EPC Mandates, Momentum and Milestones in the Retail Supply Chain

Many in the radio frequency identification industry surmise that mandates are the main market driverseemingly the only drivermoving the retail supply industry to adopt RFID technology. Certainly in the past two years, RFID pilots conducted by the consumer packaged goods suppliers to major retailers, including Wal-Mart, Target, Tesco, METRO and others have come a long way in furthering the understanding of what benefits RFID can bring to the retail supply chain. And this has happened in spite of the challenges of deploying first-generation Electronic Product Code (EPC) RFID technology.

But mandates alone do not make a market. While they are providing a catalyst to jumpstart adoption through pilots, RFID technology needs momentum to build on a global scale to ignite the kinds of deployments that create widespread supply chain innovation. Last year saw a turning point on the road to RFID adoption in the retail supply chain and this will continue in 2006 as more CPGs trial and deploy next-generation RFID technology.

There are several factors responsible for RFID's momentum in the retail supply chain today: the availability of second-generation EPC technology, global standards, evidence from retailers and CPGs about the value of RFID, and data sharing initiatives between retailers and CPGs which further extend the benefits and ROI of the technology.

Generation 2 EPC Standard Supersedes Proprietary Technology
While the typical process of international standardization is lengthy, often spanning several years, the 54 companies working with EPCglobal Inc. to develop EPC Gen 2 were able to get the work done in less than 18 months. With Gen 2, the industry is moving toward a single, global ultra-high frequency (UHF) RFID standard that assures customers can deploy the technology with confidence in open supply chains, on a platform that migrates to future EPC classes as new applications evolve. Other benefits of Gen 2 include read/write capabilities that are much faster than previous proprietary EPC protocols, improved reader performance when 50 or more readers are implemented in a warehouse or distribution centre, and increased password protection that makes it more difficult to lock or unlock data on the tag without the tag owner's permission.

The ratification of the EPC Gen 2 standard and the broad availability of interoperable tag, reader and printer products built to support it, are enabling CPG manufacturers to begin their transition to Gen 2 deployments. Gen 2 will further accelerate pilot initiatives and roll-outs of RFID in the retail supply chain. In addition, through the EPCglobal conformance testing program conducted by MetLabs, CPG manufacturers can expect independent certification of Gen 2 compliance, providing an added level of assurance when purchasing Gen 2 hardware.

ISO/IEC Ratification of EPC Gen 2Truly Global Adoption
Global standards certainly accelerate markets. Efforts are under way through the International Standards Organization and the International Electrotechnical Commission (ISO/IEC) process for the ratification of the ISO/IEC 18000-6, Type C standard based on the EPC Gen 2 specification. The draft was expected to move to final review and ballot in January 2006, with ratification expected in the first half of the year. With this standard in place, multiple applications of RFID, operating in the UHF band of the electromagnetic spectrum, will be able to use the same RFID technology without conflict and on a global basis. Even though different regions of the world still allocate different parts of the radio magnetic spectrum for UHF RFID deployments at varying power levels, Gen 2 readers can adapt to regional requirements. For Gen 2 tags users have several options; choosing a tag that operates across the widest possible range of the UHF spectrum (860-960 MHz) will enable the use of one tag across a global supply chain.

Proof From Retailers and CPGs on RFID's Value
Early implementations of RFID in the retail supply chain market are showing positive results, according to data released by early adopters. In an Oct. 14, 2005 announcement, Wal-Mart released research from an independent study on its use of RFID. The findings showed a 16 percent reduction in out-of-stocks over a 29-week period, with EPC tagged items replenished three times faster than comparable items using standard barcode technology. In the release of this research, Wal-Mart called RFID a no longer take-it-on-faith initiative, saying the study provided conclusive evidence that EPCs increase how often we put products in the hands of consumers who want to buy them, making it a win for shoppers, suppliers and retailers.

In the first 100 days of European retailer METRO's use of RFID, the company experienced an 11 percent improvement in stock availability and an 18 percent reduction in lost goods. Further, Best Buy, whose RFID deployment on cases and pallets debuts in early 2006 and includes nearly 80 percent of its hundreds of suppliers, told InformationWeek (Best Buys Spin on RFID, Oct. 17, 2005) that it expects a big improvement in supplier relationships. Right now Best Buy suppliers know when a product is scanned at the point of sale, but by using RFID they will be able to view data that tells them when a shipment arrives at a distribution centre, store receiving area, and store floor. Best Buy expects a return on investment in readers, tags and software for the retailer and its suppliers within two to five years.

In another early deployment of RFID, a CPG manufacturer used the technology during a retail sales promotion (supported by TV advertising) to test whether enough product reached store shelves in time to effectively respond to sales demand. For the stores that moved products from the back room to the shelf in advance of the promotion, the average dollars per point of sale reported was 48 percent higher than those that did so after the promotion start date. RFID provided better visibility of products in the supply chain so stores could better prepare for increased consumer demand by having stock available for sale on the floor. According to published reports, the manufacturer expects a return on its RFID investment of 25 percent or more over the next 10 years through improved execution of sales promotions and stock positions with retailers.

Data Sharing Between Retailers and CPGs
Better exchange of information between retailers and CPGs is an essential factor in improving insight into the location and status of products in the supply chain. This in turn enables manufacturers to enhance their level of service to retailers, while also increasing the availability of products for consumers. With this goal in mind, Wal-Mart and Target are participating in a pilot with 13 of their largest consumer packaged goods manufacturers to share EPC data. The data will be shared in a standardized format via an internet-based electronic data exchange and will be pushed to CPGs. One goal of the pilot is to demonstrate that the agreed-upon formats by the Data Exchange Working Group of the EPCglobal Fast Moving Consumer Goods Business Action Group will work in the real world.

While this initiative is a major step in using EPC data to track goods throughout the supply chain, tag quality and consistent tag performance are critical to designing and implementing an RFID system that delivers automated data CPGs and retailers can take advantage of. Tags need to have high read rates when applied to a broad set of product stock-keeping units (SKUs), which require varying RFID label types and placement on the case or pallet, and which operate in different supply chain application environments. Due diligence is vital in selecting Gen 2 tags that are not just minimally compliant, but perform at a high level to maximize read rates and realize the ROI potential from improved data sharing between CPGs and retailers.

What to Expect in 2006
The first generation EPC tags did not have the high quality and performance that the Gen 2 standard is delivering. To fully realize the benefits of Gen 2, users should not only demand quality and consistent performance, but should invest in Gen 2 tags designed to work across a wide range of stock-keeping units (SKUs) and across the global UHF frequency bands of 860-960 MHz. These measures accelerate the ability to create an automated RFID data capture system that can be used to improve business processes.

Commitment is the igniter of momentum in markets. In the retail supply chain deployment of EPC technology, one sees this momentum building because of the commitment and collaboration of the entire industry from RFID vendors and service providers to CPGs and retailers. In 2006, one can expect increasing deployments of EPC Gen 2 technology. The technology's ability to work internationally, as well as perform consistently and enable efficient automated visibility of data among trading partners, will drive RFID adoption.

The first-generation of EPC technology helped the market meet earlier mandates. Gen 2, through the global availability of more accurate, precise and timely information, will drive companies to remodel their supply chain business processes and redeploy their economic assets for long-term gains. Momentum built in 2005, will spark further RFID innovation in 2006.

Enu Waktola is retail supply chain marketing manager for the Texas Instruments RFID Systems business.

Comments (0)

Add a Comment

This thread has been closed from taking new comments.

Editorial: +44 (0)1892 536363
Publisher: +44 (0)208 440 0372
Subscribe FREE to the weekly E-newsletter