Consumer product manufacturers (CPG) and retailers that want to navigate the expected four-year transition period as the industry adopts RFID tags should focus on key areas including data synchronisation, and finding uses that deliver meaningful benefits to consumers, according to a new report from management consulting firm A.T. Kearney.
A.T. Kearney’s report aims to help the retail industry analyse the impact of electronic collaboration among trading partners. Since 2001, the company has led three studies for the Grocery Manufacturers of America and the US Food Marketing Institute, examining the impact of common data standards across retailers and manufacturers. A November 2003 A.T. Kearney study calculated the cost of RFID adoption for CPG manufacturers at approximately US$33 million annually for a typical US$5 billion manufacturer.
The firm’s new report, ‘RFID/EPC: Managing the Transition’, sees the period from 2004 until 2007 as being a critical time, as the industry pushes to adopt RFID in response to mandates from major retailers such as Wal-Mart.
Specifically, according to the report, 2004 and 2005 will see many test programmes as retailers, CPG companies, and technology vendors learn what RFID can do. By mid-2006 clear winners will emerge from the numerous vendors now developing the technology. During this transition period retailers and CPG manufacturers will need to closely collaborate on RFID trials, and not risk money or consumer goodwill on uses that don’t provide a clear consumer or business benefit.
“Retailers and CPG companies must avoid focusing too intently on the ways RFID tags can be used, instead staying focused on how RFID can improve consumer value and address complex business issues,” said Dave Donnan, A.T. Kearney’s vice president, and author of the report.
“Companies need to be realistic in their approach to adoption and concentrate on using RFID to achieve maximum benefits, such as reduced out-of-stock items and labour cost savings. Technology implementations in the retail industry always take longer than anticipated,” warned Donnan.
According to A.T. Kearney, companies aiming to successfully navigate the RFID transition period should focus on nine key areas, from which the following are drawn:
- Complete data synchronisation efforts. Many manufacturers and retailers still exchange inaccurate product data despite industry efforts toward standardised data formats. A.T. Kearney’s analysis for the GMA and FMI found companies can gain US$1 million in additional earnings for every US$1 billion in sales through data synchronisation. Even more significantly, without data synchronisation between trading partners, much of the data exchanged using RFID will be wrong.
- Promote consumer-level benefits. Consumer concern about privacy issues surrounding RFID can be attributed to miscommunication and lack of understanding about the technology. Rather than tout the intangible cost saving benefits to consumers, retailers should focus on testing RFID applications that will clearly improve people’s lives. Examples include easier item traceability for food safety, control of counterfeit products – particularly drugs – and providing easier access to warranty information.
- Solicit other supply chain partners. For most manufacturers, one retailer – no matter how large – will not be enough to justify the expense or generate the enterprise-wide benefits of RFID. Achievement of supply-chain-wide inventory visibility and retail in-stock position benefits requires wide adoption of the technology.
- Manage parallel systems for several years. Inventory management systems will need to be agile enough to accommodate a variety of data capture technologies, from bar codes to RFID, during the transition period.
- Leverage the invested infrastructure. Manufacturers and retailers will be making large investments in RFID readers, tags and information systems. Other opportunities for using this product tracking information should be considered beyond simple inventory management. Possibilities include using the retail store systems for merchandising opportunities and using distribution centre systems to track and trace recalls.
- Adapt business processes to take advantage of new supply chain data. Case-level tracking of merchandise will offer new opportunities for inventory management, product tracing and recall management.
Realising the benefits of RFID will certainly require substantial changes to current business processes, and perhaps even to enterprise-wide systems platforms.
A copy of A.T. Kearney’s report, ‘RFID/EPC: Managing the Transition (2004-2007)’ has been made available from the company’s web site.
More Info: http://www.atkearney.com
Source: A.T. Kearney
Reprinted with permission from Using RFID (http://www.usingrfid.com/news)
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