Christine Spivey Overby Senior Analyst, Consumer Packaged Goods

ForrTel: RFID At What Cost?Christine Spivey Overby

Senior Analyst, Consumer Packaged Goods

Forrester Research

May 25, 2004. Call in at 10:55 a.m. Eastern Time

“Do you use each technology?”Percent of firms that are rolling out the technology or have done so

Sensors

RFID tags

GPS chips

Wireless devices

62%68%

88%

94%

Most firms are aware of RFID

Base: 172 executives at North American companiesSource: Forrester’s Business Technographics® September 2003 North American Study

“Do you use each technology?”Percent of firms that are rolling out the technology or have done so

Sensors

RFID tags

GPS chips

Wireless devices

17%

9%20%

48%

62%68%

88%

94%

But they are still testing the RFID waters

Base: 172 executives at North American companiesSource: Forrester’s Business Technographics® September 2003 North American Study

Theme

Compliance is about learning the value of RFID . . . and

controlling the cost

What I’d like to discuss

• What is behind Wal-Mart’s January 1, 2005 mandate?

• What are the costs and ROI of compliance?

• How should you respond?

1960 1970 1980 1990 2000First

Wal-Mart opensFirst SAM’s Club opens

First Supercenter opens

First NeighborhoodMarket opens

Wal-Mart and RFID are a natural fit

Supply chain innovation

Shopping experience innovation

First computer to support operations

Inventory management systems

Satellite network

Electronic POS

EDI

UPC bar codes

CPFR

Retail Link

Wal-Mart.com

Self-checkout

Wal-Mart video network

RFID mandate

UCCnet

Town Test

Wal-Mart’s supply chain excellence pays off

Source: Information Resources Inc. and Forrester Research

Base: 3,574 primary grocery shoppers who haveshopped at Wal-Mart in the past month

PricesProduct

assortment In-stocks

86%

14%

86%

14%

76%

24%

Percent of US consumers who think Wal-Mart has great:

Good or excellent Poor or fair

What does Wal-Mart want?

• Deployments by January 1, 2005

• 100% readability

• Strategic thinking

» “Slap-and-ship is quite disappointing” - Simon Langford at NRF, January 2004

RFID’s promised ROI

Inve

ntor

y man

agem

ent

Out o

f sto

cks

Theft

War

ehou

se m

anag

emen

t

Pay o

n sc

an

Track

& tr

ace

Consu

mer

insig

ht

Trans

porta

tion

and

logist

ics

Asset

trac

king

Procu

rem

ent

DSD

Custo

mer

ser

vice

Order

fulfil

lmen

t

Deman

d pla

nning

100

70

60

50

40

30

20

10

0

90

80

The biggest benefits require source tagging

Inventory management

Out of stocks Theft Warehouse management

100

70

60

50

40

30

20

10

0

90

80

Reducing theft requires working with supply chain outsourcers

100

70

60

50

40

30

20

10

0

90

80

Inventory management

Out of stocks Theft Warehouse management

Improving warehouse management requires business process re-engineering

100

70

60

50

40

30

20

10

0

90

80

Inventory management

Out of stocks Theft Warehouse management

Many companies still need to do something in 2004

So what should you do?

• Start with a slap-and-ship approach

• Focus on learning how RFID works

• Minimize the amount of distribution center re-engineering

How compliance works for XYZ Manufacturing

• $12 billion in North American sales

• Three distribution centers that ship to Wal-Mart’s Texas DCs

• 15.6 million cases annually

How compliance works for XYZ Manufacturing

Distribution center

XYZ Manufacturing manually tags cases during picking and packing

Then verifies case tags on sortation conveyors

Then segregates inventory in the shipping zone

And reads pallets on the way out

Compliance costs $9.1 million in year one

Tags $7,595,000

Hardware 329,000

Software 183,000

Consulting and integration 128,000

Internal project team 315,000

Tag and reader testing 80,000

Additional warehouse labor 469,000

Training 39,000

Total $9,138,000

Highest costs underscore major challenges

• Tags make up 80% of costs

• Professional services run high — and costs will only increase

• Case-tagging adds — rather than decreases — labor

How can RFID vendors help?

• Create guidelines for case tagging

• Focus on source tagging infrastructure

» Integrated printers and automated applicators

» RFID embedded in case packaging materials

• Improve the reader/middleware/application interface

Apps

Datamanagement

Hardware/readers

Tags/labels

Don’t expect 100% readability with fragmented technology

RedPrairieManhattan Associates

SunIBMMicrosoft

ThingMagicSAMSysIntermec

OAT SystemsConnecTerra

Philips SemiconductorTexas InstrumentsIntelZebra

OracleSAP

Cisco

MatricsAlien Technology

So, how should suppliers make do?

• Pilot with easiest product categories first

• Pool tag orders with internal and external buyers

• Tie RFID to data synchronization

• Set up “one-throat-to-choke”

• Create a CEO direct report for RFID

Remember three things

• Start with a slap-and-ship approach

• Focus on learning how RFID works

• Minimize the amount of distribution center re-engineering

Christine Spivey Overby

coverby@forrester.com

www.forrester.com/RFIDJournal

Thank you

Entire contents © 2004 Forrester Research, Inc. All rights reserved.