Gene Tyndall

Counterfeiting and Supply Chains

The Problems are Growing, As Recent Examples Demonstrate; Time to Get More Aggressive in Finding Solutions

LIVING SUPPLY CHAINS

by Dr. John Gattorna

Supply Chain Collaboration: How Far Do You Go? (Part 2)

The Unique Sub-Culture of Collaboration, Plus Keys to Making Collaboration Work

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 are the top three cargo ship building nations?

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.

We're really behind again - bear with us. But keep the letters coming!

We publish this week a few of the letters we received on the analogy SCDigest's Mark Fralick used to thinking about RFID in WMS and distribution center operations. He used the analogy of a submarine, and said bar code and traditional processing was like using a periscope, while RFID could provide "Sonar." See RFID, Used Right, Will Fundamentally Change Distribution Center Operations.

A number of readers liked this analogy. Our feedback of the week is from Kurt Sholly of Publications International, who offers a great and detailed perspective on this. You find a few others that comment on the value of this comparison.

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 – On WMS and RFID

I think the periscope versus sonar analogy is a great one, however, in my years of studying RFID and trying to determine where it will fit into my company's supply chain processes, there are many barricades to realizing this sonar-level activity, and many of these barricades also exist in the world of sonar.

First and foremost, the sonar can only see the 'big picture' view. For instance, if you have a pallet of books (which happens to be primarily what I deal with working for a leading children's book publisher) submersed under water, and those books are stored 24 in a case, 48 cases per skid...the sonar will be able to tell you the dimensions of the skid load and possibly the density of the load, but certainly not exactly what boxes are on the load or more importantly, what is in each box. If and RFID interrogator could capture 100% read rates on each the cartons that are on a pallet, this would be a beautiful reality. Since RFID has been discussed at forums and shows earlier this decade, the technology experts were telling the public that carton level reads on a full pallet would be a "no-brainer". That excited me like no technology that I have seen in the past 15 years. As in IT Director, responsible for WMS and EDI systems, this concept shed a whole new (and very bright) light on upcoming changes and efficiencies.

I was enthused and ready to embrace this technology as it matured. Well, apparently it is still maturing, because vendors are telling me that I cannot and will not be able to expect 100% read rates at the carton level.

I still keep hoping that I will wake up and all of this talk about sub 100% read rates would just be a bad dream...

Now, some would argue that pallet level RFID tags would tell you what cartons are associated with which skid loads and then the carton information in your WMS system would tell you what is in each carton.

However, in the real world of WMS as it relates to lower prices items such as books, some of these assumptions are not true. For instance, we will process product and create kits and assortments for our customers, which results in a staggering 60% of shipments going out in boxes other than the cartons in which they were received. If we applied smart labels on carton level product at our manufacturing plants, this would be a large cost that would only primarily only help us in our storage systems.

Consider this, when fork truck drivers are moving boxes all day long, we can't afford to have them scan each carton to keep associations to some tagged 'pallet'. With that in mind, we really cannot afford to have carton to pallet level associations until at which point we have built skid loads for outbound shipping to our customers. Wouldn't it be a beautiful thing if we could then interrogate the entire skid load so that we could associate ALL of the cartons on the pallet with a pallet identifier, then we could simply scan skid level tags when staging shipments and loading
trucks? Yes, that would be beautiful, but step back to the fact that we
can't expect 100% read rates in such a configuration.

I've met with many other suppliers, and some of them are getting 100% read
rates by putting 4 or 5 antennas on a shrink wrap station. Great! Well, as it turns out, scanning toilet paper works much easier than scanning books, thick dense books, many with electronic components, chips, circuit boards and batteries. Yet, others have been preaching to me that not all read rates need to be at 100%. What? We have six DC's, 750,000 sq ft, store 24 million books and ship over 100 million books each year. We attain those numbers and still reach 99.997% inventory accuracy. If our 'skid level reads' yielded less than 100% we would be compromising the data integrity that we've work so hard to achieve.

So, for now, we will need to scan individual cartons as they are being loaded onto outbound shipping pallet loads, then we can roll that data up into an association with a pallet level tag. Well, we are now back to the periscope analogy, and our sonar investments have been for nothing. By the time we have tagged the pallet it had already made it through 90% of our WMS system, the opportunity for ROI has been reduced dramatically.

However, if we COULD scan a pallet and know exactly what cartons are on that pallet, we could use sonar type readers at various points throughout our distribution channel, such as when a skid load is pulled up to the production line for processing, or when a skid load is pulled off of the end of the production line for shipping or storage. We could use that same technology during inventory moves and it could be tied tightly into our Quality Control systems, shipping systems, staging and truck loading.

Until the point when RFID "Sonar" can tell me more than the shape of a skid load, the ROI is about as 'far away' as an "Oberon Class Harpoon"....

Kurt L Sholly
IT Director, EDI & WMS Systems
Publications International, LTD

More on RFID and WMS

I love great analogies that make a concept easy to understand.  Fralick has capitalized on making a concept easy to understand through the RFID-Enabled WMS analogy of "periscope" to "sonar".  Excellent job to  explain the comparative impact.  Great line!  By the way, has he trademarked or service marked this one yet?  

Tom Thomas L. Tanel,
President and CEO
CATTAN Services Group, Inc.

I think it ’ s a good analogy. A lthough I think switching to RFID from physical scanning is more like RADAR than SONAR. The workers in a DC can move about their environment, unlike the crew of a submarine , and get a closer lookat what ’s on the RADAR, if need be.

Terrence Jones
Senior Logistics Manager
Menlo Worldwide

SUPPLY CHAIN TRIVIA

Q.  What are the top three cargo ship building nations?

A. South Korea, China, and Japan (in that order).

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