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Lessons Learned from the Early Adopters

IntroductionRFID can be a transformational technology if not viewed as a simple evolutionary replacement for bar codes. By automating data collection at the actual time each business event occurs, it promises to give a more accurate, real-time and detailed view of the retail supply chain than has been possible and practical with manual bar code data collection.

The key to the transformation is in the use of the data that can be collected. Due to the natural learning curve in introducing a new technology, initially more attention has been given to the “how” of RFID – where to place tags on products, cases and pallets, where to place readers and how to change work processes to maximize the read rates and therefore the quality of the data. However, the key to obtaining ROI from RFID is in understanding how to use the data in current and new business processes – the “why” of RFID. This white paper deals with this sec-ond question – how to maximize the return from RFID – as seen from the learning of the early adopters of RFID.

A group of major retailers have mandated that their top suppliers provide EPC RFID tags on cases and pallets starting in January 2005. Eight of the largest suppliers participated in initial trials in 2004 with one of these retailers. Cases and pallets from these suppliers have been EPC RFID tagged and shipped to a select group of distribution centers or sent directly to retail stores that were equipped with RFID infrastructure. The data from these RFID readers and tags the information on the movement and current location of these shipments.

Now many additional retailers and suppliers are participating in similar EPC RFID roll-outs. Each participating supplier is being provided with periodic updates of all supplier relevant EPC information.

T3Ci has worked with a large number of the RFID early adopters (including P&G, Unilever, HP and Gillette) over the past 2 years. T3Ci provides a service that has analyzed the RFID data for six of the eight early adopters. The following is the first in a series of T3Ci white papers that will outline the steps that suppliers can take towards deriving business value using RFID.

First steps towards achieving value from your RFID investment

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A Framework for ROI – Learning from Experiences with Manufacturing Execution Systems

The Retail Industry does not have to start their quest for learning from scratch. Another industry has already learned how to take advantage of increased visibility into their operations and Re-tailers and Suppliers can leverage their experience. The field of factory shop floor management or manufacturing execution systems (MES) – which has preceded retail shop floor management by 25 years – can offer many lessons to speed the path to ROI.

When this field began, the factory was a “black box” – there was no automated visibility into the shop floor. All that factory managers knew on a daily basis was what they started into the factory (in retail - their receipts into the store) and what was produced and shipped out of the factory (in retail - their sales). What was happening on the factory floor was invisible – only seen if a manager personally walked through the factory and looked for where equipment was idle for lack of work, where work was piled up, where quality problems were occurring and where machines were down.

By the early 2000s, every operation could be tracked on computerized systems that also auto-matically scheduled the next job on every piece of equipment (in retail - directed replenishment of the sales floor) as well the timing of maintenance. Every operation was tracked for quality and productivity. Many of these factories collected the data automatically – some using RFID! (see “Achieving Stretch Goals – Best Practices in Manufacturing” by Dr Jonathan Golovin, Pren-tice Hall)

This journey took place in phases – phases that the Retail Industry can accelerate by careful learning. The phases of the journey are:

1. validating and improving the quality of the data collected2. gaining visibility into operations – measuring performance and exceptions3. controlling operations – reacting to predicted and detected issues 4. directing/optimizing operations

Individual companies can accelerate their movement through these phases by learning from the experience of early adopters of RFID. By sharing experiences, retail suppliers can establish best practices for the use of RFID in the supply chain. All players in the market will benefit from these best practices and the larger body of knowledge about supply chain RFID.

“T3Ci was well ahead of the other companies we evaluated and demonstrated a clear understanding of how to eventually get value from EPC data across the supply chain. T3Ci has pro-vided us with extraordinarily high levels of customer service and we continue to be impressed with their insights and innovations.” - Steve Rehling, Director of IT and head of RFID systems, Procter & Gamble

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Phase 1: Data Quality Analytics – Validating and Improving the Quality of the Data Collected

The necessary starting point for EPC data analytics is data quality analysis. Before the data can be used for any business purposes, it must be analyzed for accuracy. In the Retail Supply Chain, this requires data sharing between retailer and supplier – the supplier needs to track what cases they have tagged and the retailer must report what cases they have read from that supplier and where the cases were seen. But beyond that reporting, both sides must work on a continuous improvement process that looks for the root causes of missing or misleading reads and works cooperatively to eliminate them.

Root causes can occur on both sides of the supply chain – tags that do not read or were not ap-plied or were not written to (on the manufacturer’s side) to readers that were not turned on or cases moved through dock doors or portals that were not instrumented or readers placed too close to one another, (on the retailer’s side). Without a continual review and improvement pro-cess (statistical/sampled or continuous initially) that looks at the causes of poor read rates and how to improve them, RFID participants may hesitate to use the data in their business processes.

We have found several useful ways to analyze the read quality data – including graphical dashboards of read rates (figure 1) with drill downs by product and time period as well as path analyses that show the percentages of product that are read along possible paths. For example, Figure 2 (below) demonstrates the percentage of tags read along combinations of the major stages in a retail supply chain.

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Doing quality analysis can be difficult for two reasons: 1) duplicate reads, missed reads and misleading reads must be cleansed and filtered and in some cases interpreted in order for the data to be useful for further analysis and 2) a constantly updated retailer supply chain context map (what new stores and readers have been added) must be maintained in order to make sense of the reads coming back from the retailers.

For example, there are certain read patterns that make sense once explained but could not be interpreted easily just using a data warehouse. If you see the read pattern: receipt into a store’s back room, followed by a crusher read and then movement onto the sales floor, you need to verify that the crusher reader was simply too close to the incoming receiving reader (as deter-mined by the time stamps on the reads). If you see the pattern: receipt into the back room, re-ceipt into the back room, receipt into the back room – all separated by hours or days – it is hard for a data warehouse to know that the case was likely received into the back room, taken out to a satellite facility for storage and then brought back into the store when needed (a pattern often seen in during the Christmas or back to school inventory buildup period).

With many retailers continuously adding stores to their RFID program, the map of readers must be continually updated to understand where the product is. Otherwise, the read rates and in-ventory will not reflect the actual location of cases and data may even be lost.

All this work, though, is just preparation for the actual use of the data in the next phases – necessary, but not sufficient. However – if the supplier is just doing slap and ship without re-cording/ensuring that their cases are tagged and can be read, it is impossible to do this phase properly. We can not determine how many of the cases shipped are read at the retailer.

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Phase 2: Supply Chain Analytics – Gaining Visibility into Operations – Measuring Performance and Exceptions

After the data is investigated for accuracy, we can start use it to gain new understanding of our supply chain. Even before read rates are at 95-99% levels, we can use the data to advantage for many statistical analyses.

RFID gives each case a unique ID. This lets us see the actual movement of each case through the supply chain – instead of simply assuming that all cases flow at an average velocity. For example, suppliers can see the actual distribution of dwell times in the retailers’ DCs for their products – and if the DC follows FIFO or not (we can see if a case leaves after a later arriving case – indicating that FIFO was not followed). A product with wide variations in dwell times can indicate inventory build up prior to a planned promotion, issues with following FIFO or ship-ments not needed yet (some inventory build up that is not planned). (figure 3). This measure can act as a diagnostic for problems with DC replenishment algorithms.

Similarly, suppliers can see the actual distribution of lead times between any two points in the supply chain – from the time they shipped the product to the actual time it was stocked on the sales floor. This distribution tells us not only the average lead times (which we already most likely know) but the tails or exceptions of lead times – by DC and store. (see figure 4) We can use this data by store to see if any stores have unusually high lead times compared to others. This information is valuable in planning shipment schedules or lead time allowances for new product introductions and promotions – to know how long to allow for product arrival onto the sales floor. It can also pinpoint areas to investigate for improvement – which products and stores/DC’s have surprising lead time variation vs the normal patterns seen across stores. This may highlight shipper issues – especially from the manufacturer to the DC or direct to the store.

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A third statistical use of the data is in electronic proof of delivery. Considerable time is spent today on reconciliation or deductions – trying to resolve discrepancies between what the sup-plier shows as having been shipped to the retailer and what the retailer records as having been received. With a unique tag on each case, the supplier and retailer can look at what cases are “seen” by the RFID reads and eliminate the guesswork or reconciliation involved in disputes. The reason that near perfect read rates are not required is that there are at least five or more chances for the case to be read – at the incoming and outgoing DC readers, at the store receiv-ing door, during movement onto and off of the sales floor and at the box crusher. If the tag is not defective (so that the read rates are not all correlated), then the probability of any tag not being read at all is: the probability of the tag not being read at a location to the fifth power. So if the average read rate is 80%, the probability of the case not being read anywhere is .20 (the probability of it not being read at a single read point) to the fifth power – or .00032. This means that less than 32 cases out of 100,000 will not be read. If the tag read rate is 90%, then the prob-ability of a case not being read falls to .00001 or 1 case in 100,000.

“T3Ci is the first vendor to provide RFID analytics. Its applications monitor move-ment and status of inventory and have helped clients reduce out-of-stocks and ex-cess/obsolete inventories.”– AMR Research Staff

Transit time analysis shows a series of weekly box plots of time taken by set of cases to travel from manufactur-ing to sales floor.

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Phase 3: Controlling Operations – Reaching to Predicted and Detected Exceptions

Once the read rates in the store are running closer to 85 to 90% we can use the data to start to control operations – to detect exceptions at the earliest point in time. A high value example is the monitoring and control of promotions.

Promotions are an example of a critical and expensive business process that can be under-mined by lapses in supply chain execution. Gillette has anecdotally reported on a study of a Father’s Day promotion for Braun Shavers where a nearly a quarter of the stores did not have the promotional displays out on the sales floor at the start of the promotion. Without RFID, there is no proactive way to know if the product and/or display has actually gone from the back of the store to the front of the store. Without RFID, the current approach to detection is reactive – iden-tifying this issue as “likely” based on lower sales than expected at a store – and then trying to rapidly remedy the problem.

With RFID, we can see if the display (assuming it is tagged) has reached the store on time, if the store is properly stocked and if the display moves to the sales floor at the start of the promotion. We can also see if it stays there for the entire length of the promotion or is taken off the floor prematurely (for whatever reason).

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While we can do this as a retrospective analysis – to help explain sales results and explore which stores may have a recurring problem with promotional execution – we can also use it proactively to alert the appropriate parties (whether the store itself, the supplier’s merchandis-ing group or a collaborative retailer-supplier team) to initiate the appropriate corrective work flow and determine the root cause of the problem. We can proactively monitor every point in the supply chain for exceptions.

When we add POS data to the data set, we can also see which stores are selling all of their allotted cases (meaning that they are likely under stocked) and which are not selling at least 75% of their cases (potentially overstocked). Again, we can initiate the appropriate work flow to potentially rush more cases to the under stocked store and investigate potential causes of the stores performing below expectations.

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Promotional Analysis with Incident Management Example/Storyboard:

One of the most important benefits that RFID technology provides users is the ability to moni-tor the supply chain in real time. A well-designed RFID system provides information about the location of tagged cases and pallets on a minute-to-minute basis, but for this information to be actionable, users need tools that analyze the data quickly, detect problems as they occur, and alert the relevant parties in the user’s organization. T3Ci believes that RFID can form the basis of a new generation of business processes that rely on real-time intelligence about the supply chain to help users identify and resolve problems more quickly and efficiently.

T3Incident Management provides a complete, web-based solution for creating RFID-driven business processes. Users begin by specifying what issues they would like to look for in their RFID data. Then they set up a protocol that determines who the system will alert when it detects a particular issue. Once T3Incident Management is active, it continuously searches the data for signs of trouble, and if it finds a problem, automatically alerts the designated person within the user’s organization and maintains a persistent record of each exception. T3Incident Manage-ment allows users to integrate RFID into their daily operations, delivering on RFID’s promise of faster, more efficient supply chain management.

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Using T3Ci’s powerful incident management capability, merchandisers can automatically and proactively be alerted to potential exception conditions. Once an exception condition (such as a large number of promotional cases sitting in the back room with none on the sales floor) is detected, the right group of people can be immediately notified of the problem. Col-laborative forms automate the workflow of solving the problem. Finally, a history of all excep-tions is kept so that recurring problem areas can be identified and systematically eliminated.

“Retail suppliers should therefore take note of the actions of early adopters, such as P&G’s alliance with T3Ci…with an eye toward reaping the type of benefits these suppliers expect to derive at the last frontier of the retail supply chain.”– Leaders Focus on Retail Store for RFID Benefits, Chantal Polsonetti, ARC Advisory Group

Detection Step 1: Use the folder tree to choose the con-dition to detect

Detecting Missing Promotion Stock: Monitors watch for occurrence of stock delivery

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In T3Incident Management, users can set a priority for each type of exception using an intui-tive web-based form. The system includes a flexible set of triggers that allow users to automate responses based on a variety of factors such as quantity of items involved or the location of the problem. For example, a user might want the system to send a page to his cell phone if a large number of promotional cases are missing or late, but only send an email alert if a small number of cases are missing. To allow maximum flexibility, the system includes a Boolean trigger that responds under very specific conditions.

The incidents arising out of Missing Store Promotion are assigned to the DC-Store Supply Chain Management Group

The user can get a listing of the stores without promotion stock using the URL embedded in the incident details, as well as from an email alert.

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Users can drill down into any exception to get more details. This example shows all the stores that do not have promotional items

T3Ci’s system uses collaborative forms that model the customer’s business process with com-plete security. If the customer has a standard business process for a late promotion, T3Ci will set up forms that become part of the running history of the Incident. In this example, for a miss-ing promotion, there are two courses of action. The user can either re-order the promotional stock (specifying the appropriate quantity) or notify the retailer’s DC via email.

Users can take action from the

collaboration screen to do

one of several actions

These actions in-clude reordering the promotion stock (it needs to be done manual-ly) and notifying the Distribution Center team. In this example, the promotion stock is reorder from the retailers DC.

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Phase Four: Directing/Optimizing Operations – Collaborative Business Processes

The next phase of improvement is to use the RFID data directly in individual as well as joint supplier- retailer business processes that direct and optimize operations on a normal day to day basis. Other areas that T3Ci is exploring in current projects with customers include improving out-of-stocks – one of the most important promises of RFID – and re-examining the setting of inventory levels, planogram sizes and replenishment rules. With the detailed visibility that RFID can give into store operations – on a continuous basis – we can adjust operational rules and di-rect replenishment far more frequently – without relying solely on store observations of out-of-stock. With RFID, we can calculate a perpetual inventory of what is in the back room and what is on the sales floor/shelf. This potentially lets us alert store personnel to replenish key products that are now calculated to be out of stock on the sales floor but available in the back room. One retailer has recently published results that show a 16% reduction in out of stocks from their initial use of RFID to direct restocking. RFID promises to give a more accurate and timely view of the current status of every store and every product – that studies done with observers cannot.

T3Ci’s upcoming white papers will discuss the collaborative processes that retailers and sup-pliers are currently developing, as well as other areas where early adopters are focusing their energies in 2006.

The Choice – Software or Software-as-a-Service

Many companies are still in discovery or learning mode - trying to understand how best to use RFID data and what business processes can best leverage the new visibility it provides. They are tagging a small number of their total SKU’s and getting RFID data from a limited set of stores from just a few customers. They want the capability to learn and experiment, but do not have fi-nal user requirements. They are not ready to change their core business systems until they have completed more studies. For these companies, it may be advantageous to be able to leverage the growing approach called software-as-a-service – where their data can be analyzed as a 3rd party service or on demand over the internet – and they do not have to purchase the software or maintain it in house. T3Ci offers customers both approaches – they can start with software-as-a-service and then, at any time, install the software at their site without any loss of data. This gives them the maximum flexibility and minimizes IT resources, time to learning, and risk.

T3Ci Uses SaaS or a Behind the Firewall Solution for Delivery

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Conclusion

The early adopters of RFID are already reaping substantial benefits from incorporating this technology into their operations. T3Ci customers like P&G, HP, Gillette and Unilever have lead the RFID charge and are seeing early adopter benefits. Here is what some of the customers and analysts are saying:

“Retail suppliers should therefore take note of the actions of early adopters, such as P&G’s alliance with T3Ci…with an eye toward reaping the type of benefits these suppliers expect to derive at the last frontier of the retail supply chain.” – Leaders Focus on Retail Store for RFID Benefits, Chantal Polsonetti, ARC Advisory Group

“T3Ci is the first vendor to provide RFID analytics. Its applications monitor movement and sta-tus of inventory and have helped clients reduce out-of-stocks and excess/obsolete inventories.” – AMR Research

“T3Ci was well ahead of the other companies we evaluated and demonstrated a clear under-standing of how to eventually get value from EPC data across the supply chain. T3Ci has pro-vided us with extraordinarily high levels of customer service and we continue to be impressed with their insights and innovations.” – Steve Rehling, Director of IT and head of RFID systems, Procter & Gamble

About T3Ci

T3Ci, the leading RFID analytics and applications company, offers a broad range of RFID software and services, representing the most comprehensive RFID vision in the industry. T3Ci develops software and provides enterprise-class solutions for managers of RFID initiatives who are responsible for delivering business value from their company’s RFID investment. T3Ci’s enterprise-class solutions include RFID analytics as well as a suite of high-value applications for retail suppliers and major retailers. Applications include Out-of-Stock Management, Promotions Execution Management, Deductions Management, and Product Authentication. In recognition of the company’s groundbreaking contributions to RFID technology, T3Ci has received many awards, including AMR Research’s 2005 Innovation Award and two separate IBDnetwork Under the Radar Awards. In addition, Managing Automation named T3Ci one of the Ten Companies Most Likely to Succeed. T3Ci’s customers include P&G, Unilever, and HP. For more information, please visit http://www.t3ci.com.