By Steve Howells, EU VP Merchandise Visibility at Checkpoint Systems.
Some were surprised when Amazon acquired Kiva Systems for 775 million dollars earlier this year. For those in the logistics industry, however, the huge value placed on the warehouse robot system is a positive sign and doesn't come as a complete shock.
We can certainly be cheered by the fact that the world's largest online retailer has recognised logistics is an area where businesses are leaking money and that significant investment can deliver excellent returns.
The wider truth we can acknowledge from this deal is that technological developments that improve supply chain visibility and efficiency, such as Radio Frequency Identification (RFID) can play a key role in protecting retailers' bottom lines – delivering improvements all the way from the distribution centre to when the product arrives on the shelf.
We know that RFID tags enable retailers to reduce out-of-stock incidents, minimise time to shelf, improve replenishment times and significantly reduce working capital.
Because the technology is continually developing and offers benefits in areas which unquestionably affect a retailer's bottom line – such as loss prevention, supply chain visibility and store design – we can expect it to be more widely implemented by fashion brands and department stores across Europe over the next few years.
Return on investment is always important for any successful business – and particularly so in the current economic climate – which is why retailers may realise they can't afford to overlook the benefits of RFID, which can make a real difference to the bottom line. Now is precisely the time to prioritise improving the shopper experience, minimising out-of-stock incidents and improving security.
Out-of-stock incidents cost far more than just the loss of the sale of the item. For instance, let's imagine a customer walks into the shoe shop and asks for a certain style in a size 10. The shop assistant then disappears to the stock room for 10 minutes, but is unable to find the shoes the customer has asked for. Eventually the two shop assistants locate the shoes and bring these to the customer, who tries them on and decides they're too big. It's likely at this stage the potential customer will leave the store, rather than risk having to wait another 10 minutes for the size nine shoes to arrive.
Additionally, there are other difficult-to-measure behavioural effects resulting from out-of-stock incidents, including damage to brand reputation and customer loyalty. The customer who leaves Store A dissatisfied may well head to Store B and quickly find shoes that fit perfectly. It's likely that this experience would result in the customer bypassing Store A and heading straight to Store B during future shopping trips.
The case for RFID is further strengthened by technological developments that are ensuring the technology increasingly meets real business needs.
One example of this is high-speed bulk encoding, which enables tags to be encoded at a distribution centre before being applied onto multiple items in a single box at operational speed, significantly reducing the time needed to encode large quantities of merchandise.
This faster tagging process is complemented by sophisticated tags, such as RFID full colour graphic tags that combine the security and supply chain benefits of RFID solutions that meet retailers' branding needs.
Indeed, RFID can even help retailers tailor their store layout based on customers' buying habits – if you know a certain belt is often bought with a particular pair of trousers, it makes sense to place these items closer together.
The foundations for the success of RFID have certainly been laid, but the real catalyst for success will be its implementation by major fashion retailers.
To some extent, this is already happening. A number of retailers across Europe have reduced out-of-stock scenarios by up to 30 per cent, increased sales by 5 per cent and reduced working capital by between 10-20 per cent after introducing RFID into their operations.
By applying 'smart tags' to apparel merchandise at the point of manufacture and reading the tags throughout the logistics operations and into the store, these retailers have been able to streamline their supply chain. This helps them ensure that their most popular lines are always in stock, available for customers to try-on and purchase.
Because RFID can offer a significant competitive advantage, many companies choose not to shout about their use of the technology. There is, however, every reason to expect companies to follow Amazon's lead and invest heavily in improving logistics – the potential returns are too great to miss out on.