Rfid – transforming the supply chain in retail:-

Radio Frequency Identification (RFID) technology has been in use for decades, initially in military applications, such as tracking material in rugged and fast-moving situations, where barcodes could not be used. Only within the past few years has this technology been considered as a complement for barcode technology in the retail industry. What does its evolution mean for the Indian retail industry?

The RFID tag consists of a tiny chip, approximately of the size of a pinhead, on which the RFIDcode resides, and a small antenna. RFID tags can be manufactured with a variety of chip architectures and code formats. One code format that enjoys substantial support in the retail industry is the Electronic Product Code (EPC). The EPC uses a 96-bit scheme advocated by EPCglobal (previously known as the Auto-ID Center).

Three aspects of RFID that make it a particularly attractive alternative to barcode are:

• It allows information to be read by radio waves from a tag without requiring line of sight scanning.
• It allows virtually simultaneous and instantaneous reading of multiple tags in the vicinity of the reader.
• Each tag can have a unique code that ultimately allows every tagged item to be individually accounted for.

EPC / RFID Network

A typical RFID system uses RFID tags attached to objects, which identify themselves when detecting a signal from an RFID reader by emitting radio waves / signals transmission.

This identification of the object takes place through the EPC, captured within an RFID tag. The EPC contains an array of product information that can uniquely identify an individual item, whether that object is a consumer item, case, pallet, logistic asset or virtually anything else. This provides the ability to locate or track a product through the supply chain, and to read these EPCs at a distance and out of the direct line of sight.

The EPC tags contain RFID antennas that communicate the EPC numbers to the EPC readers within the EPCglobal Network.

The evolution of EPC-based RFID is the outcome of the path-breaking research undertaken by Auto-ID Center, MIT which was funded by over 100 of the world’s leading organisations including Wal-Mart, Metro, US Department of Defence, US Food & Drug Administration, US Postal Service, IBM Consulting, Microsoft, P&G, Philips, 3M, Coca-Cola, Manhattan Associates, NTT, Abbott Labs, NCR, Pfizer, Symbol Technologies, Intel, Unilever, VeriSign, etc – spanning across industry sectors. Today, six Auto ID labs located in the US, UK, Australia, Japan, Switzerland and China undertake research on EPC / RFID.

For retail, the real power of this technology results from associating unique identifiers with other information of interest from fields in a database that pertains to the item. Just a few examples as per retail application are:

• Date of manufacture
• Time spent in transit
• Location of distribution centre holding the item
• Name of the last person to handle the item
• Amount for which the item was sold
• Payment method used in buying the item
• Expiration date
• Last date of service
• Warranty period

While most of these fields will be stored in a computer system that is detached from the tag, some RFID tag technologies permit additional information to be written to the tag itself as well as to be removed from it.

Tag Pricing

Currently the cost of the tags, readers and business process changes (for instance, integratingRFID codes, associated data fields and existing database systems) are some of the challenges to adoption of RFID.

RFID-based technologies are being used primarily at pallet / case levels to help optimise the goods receipt and hand-over processes. This achievement provides inventory visibility between receiving dock to the shop floor.

However, like most things, as a critical mass is reached, many costs tend to will drop. In 2000, the most basic tags cost approximately USD 1 each. In 2003, they ranged from about USD 0.25 to USD 0.40, and today they have dropped to USD 0.20. As adoption increases and refinements in manufacturing technology come about, the prices are bound to fall to USD0.05.

The Potential Benefits Are Enormous

Think of a customer evaluating the purchase of a pair of pants and either receiving a recommendation on complimentary shirts, socks and shoes via an interactive kiosk or a knowledgeable store sales clerk. Further, imagine this sales clerk being able to check inventory, back stock or even sales trends on a real-tim

The same scenario will play out in other retail environments around the country, starting with stores where consumers rely heavily on in-store information to determine purchasing habits; the examples include consumer electronics building materials and wine (depicted in the picture above, with a consumer utilising an RFID-enabled in-store kiosk to gather information).

Just as important, the same RFID-enabled systems providing inventory data to the sales clerk can provide replenishment and throughput data to store managers, buyers and supply chain specialists. Tighter visibility into store inventory should result in fewer inventory write-offs (outdated, seasonal or discontinued merchandise), and enable store managers to potentially shift inventory to stores where products are selling more quickly. In the apparel industry, where buyers make decisions as much as six months prior to the selling season, adjustments to inventory and stocking can make the difference between a profit and loss on a product category.

Another area of concern for retailer is shrinkage (theft), which costs retailers an estimated 2 per cent of sales on an annuals basis – over USD30 billion annually in the US alone. Roughly 50 per cent of this number is due to internal / employee theft. A 2003 report by Ernst & Young estimates an even higher amount of USD 46 billion annually. And these figures do not include losses due to spoilage / expiration, obsolescence, misplacement and markdowns caused by poor merchandise management, all of which could be reduced by the better monitoring of objects and their handlers through RFID.

International Mandates

Retail worldwide is a key driver to adoption of EPC-based RFID technology. According to a recent survey, 70 per cent of retailers with annual sales above USD 5 billion are investing in RFID and will implement some form of the technology in the next six to twelve months.

International buyers and retailers like Wal-Mart, Tesco, Metro, Albertsons, Marks & Spencer etc. have already directed their top global suppliers to commence-affixing EPC-enabled RFID tags on their consignments at the case / pallet levels with effect from 1st January 2005. Top 100 suppliers of Wal-Mart have already complied by affixing EPC-based RFID tags since then, with additional 27 suppliers doing it voluntarily. The next 200 suppliers will comply by January 1 next year.

RFID is already installed in 104 Wal-Mart stores and 36 Sam’s Clubs. It plans to have RFID in another 600 stores and 12 distribution centres by end-2005. Tesco will have RFID deployed at approximately 1,300 stores and 35 distribution centers in the UK in 2005 as well. The US Department of Defence (DOD) has also decided to mandate its 43000 plus suppliers to start affixing RFID tags by 2005.

Indian Scenario

With the textile quota phase-out, Indian textile / garment exporters will emerge with a significant presence on the sourcing plans of major retailers in the US and the European Union. Wal-Mart, for example, plans to source USD11-billion worth of textile merchandise out of India alone, while JC Penney, plans to jack it up to USD2 billion. Marks & Spencer, Tommy Hilfiger, Carrefour and GAP are also looking at increased sourcing from India.

Other leading apparel retailers like Benetton, Esquel, Zara, Sears, Target, etc are already implementing RFID technology for quality assurance, stock management, returnables management, etc.

Supplying to these companies would thereby mean that Indian exporters would need to comply with their recent mandates. International buyers and retailers like Wal-Mart, Tesco, Metro, Albertsons, Marks & Spencer etc. have already directed their top global suppliers to commence-affixing EPC-enabled RFID tags on their consignments at the case / pallet levels from 1st January 2005. It is clear that all Indian suppliers would need to fall in line shortly.

RFID deployment in the country has also started. Pantaloon is piloting an RFID solution at its Tarapur warehouse and factory. Wipro Infotech is the implementation partner and has been involved in designing the architecture. The RFID system has been integrated with Pantaloon’s existing infrastructure and the company expects the RFID solution to help it improve collaboration across the supply chain from the point of sale onwards.

There is also a great interest in India on RFID adoption amongst defence, FMCG, manufacturing, retail, logistics, and oil & gas sectors. The government is also likely to be a large potential end user of EPC/RFID technology for asset management, track & trace of equipments & spares, etc.

To name a few, EPC-based RFID technology provides solutions for just-in-time (JIT) manufacturing, mass customisation, “zero error production”, reduced cycle time, stock management of raw-materials / finished goods, warehouse management, sourcing & procurement, assembly, order processing, distribution and transportation, et al.

With it’s varied usage across sectors, RFID can be termed as one of the most promising and anticipated technologies in recent years poised for nothing less than complete transformation in the supply chain.

Role of EPC Global India

EPCglobal India, a division of EAN India, is a regional member organisation of EPCglobal Inc, the not-for-profit body set up to establish global standards regarding the development, implementation and adoption of Electronic Product Code (EPC) and Radio Frequency Identification (RFID) technology, and support of the EPCglobal Network.

EAN India is a registered society, promoted by the Ministry of Commerce, Government of India. It is a joint Government-Industry initiative at promoting use of international identification and communication standards and best practices within the industry, which can further enhance efficiency of their supply and demand chains through use of business-led EAN.UCC standards.

Mukesh Garg