September 21, 2004

IW: CPG/Retail still leading the way in RFID

RFID and EPC By: ams

More evidence of the steamroller in action — but still, precious little to say of what the killer apps may be except to remind us that the status quo may be pretty awful to begin with. Here’s the state-of-the-art: “If there’s a discrepancy–the quantity shipped is less than the quantity ordered, for example–the system will automatically push an E-mail alert to the customer.” Sigh.

RFID Tops To-Do List In Consumer Goods
By Beth Bacheldor and Larry Greenemeier, Information Week

Consumer-goods companies this year once again embrace an innovative technology, though for now their time and attention are focused on the mechanics of implementation rather than the higher art of finessing it. Sixty percent of the consumer-goods companies on this year’s InformationWeek 500 list are developing or testing radio-frequency identification tags. The technology’s promise has caught the imagination of large companies such as Wal-Mart Stores Inc., which is requiring its top 100 suppliers to affix RFID tags on all the cases and pallets of goods they ship to the retailer by January. Target Corp., the U.S. Department of Defense, and others have similar mandates, hoping that RFID will help them track products as they move through the supply chain, providing up-to-the minute inventory details, triggering automatic replenishment, and ultimately generating more sales.

Imperial Sugar Co., with sales of $1.1 billion in 2003, already has begun the arduous task of planning to use RFID in its distribution centers so that it can meet customers’ requirements. But the company’s aggressive stance has more to do with VP and CIO George Muller’s belief that RFID offers a way to outsmart competitors. “With RFID, the people that get there first will have a competitive advantage,” Muller says. “And they’ll be able to take costs out of their supply chains sooner.”

…Muller has bigger designs that would take advantage of the fact that IT is a core competency of Imperial Sugar. He’d someday like to co-develop and co-market an RFID system with a third-party service provider that could hook into any back-office ERP system and provide visibility into any company’s flow of inventory. “This is late-breaking news that I haven’t really discussed with management,” Muller says. “We can generate a nice revenue stream with some very attractive margins.” Extra revenue would be welcome in the sugar industry, where, Muller says, margins are only about 3% to 3.5%. Plus, “this would give our IT employees an opportunity to expand their horizons,” he says. “That could be a lot of fun.”

The biggest challenge regarding RFID is to comply with business partners’ requirements without breaking the bank, says Jeryl Wolfe, CIO and VP of global business solutions for McCormick & Co. Inc., which makes spices and sauces. “The technology isn’t mature, not even close,” he says. Whereas cost-effective use of RFID is predicated on the 5-cent tag, decent tags aren’t available today for less than 20 cents. “The costs get scary as they scale,” he says. McCormick also is a second-tier Wal-Mart supplier with a January 2006 RFID deadline.

RFID implementation cost estimates vary wildly, and much of it depends on how many tags will be required and whether the use of scanners and other associated tools will extend beyond the point that goods are loaded on trucks and moved to retailers. In a Forrester Research study earlier this year, which included interviews with 10 of Wal-Mart’s top 100 suppliers as well as 25 tag and reader manufacturers, the research firm estimated that Wal-Mart’s mandate could cost a supplier $9.1 million in startup and maintenance fees for one year.

…Imperial Sugar’s IT team has just implemented a custom collaboration tool that lets it more effectively communicate order and delivery information with its customers. It’s integrated with Imperial Sugar’s PeopleSoft supply-chain apps and compares supply-chain data against a number of predefined rules. If there’s a discrepancy–the quantity shipped is less than the quantity ordered, for example–the system will automatically push an E-mail alert to the customer. “We’re using push technology to people that need to know so we can provide better customer support,” Clemmons says.

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