WHITE PAPER: RFID The Silver Bullet for Inventory Accuracy and Visibility? Boston Retail Partners December 2014

Transcription

1 WHITE PAPER: RFID The Silver Bullet for Inventory Accuracy and Visibility? Boston Retail Partners December 2014

2 Table of Contents Introduction... 2 Evolution of RFID Technology... 3 Value Proposition... 3 Omni-channel Enablement... 4 RFID Implementation Approach... 5 Conclusion... 6 About Boston Retail Partners... 7 Introduction Radio-frequency identification (RFID) technology is emerging as a critical enabler of the omnichannel experience. RFID provides retailers with real-time visibility to accurate inventory across the enterprise, making it an imperative to real-time retail. A catalyst for significant economic benefit, RFID gives retailers the ability to automatically identify and track goods, as well as capture instant information on a wide range of merchandise. As the technology has gained traction, it has allowed retailers to reap financial benefits and efficiency gains while strongly supporting the unified commerce model. RFID s utilization is rapidly expanding, serving as a foundation for a myriad of retail functions within the product lifecycle. The technology touches all stages of a product s development, from merchandise acquisition and supply chain activities to in-store, e-commerce and cross channel selling. Further, it is opening the door to and enabling a large number of other cutting-edge technological initiatives. Retailers are taking note, evidenced by RFID s deployment among retailers such as Zara, Saks Fifth Avenue, Lord & Taylor, Macy s, Bloomingdales, and Chico s. The industry is imminently shifting towards an omni-channel retail model. As this pace accelerates, more retailers are likely to follow suit by incorporating RFID technology into their environments to support a true unified customer experience. RFID enabled omni-channel integration points: Item purchase or order Buy online/pick up in-store or delivery Buy online/return in-store Buy in-store/ship to home Same-day item pickup or delivery Self-checkout Loss prevention Space planning Visual merchandising RFID The Silver Bullet for Inventory Accuracy and Visibility? Page 2

3 Evolution of RFID Technology Despite the inherent benefits of RFID technology, its adoption by retailers has been a slow process for budgetary reasons. RFID per tag costs were previously prohibitive for many retail applications; however, technological advances have resulted in significant price decreases and have made RFID more accessible to a broader range of organizations. RFID tags consist of a chip and an antenna that are typically placed onto a product s pricing label. On average, passive RFID tags can be purchased anywhere from 7 to 15 U.S. cents each. Pricing varies based on several factors, such as how much memory the card holds, the card packaging, whether the card is active or passive, and card frequency. 1 Similar to declines in tag prices, the infrastructure and hardware costs associated with RFID technology have also declined in recent years. In addition to better pricing, technological advances in RFID capabilities have made it an even better investment for retailers. Key enhancements include increased read ranges and accuracy, better anti-collision techniques, and increased performance in non-ideal environments. There have also been rapid advances in active real time locating systems, both WiFi and non-wifi based, providing further process efficiency. 2 Beyond the expense of RFID, advancing the value proposition and ROI in order to justify the technology has been hard to accomplish. However academic studies on the matter, as well as publicity of real-world successful implementation stories, have helped build a compelling case for RFID. Value Proposition RFID technology provides retailers with an opportunity to significantly improve sales, gross margin and markdowns through better leveraging of real-time, accurate inventory information. With RFID, a retailer is granted 360-degree visibility into exactly what goes in and comes out of their physical doors. Since logistical inventory tracking can be extremely laborious for all retailers, and particularly those with stock keeping unit (SKU) intensive models, organizations stand to profit considerably by employing RFID. 5 Benefits of RFID RFID technology adds both supply-side and demand-side é Revenue value. On the supply-side, it has been proven to facilitate logistical optimization. Studies have shown that RFID ê Operating costs promotes operational efficiency, resulting in 5 primary ê Overhead costs benefits increased revenue and decreased operating costs, overhead costs, inventory capital costs, and lead-time. 3 ê Inventory capital costs ê Lead-time Veeramani, Dharmaraj et. al. A Framework for Assessing the Value of RFID Implementation by Tier-One Suppliers to Major Retailers. University of Wisconsin-Madison, n.d. 17 January RFID The Silver Bullet for Inventory Accuracy and Visibility? Page 3

4 In case studies, revenue increases were shown to principally derive from improved inventory management. 4 RFID provides real-time visibility to accurate inventory counts, thereby reducing stock-out incidents and boosting sales due to the availability of in-demand goods. Operating and overhead cost reductions emanate from improved processes surrounding receiving, shipping, picking, packing, charge backs and cycle counting. 5 RFID provides visibility to accurate inventory quantities, thereby lowering inventory costs with reduced excess inventory and shrinkage levels. Lastly, efficiency and better inventory visibility produces shorter lead times, as well as increased ease in identifying and rectifying delivery discrepancies due to RFID s ability to track the exact positioning of inventory. On the store side, RFID has led to sizeable upstream value with precision of stock levels, increased turnover, higher return on inventory investment, inventory accuracy, and more exact forecasting models. This has generated efficiency in distribution techniques for organizations when allocating and replenishing goods. RFID has also enhanced the in-store experience. Accurate inventory counts have allowed retailers to shift store associates from replenishment efforts to customer-facing positions and consumer engagement roles. In addition to the quantitative benefits provided, RFID has brought with it numerous other opportunities to use RFID technology in non-traditional ways. One capability that is being explored is the use of RFID to promote customer self-checkout in stores. With nearly perfect inventory accuracy, it also supports seamless same-day delivery of products purchased online or on mobile commerce sites. Further, organizations are able to gather useful consumer information with RFID technology. For instance, using RFID tags enables retailers to examine where and when shrink or other inventory distortion occurs and apply it to their loss prevention efforts. For space planning purposes, visibility into which locations provide the best consumer engagement is also provided. Additionally, it can be used in visual merchandising to ensure store employees are complying with product placement directives. Omni-channel Enablement As it relates to omni-channel initiatives, RFID provides fundamental support to businesses that offer a large assortment of styles, colors, and sizes. To truly offer consumers a unified commerce experience, the proper suite of technology and processes is necessary. Once integrated into an existing environment, RFID can serve as a valuable complementary component. Near perfect inventory accuracy is needed to realize real-time retailing capabilities such as buy online and pick up in-store, buy online and receive in-store, and buy in-store and ship to home. SKU depth can cause item quantity distortion, as maintaining exactness in inventory counts presents numerous execution issues. The stakes are even higher when dealing with high-ticket items. Instead of relying on case pack counts, RFID allows for unique identification of each 4 Id. 5 Id. RFID The Silver Bullet for Inventory Accuracy and Visibility? Page 4

5 individual SKU. This promotes inventory correctness, resulting in downstream value for stores as they utilize the technology to streamline store processes. A recent success story is Chico s, who piloted a year-long RFID program in 13 of its Soma intimates stores. Due to the SKU heavy assortment, ensuring appropriate in-stock levels and inventory accuracy had been a challenge for Soma stores. Post RFID program implementation, findings revealed that the technology allowed them to offer an enhanced customer experience, achieve daily inventory accuracy of 90-95%, have better insight into loss prevention, and increased precision in replenishment from the DC to the store % Inventory Accuracy Furthermore, Macy s, Saks Fifth Avenue, and Lord & Taylor have also reported seeing improvements spawned by RFID. Productivity of employees, customer satisfaction, and stockout avoidance are a few of the acknowledged benefits that RFID technology has yielded. 7 Using RFID, Saks transformed a timeconsuming shoe inventory process that was only 65% accurate into a daily 20-minute process with significant accuracy improvement. 8 Further, Lord and Taylor ran an RFID pilot program in its shoe department, resulting in a 4% sales lift. 9 4% Sales Lift RFID Implementation Approach Once a decision has to been made to implement RFID capabilities, best practice dictates that a retailer should initially identify high return on investment (ROI), low complexity opportunities for deployment of the technology. Utilization of a 3-step methodology is recommended to develop a successful RFID roadmap. 1. Understand Business Content and Current State Environment First, preliminary discovery must be completed to understand the organizational needs pertaining to RFID capabilities. This includes compiling an assessment identifying all key implementation objectives, learning more about the IT environment, and understanding any constraints or other relevant variables. 2. Conduct Capability Assessment and Identify Gaps Based on what was gleaned in step one, the next logical step is to compare the current business environment with industry best practices to determine the gaps in current processes. Further, this will provide more in-depth information relating to the projected resources needed to execute based on RFID best practices Omnichannel Leaders Reaffirm The Value of RFID. Retail Touchpoints. N.p., n.d. Web. 8 Id. 9 Id. RFID The Silver Bullet for Inventory Accuracy and Visibility? Page 5

6 3. Develop Recommendations and Roadmap The final step involves drafting a set of proposed initiatives to follow leading up to and during implementation. This is vital to ensure consistency with an organization s technology vision. The process requires drafting of a comprehensive roadmap that lays out initiatives and where they fall in the timeline. A cost benefit analysis is also conducted to ascertain and justify future ROI. Conclusion RFID is a promising technology that when fully utilized serves as a significant facilitator of the omni-channel environment. By providing visibility to ensure inventory is at the right place at the right time, it promotes efficiency while increasing revenue and decreasing costs. Every retailer stands to benefit significantly from the plethora of functional capabilities that RFID bestows. RFID has the potential to revolutionize inventory management in the retail sector, yielding extraordinary capabilities throughout the merchandising value chain in both data accuracy and process efficiency. Considering the widespread objective of unified commerce in the retail sector, those who have already adopted the technology are certain to find themselves at a competitive advantage. As capabilities and consumer demands continue to expand drastically in the retail arena, we anticipate widespread growth of RFID technology as it transitions from a competitive perk into a business imperative. While RFID has been slow for retailers to adopt due to cost and ROI challenges, reductions in costs and advancements in technology are certainly making RFID an attractive proposition for retailers. RFID The Silver Bullet for Inventory Accuracy and Visibility? Page 6

7 About Boston Retail Partners Boston Retail Partners (BRP) is an innovative and independent retail management consulting firm dedicated to providing superior service and enduring value to our clients. BRP combines its consultants' deep retail business knowledge and cross-functional capabilities to deliver superior design and implementation of strategy, technology, and process solutions. The firm's unique combination of industry focus, knowledge-based approach, and rapid, end-to-end solution deployment helps clients to achieve their business potential. BRP s consulting services include: Strategy Business Intelligence Business Process Optimization Point of Sale (POS) Mobile POS Store Systems and Operations CRM Unified Commerce Customer Experience & Engagement Order Management ecommerce Merchandise Management Supply Chain Information Technology Private Equity For more information or assistance on any of the topics covered in this white paper, please contact: Ken Claflin, Executive Vice President (774) kclaflin@bostonretailpartners.com Laura Sossong, Consultant (814) lsossong@bostonretailpartners.com David Naumann, Director of Marketing (916) dnaumann@bostonretailpartners.com Brian Brunk, Principal (405) bbrunk@bostonretailpartners.com Walter Deacon, Principal (781) wdeacon@bostonretailpartners.com Ken Morris, Principal (617) kmorris@bostonretailpartners.com Boston Retail Partners Headquarters Independence Wharf, 470 Atlantic Ave., 4th Floor, Boston, MA Boston Retail Partners. All rights reserved No part of this publication may be reproduced or transmitted in any form or for any purpose without the expressed permission of Boston Retail Partners. The information contained herein may be changed without prior notice. RFID The Silver Bullet for Inventory Accuracy and Visibility? Page 7