German retailer’s RFID effort rivals Wal-Mart’s

Wal-Mart Stores Inc. isn’t the only major retailer to issue an RFID edict to its top suppliers.

Metro Group, a German retailer with more than 2,300 stores in 28 countries, announced here this week that it has asked its leading suppliers by November to start affixing radio frequency identification (RFID) tags to the pallets and cases they ship to 10 central warehouses and roughly 250 supermarkets and department stores.

Wal-Mart’s top 100 suppliers face a January 2005 deadline for compliance with its directive for RFID-tagged pallets and cases. The Bentonville, Ark.-based retailer’s rollout will start at three Texas distribution centres that service about 150 stores.

But while all eyes in the U.S. retail industry tend to focus on Wal-Mart, those interested in early results might want to look at the pilots Metro has undertaken in Europe. In April, Metro opened a so-called future store in Rheinberg, Germany, to pilot a number of technologies, including RFID, and its in-store tests have gone beyond the pallet and case level.

Metro does item-level tagging on razor blades from Gillette, cream cheese from Kraft and Pantene shampoo from Procter & Gamble. CIO Zygmunt Mierdorf said the company tags products, cases and pallets at its distribution centre and runs the goods through readers at the centre and later at the store, when the items arrive and when they move from the back room to the shopping floor.

RFID tags have a distinct advantage over bar codes because they can identify a container’s contents without line-of-sight scanners, and the waves they emit can pass through materials such as cardboard and plastic. Each tag contains an antenna and a microchip that transmits information about a tagged item to a reader, which converts the radio waves into a digital form that can be passed to computer systems.

Getting real-time information about tagged cases and products can help retailers reduce the number of out-of-stock items and, overall, reduce the inventory in their supply chains. Metro’s RFID applications are connected via a wireless network to an “information dashboard” where employees can track the tagged pallets, items and cases, Mierdorf said.

A second Metro pilot extends all the way back to the manufacturer, so the retailer can trace goods from the place they’re made to the point of sale. That pilot is being done with a popular German fashion brand, Gerry Weber. Reusable tags are affixed to garments and read at Metro’s central warehouse and two of its Galeria Kaufhof department stores, where the clothes are further tracked on shelves and at checkout stations.

A third pilot is due to start soon with Procter & Gamble Co.’s European division and Metro’s wholesale Cash & Carry stores for business customers, according to Mierdorf. The pilot will start with pallets and cases and eventually move to the item level. As opposed to the first two pilots, which were done for research purposes for supply chain and inventory control plus theft protection, the third pilot is being used to determine the business case, Mierdorf said.

Mierdorf declined to disclose costs, saying only that he wants to gain a clear understanding of the benefits and implications on the supply chain. “I don’t want to run into big surprises when we hook a hundred suppliers into the network,” he said.

Using RFID technology isn’t without problems. Mierdorf said that standards and bandwidth issues have yet to be resolved, and the cost of the tags must come down from their current US25 to US50 cents apiece. Information transmission problems still occur involving glass, metal and liquids, and accuracy rates aren’t always 100 per cent for other materials. Mierdorf said his company gets 100 percent read rates with garments that lie flat but only 96 per cent read rates with hanging garments. He said that will have to improve for the company to rely on the technology.

Mierdorf said companies should run their own pilots and trials to determine the impact on and potential benefits for their own businesses. “We can’t talk about the individual benefits for company A, B and C. They have to find out,” he said, adding that companies will have to change their internal processes to take full advantage of RFID.

But no matter how many pilots Metro does, one fact remains clear: Item-level tagging won’t be done on a mass scale anytime soon. Metro CEO Hans Joachim-Korber said he expects it will take at least a decade before RFID is universally accepted and applied.

“We don’t care about (that). We have to start,” he added. “In the end, it will replace the bar code.”

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