Insights -- October 2005

Today, the mandated -- and most popular -- level of RFID tracking is at the pallet and case level. At its current stage, the price of a passive UHF RFID tag, around 25 cents, far exceeds the benefits of tracking most goods at the unit level. A fraction of a dollar would knock the daylights out of margins on soda, candy, shampoo or deodorant. This is where case-level tagging is appropriate. And with very low-margin products, like bleach, it is reasonable to say that pallet-level tagging must also suffice today. In contrast, manufacturers of products that are high-value, low-bulk and easily pilfered, like consumer electronics and pharmaceuticals, can benefit from unit-level tracking today.

Making the Investment
But just what are the benefits that should push companies to invest in massive amounts of hardware, software and redesigned processes? Simply put, RFID implementations can create full, real-time visibility into a manufacturer's supply chain. The product not only announces itself at every stage of assembly, storage and distribution -- RFID allows for automatic, real-time cost allocation.

A major U.S. manufacturer, after working with RFID for more than five years, noted the following improvements in fulfillment, which have led to enhanced margins and reduced prices that are benefiting customers, consumers and shareholders:

• Receiving has been reduced from 20 seconds per pallet with barcodes to five seconds with RFID.

• Time required for physical verification of orders has fallen dramatically, particularly for mixed pallets. Whereas verification previously took from 80 seconds to 20 minutes per pallet, with RFID it now takes no more than 20 seconds.

• Most importantly, shipping accuracy has improved. If a forklift operator mistakenly loads a pallet on the wrong trailer, supervisors now receive an automatic notification before the load even leaves the dock.

Thinking Bigger
On a macro scale, RFID can dramatically improve resource utilization. By enabling full visibility into the supply chain, RFID is helping executives adopt demand-pull systems that better match supply with demand and reduce overstocks, markdowns and margin erosion. As forecasts improve, manufacturers are able to more effectively schedule production, reducing costs of changeovers and taking full advantage of economies of scale.

The cost-side potential of RFID has made retailers, manufacturing and fulfillment leaders its biggest champions. And demand-side gains should be considered just as compelling for manufacturers of highly promoted consumer products.

Driving Benefits from Retailers
Manufacturers often lament that the trade funds given to retailers to support product promotions are not fully passed on to consumers. Retailers buy more than they can sell during the consumer promotion period to hold down their overall cost of goods, and many divert "excess" product to other wholesalers or merchants. Regardless of why they over-buy, the impact on manufacturers is the same: their effective average prices fall below intended levels.

One remedy is for manufacturers to require retailers to provide proof that products purchased at discount for promotion are stocked in their stores during the promotion period. In this case, the manufacturer would ship RFID-labeled product cases to the retailer, noting which would be offered at discount. The retailer would then scan the cases as they entered each store and provide that information back to the manufacturer. The manufacturer would then remit a discount for each promoted case that crossed store thresholds during the promotion period. By tying distribution of trade funds directly to retailers' store-stocking activities, manufacturers can manage down diversion and gain immediate feedback on where and how well products are selling in relation to promotion terms. If such models are adopted, marketing may soon become the greatest advocate of RFID.

Taking the Lead
Looking beyond compliance mandates, RFID is becoming a clear part of the future of the CPG industry. As manufacturers look to stay competitive and efficient in today's global economy, the time has come to stop thinking about RFID as tags and readers and look to its full potential. True, it will require certain business investments, but there should be no doubt that the returns can be huge and immediate.

WHAT'S IN STORE
New Developments ringing up at retail

Sam's Club Launches Online Catalog
Sam's Club, the member-supported warehouse shopping arm of Wal-Mart, is launching a new online catalog in the interest of boosting small business sales. The new catalog, available both online and in print, will feature thousands of new SKUs, ranging from paper clips and power supplies to stack chairs and office furniture. The catalog debuted at SamsClub.com on August 25. Increasingly major office supplies retailers, including Office Depot Inc., Staples Inc. and Office Max Inc., are targeting the growing buying power of small businesses, which in 2005 will spend more than $4.7 trillion on a wide variety of goods and services. To generate more of its own small business-related sales, Sam's Club will leverage the Internet and its network of 530 U.S. bricks-and-mortar locations and its customer base of more than 46 million members. The interactive version of the new office supplies catalog will allow small businesses to place orders using a new commerce-enabled pull down menu.

Best Buy Improves In-Store Experience
Best Buy Co. Inc., the nation's largest electronics retailer, is expanding its national rollout of customer-focused in-store experiences for moms, gamers, home theater enthusiasts and small business owners. The new experiences recently launched at select Best Buy stores in markets across the United States. "Personal Shopping Assistants" are specially trained consultants who make shopping easier and more fun for mom. "Test Drive" is the ultimate hands-on, in-store interaction for people who enjoy gaming. In addition, Best Buy continues the expansion of Magnolia Home Theater and Best Buy For Business centers in Atlanta, Chicago, Dallas, Hartford, Miami, Philadelphia, Providence and Tucson. These "store-within-a-store" offerings address interests of home theater enthusiasts and small business customers with in-store service areas, broader product assortment and other specialized support. "Customers are at the heart of everything we do. Whether we're personalizing service or expanding product selection, we're constantly refining customer experiences to make shopping at Best Buy more fun and easy," says Mike Linton, executive vice president and chief marketing officer at Best Buy. Since May 2005, the company has opened 21 new retail locations in the United that feature one or more of the new customer experiences.

From the pages of RIS News
On any given day a number of IT initiatives are on the table being reviewed at Wakefern Food Corporation. In 2005 alone the company implemented a new data synchronization system, a human resources suite and a time and attendance program. On deck is a new electronic payment system and a sign and label system. To read this story in its entirety, in addition to catching up on the latest retail trends, please visit RIS News, www.risnews.com.