MergerMarket Interview with Sumit Sharma

Real World RFID

Real-World RFID: Wal-Mart, Gillette, And Others Share What They're Learning

Radio-frequency identification (RFID) tracking technology is used in only a tiny slice of the supply chains that carry the stuff companies make to the shelves where we buy it. Despite that narrow application, companies such as Gillette, Levi Strauss, and Wal-Mart are getting data they've never had about where goods get stalled on the way to shoppers.

One Wal-Mart supplier found that some shipments spent 24 hours longer than it expected at one point along delivery, Simon Langford, manager of global RFID strategy for Wal-Mart, told attendees Tuesday at this week's Retail Systems show in Chicago. That prompted the company, which isn't tagging every product line coming to Wal-Mart's RFID-enabled distribution center, to tag at least one case on each shipment, so it can track its progress.

"When they started seeing that data, and getting that visibility, there were some 'Wows' in there," Langford said.

Gillette initially got started into RFID with the foremost goal of reducing theft of its products, Dubash said. It now sees reducing out-of-stocks as its long-term goal. Gillette has taken the approach that if it's shipping to a retailer's distribution center that's RFID-enabled, it puts RFID tags on 100% of its products bound for that distribution center. Many companies only ship select products with RFID tags.

Reducing out of stocks "is still our focus, our mantra, but to get there, we think there are smaller benefits we can start getting now," Dubash said, citing proof-of-delivery, inventory reduction, and promotional performance.

One of the big opportunities for the future is how Wal-Mart will use [RFID] data. During the busiest shopping times, Wal-Mart employees at times can only fill one out of every 12 out-of-stock situations on the store floor, Langford said. Any improvement to that would produce instant benefits, and the company is testing various handheld and wireless devices to let employees more quickly locate merchandise in the back room. Eventually, the company would like to help prioritize that process as well, to help employees choose the highest-priority merchandise first. "It's how you use that data," Langford said.

Levi Strauss & Co. is both a retailer and a supplier to big retailers such as Wal-Mart.

It recently equipped a store in Mexico City so that every item carries an RFID tag, allowing it to take a full inventory every morning in about 30 minutes. "We're almost fast-forwarding RFID," said Fred Betito, who manages global IT strategy and enterprise architecture for Levi Strauss.

The project's too new to have yielded a lot of hard results yet, Betito said. But by taking inventory more often, and getting more accurate data on sizes on the shelves, it's likely to yield benefits in terms of reducing out-of-stocks and improving customer satisfaction.

I don't know which kinds of handheld wireless devices Wal-Mart is testing for use by its employees for operational supply chain management (SCM). But I know that maintaining your field of view while having access to an integrated, RFID-enabled SCM application would allow Wal-Mart to reap much greater benefits from their investments in RFID and SCM technology. Think about this -- if there are as many as 12 out-of-stock situations on the store floor, those are:

1. Products that people want to buy, but are unable to do so.
2. Lost revenue for Wal-Mart that could potentially be measured in billions of dollars.

Now imagine that there's one employee or more in a given Wal-Mart who has a Nomad that accesses the company's SCM application, which is fed by all the data from the RFID tags on the millions of items in the store. It would not be difficult to enable 'threshold reporting' to deliver to the employee information that says, 'we are down to one air conditioner on the floor, need to restock immediately.'

With a conventional handheld device, the employee would need to think to check the device's display and then read the location in the back room to go find the air conditioners and restock the display. With a Nomad, the employee could be productive assisting customers or maintaining the appearance of the store, while at the same time accessing a real-time information stream about where in the store the employee is most needed, what displays need to be re-stocked and where in the back the item is located.

What I am getting at is that Wal-Mart and other stores have made huge investments in an IT infrastructure to support RFID in their supply chain. And now they are starting to ask the question, how can I get the most value out of these investments? What can we do to rapidly maximize the returns we get on RFID? At a high level, data from all these tags (which is potentially tens of terabytes daily! Not a trivial matter from an IT perspective...) can be consolidated and aggregated and displayed just fine on a conventional computer display. Where the benefit of Nomad comes in is on the operational, store-front level. These warehouse stores like Wal-Mart, Home Depot, CostCo, Lowe's, et al, are too big to have out-of-stock situations be actively prevented by the handful of employees roaming the aisles at any given time.

Empowering these employees with real-time access to inventory numbers, with particular emphasis on those situations where profitable items are unavailable for sale, would:

1. Rapidly move items from the back of the store, to the storefront, and into the customer's shopping carts.
2. Ensure that far fewer customers leave without the items they were looking for (or worse, go buy the item at your competitor's store).

This optimization of the supply chain at the in-store level is exactly where the greatest benefits from RFID-enabled SCM can be derived. Nomad as the user-interface for in-store SCM would enable employees to be head-up, hands-free, assist customers, interact with other employees, and have real-time access to SCM data in order to prevent out-of-stocks and shoplifting.

Sounds like a killer app to me, and this also dovetails nicely with Mr. Tokman's mention of a top-down marketing approach of Nomad. An executive sponsor with the pull to mandate widespread adoption of Nomad as a standard tool for cost-savings or productivity increases can move a lot more units than attacking individual stores across the country.