RFID holds promise for managing out-of-stock

If Phil Freidman has his figures right, the volume of products to keep stocked on retail shelves is going to be astronomical in a few years’ time. As Oracle Corporation’s vice-president, Consumer and Process Industries, Freidman claims that five years ago in North America there were 17,000 to 20,000 new product introductions a year, including line extensions and new packaging. Now, there are 40,000 new products developed annually by manufacturing — of which 90 per cent are going to fail miserably and another five per cent will probably fail a slow death, he claims.

“The only thing we know is that that number is going to go up and RFID has the potential to be the vehicle that manages the velocity of information,” he says. “No other technology has that capability that says ‘I can scan data anywhere on my supply chain’ — potentially, as we get through some of the engineering and rules of physics we have to deal with — ‘I can use that to manage velocity so I know what changes when, what’s out of stock. It’s basically right product, right place, right time, right cost. RFID manages the velocity of the information as the information requirements grow in terms of product and detail.”

Although RFID is retail driven, he urges manufacturers to understand that the opportunity for them is more than just compliance and continued business with American RFID piloting retailers Wal-Mart, Target or Albertsons Inc. He believes that manufacturers who look at RFID as a compliance issue are missing a great opportunity to integrate the components of scan-based trading — what he calls the new supply chain vision. “The opportunity is to take this — not just RFID but the RFID transport capability, its UCCNET (Uniform Code Council Inc. subsidiary), EAN (European Article Number) — to take that information and build a single version of the truth.”

With “a common speak” between retail and manufacturers, manufacturers will have a far greater and much more accurate handle on the order processing relationship between the retailer and the manufacturer, he charges. “Using RFID as the velocity tool, manufacturing will be able to take cost out of the supply chain while improving their out-of-stock. Out-of-stock is 20 per cent a problem at the retailer and 80 per cent a manufacturing issue. Therefore, the manufacturer’s investment becomes an ROI with a significant investment rather than just an investment to meet compliance.”

Freidman offers this advice as his number one message: don’t believe it’s going to go away. RFID may be here a little slower than originally thought, but it and its requirements are real.

The corollary is his number two message: manufacturers need to understand the different standards and work with their retailers around those standards. Whether it’s a 13-digit code, 14-digit code, EPC or GTIN, “you need to stay on top of it as you make investments in technology to make sure that the supplier of application and hardware understands that this will evolve over time and your investment is protected.”

He counts more than 100 consumer-based Oracle customers that sell either to a Wal-Mart, Target or other RFID piloting retailer.

In March, Oracle launched its Sensor-Based Services which consist mainly of two middleware components, Compliance Package and RFID Pilot Kit. SAP has also added more RFID functions to its new version of mySAP SCM software, due for release by the end of June.

In spite of the hype and promise that make it feel rather like the Internet bubble, RFID is a tracking technology that can be leveraged to really drive efficiency across the supply chain, says Jim Kilpatrick, a principal with Deloitte. “Where a bar code is simply a static piece of very specific information, at its fullest, RFID can contain a lot of information.”

He cites such benefits as improving the traceability of serial numbers across the whole supply chain because you don’t need a line of sight to scan it. Also, it can improve the accuracy of picks and shipments, an area still rife with costly errors. Ultimately in full implementation, an RFID tag can be written to and record information — such as temperatures — as goods move throughout the supply chain, he says.

The vision for the retail supply chain of the future is that these RFID tags can be applied down to an item level. At that point, says Kilpatrick, “they start to solve the holy grail of the retail supply chain, which is how do you keep a shelf in stock.”

He says Deloitte predicts such advantages are still five to 10 years away.

“There’s no question that the costs of RFID even after the technology matures will be significant, however, most companies should be able to find ways to use this technology in the spirit of streamlining the extended supply chain to drive cost out,” Kilpatrick concludes.

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