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Like most new technologies, RFID too is not immune to riding the
turbulent looking waves of the Gartner Hype Cycle. The hype around RFID is
evident from the mass of written word there is on RFID. A quick google for RFID
yields 57,200,000 results. The RFID vision is compelling especially so for the
FMCG sector, now often referred to as the CPG. RFID promises to make the entire
supply chain transparent. RFID also promises closer collaboration between all
players in the supply chain and, as a result, will lead to benefits like reduced
stock-out situations, reduction in the amount of goods that are not fit to be
sold either because of expiration, perishability or any other cause. The peak of
inflated expectations has been scaled.
However, the first few big-ticket implementations have clearly
shown that the initial economics of such projects are far from favorable.
Widespread standards governing the use of RFID and the sharing of data among
collaborating partners have not emerged. A host of technical issues like package
design, tag placement and readability continue to nag. It's not long before
the pundits and the soothsayers start to talk of doomsday and about the good
money that has been burnt during the days of ascent to the peak. The number of
takers for the technology will fall rapidly and those that have implemented will
go slow on expansion. These are signs of the trough of disillusionment.
Making RFID Work
Before looking at the ways to scale the plateau of productivity, let's
understand the lessons that previous technology evolution cycles have taught us.
Even when the technology implementation has been perfected, rollouts and
deployments usually take longer than expected and it is impossible to get to
cent percent compliance by all in the industry.
Let's first look at what we have learnt from new technologies
that have gone up and down the Gartner hype cycle before focusing on how to make
RFID a success. (i) New technology implementation is not about technology. It's
about building a robust business case (See "Planned Success" in DQ
September 15, 2006 issue on page 94). It's not about what the RFID tag or the
reader can do; it's about what business issues will stand resolved with the
implementation of RFID. (ii) Measure results. An associated learning from
building a business case is the measurement of results, both short-term and
long-term. So, it is imperative to set milestones and measure results thereof.
To set short term and long term goals and then measure the RFID initiative
results against them will be the only mechanism to reconcile RFID economics.
(iii) Be realistic about costs and benefits. And, as a note of caution, it is
very important for the management to be realistic about the costs and the
benefits that come out of a project. (iv) Instill flexibility. The driving
objective to manage the speed of rollout of a technology should always be the
benefits and not the speed of the roll out itself. Therefore, it is important to
adopt a flexible approach. A flexible approach using best practices and
technologies will yield maximum benefits and long-term viability.
Managing the Rollout
For FMCG companies to successfully manage the technology rollout and reap
benefits, there are several aspects that must be addressed.
Firstly, understand drivers of benefits. Over the next several
years the focus must be accelerating the benefits. This will require a deep
understanding of the supply chain from the point of production to the point of
sale, including aspects like replenishment and stock rotation to warehouse and
delivery. The effort should be driven towards the capture of pallet and case
level data and thus efficiently use the captured data.
Secondly, adapt business processes. An RFID rollout will lead to
generation of data that had never been captured before. This will open up a host
of opportunities for better inventory management, product management and even
recall of products and its management. This data will also create opportunities
of better management throughout the supply chain. But the opportunities can be
realized only with a substantial change in the business processes of both the
supplier and the retailer.
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According to an AT Kearney
study, RFID implementations by retail stores will lead to benefits in four
main areas. These include reduced store level out of stock situations,
reduction in claims, reduction in the quantum of unsaleables, and
reduction in diversion. Reduction in diversion is an important benefit for
many CPG companies as many times a product that is put on sale in one part
of the country can get diverted to a part where the sale is not running. |
Thirdly, data standardization. In order to completely reap the
benefits of new data that is generated, companies have to drive standardization
of data formats. Many companies have been slow to adopt the data formats for
products as maintained in a global registry under UCCNet. As a result, a lot of
data reconciliation is manual, something that can and must be avoided.
Fourthly, drive industry wide adoption. For RFID be really
successful, or rocking as some of you might say, it is necessary for the entire
retail industry to adopt it. That's when the supply chain will become truly
transparent. More so, for most manufacturers, one retailer (no matter how large)
will not be enough to justify the expense or generate the benefit.
Fifthly, leverage existing infrastructure. The building of RFID
infrastructure should be driven by the dictat of leverage. Not only should the
existing infrastructure be leveraged, (See "Emulate the Internet" in
DQ October 31, 2006 issue on page 94) but also other applications and uses of
product tracking information must be explored. Can the information be used for
merchandising opportunities, for instance, or for tracking and tracing recalled
products? Considering the large initial investment in the RFID infrastructure of
tags, readers, middleware and application, it is only prudent to explore new
applications as that will also help reduce the pay back period.
And finally, consumer is the king. Despite the best efforts,
many initiatives can be hijacked due to poor communications and
misunderstandings. A coordinated and active approach is required to address some
of the important consumer issues and privacy concerns. For instance, addressing
RFID's ability to be a practical tool to manage counterfeits in the pharma
industry will instill confidence in the consumers. Another application could be
easier redressal of returns and warranty will only further the confidence.
Mohit Chhabra
The author is a Principal Consultant with FiNoble Advisors. Page(s) 1
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