RFID Makes Slow And Steady Progress

RFID isn't changing the world, but it's being used strategically in government and business to track animals, stock products, and tag documents.

Mary Hayes Weier, Contributor

November 13, 2009

5 Min Read

Hanging In With Retail

The retail industry, with a total consumption of 468 million RFID tags last year, according to IDTechEx, is short of the revolution some projected, but it's too early to give up on it becoming pervasive in the retail supply chain. Proponents note it took decades for bar codes to become standard practice.

Wal-Mart still has "substantial investments" in the technology, which is in use at all of its Sam's Club stores. "We have tested it and piloted and implemented it to a degree" a spokesman says. "We know what works, and we're finding new applications for the technology." If suppliers don't tag pallets, Wal-Mart does it as they come into Sam's Club distribution centers.

Among Wal-Mart suppliers, interest in RFID technology varies. Some have found it useful to track and manage promotions and sales, since RFID data lets them better monitor which stores executed promotions correctly and on time. That helps them assess, if sales don't go up as much as hoped, whether a weak advertisement or poor in-store execution is to blame.

Companies such as Kimberly-Clark and Gillette have put RFID tags on promotional displays and the products being promoted before they leave their warehouses. The promotional material and products are tracked as they move from distribution centers, to store stockrooms, to store floors. The companies tracked which stores receive products and promotional materials before a promotion begins and which get the products out on display at the time of a promotion's launch.

Stores that move products from stockrooms to display shelves before a promotion begins naturally have higher sales than those that don't, but early tests by Kimberly-Clark and Gillette found that more than a third of stores didn't execute on promotions properly. "It makes a lot of sense and offers a lot of value. It's hard to understand why more consumer goods companies aren't moving down this path," says Dubash, who led Gillette's RFID effort in 2005, before becoming a consultant.

Procter & Gamble has "select applications" for the technology, a spokeswoman says. Some Wal-Mart suppliers, such as Pacific Coast Producers, a producer of canned vegetables, remain staunch supporters of RFID. By aggressively complying with Wal-Mart's mandate, Pacific Coast says it reduced out-of-stocks by 50% and improved its promotional sales.

Other big retail users of RFID include Metro stores in Europe, Mark & Spencer in the U.K., and American Apparel, the largest U.S. clothing manufacturer.

American Apparel Experience

American Apparel has used RFID for two years and is implementing the technology in 46 of its 300 stores. It works for the $340-million-a-year company in part because it makes its own clothes and can run a closed-loop supply chain system between its manufacturing and its stores. As the only supplier to its stores, data about the products never has to leave the system to be shared with outside companies.

To put as many different products in front of customers as possible, American Apparel has only one of every item on the store floor at a time--so there's only one small, peach-colored, V-neck T-shirt on display at a time. Every item is tagged with an Avery Dennison RFID tag before arriving at the store. A Motorola reader captures data from the tags at the stores' receiving docks, and that data goes into an inventory management system. American Apparel stockrooms have what's called a "fill station"--PCs where employees check the inventory system to see what's needed on the store floor, and where they record what they're taking out to put on display by tapping the touch screen. A wall-mounted RFID reader located on the path between the stockroom and the store floor checks to see if employees are actually carrying out what they tapped into the inventory system.

chart: Biggest RFID DealsThe RFID tags are removed at the point of sale, where another reader alerts the inventory system that a small peach T-shirt has been sold, and prompts employees to bring another onto the floor. Sales at stores with the RFID systems are 14% higher on average than those without RFID systems, says RFID director Zander Livingston, in a recent report. Staff levels at those stores are 20% to 30% lower than in other stores because employees don't have to spend five or more hours a day doing manual inventory checks. Stockroom inventory in RFID-enabled stores is down by 15%, Livingston says.

"There are a lot of lessons here," says Jack Farrell, VP and GM of the RFID division at Avery Dennison. RFID's growth has been similar to that of the cellular phone and bar-code industries, Farrell says. Initial enthusiasm spurred high expectations for rapid growth and quick success, followed by subsequent disappointment. In the end, he says, though it took decades, cell phones and bar codes fulfilled their potential.

Farrell sees the technology is better positioned than ever, since the many niche approaches and applications speak to innovation and real results, not suppliers meeting a mandate. "We've moved from a compliance-driven market to an innovation-driven market, and that's very encouraging," Farrell says. "It's going to spur industry growth going forward."

Like Wal-Mart and American Apparel, other companies will find innovative ways to incorporate RFID into supply chains to meet targeted needs of their businesses. It may not be the sweeping, industry-wide adoption Wal-Mart first envisioned, but rather steady steps toward useful goals.

Mary Hayes Weier has been with InformationWeek since 1994, most recently reporting on enterprise software, RFID, business intelligence, and cloud computing.

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