As I mentioned in my last post, RFID systems are not new and are being evaluated and adopted to enhance visibility within supply chains for a variety of industries including apparel and soft goods. What is the current state of adoption within the textile and apparel sector? What are some of the trends in this technology area? What are the potential benefits with respect to adoption of RFID within the cotton product supply chain? These questions are the focus of my current post.
Technology Application - Trends and Benefits
Looking at technology application from a bird’s eye view, RFID offers the opportunity to locate and track assets as they move through the supply chain to the final destination. Keep in mind that in the context of the cotton supply chain the term “asset” can be applied to a variety of objects including containers, cases, cartons, palettes and individual items. During the recent webinar, “Getting Ready for Item-Level RFID: Making the Business Case for Apparel” (Host: Apparel Magazine), Drew Nathanson of VDC Research emphasized that inventory and supply chain applications have been the initial focus for adoption of RFID. He states that to date, the technology has primarily been used in distribution centers and within the retail environment. In the context of product distribution, Motorola points to RFID tags that can be placed in the floor of the center to identify specific shelving locations. In conjunction with RFID reader enabled forklifts and tagged palettes, cases/cartons or items, it’s possible to direct and record placement of product within the center. Fixed RFID readers can also be stationed at critical points such as dock areas to monitor movement of palettes as they enter and exit the facility. With the aid of software, the recorded information becomes available for fulfillment and inventory monitoring on a real time basis. The same assets can next be recorded as they move from distribution centers into the retail receiving environment.
Move to Item Level Tagging
Numerous sources indicate that one of the primary trends in RFID adoption is a move to item level tagging. At this level, it’s theoretically possible to track an individual product from the point of manufacture through the point at which the item exits the retail selling environment. Technology vendors including Motorola and Tagsys are providing mobile and fixed readers as part of their suite of technology solutions. In addition to tracking product as it enters the retail receiving area, fixed readers can also be positioned at the point at which product moves from the receiving area out on to the selling floor. Once the product is displayed, sales personnel can use mobile reader technology to rapidly record inventory. This strategy enables a highly accurate count of product on a real-time basis with minimal human resource.
Vendor and industry sources indicate significant improvement in inventory accuracy and management among retailers that have adopted RFID at the item level. In fact, both Tagsys and Motorola point to inventory accuracy rates of 98 percent plus at retail. Motorola further notes that retail customers of RFID have reduced out of stocks by 60 to 80 percent and have experienced subsequent sales increases of up to 20 percent. In a white paper issued by Tagsys the company highlights the idea that the use of RFID for inventory tracking also creates an environment in which the sales staff is able to spend more time focusing on customers. This in turn facilitates additional sales.
In another white paper, this time issued by Motorola, the company outlines many key benefits associated with the use of item level RFID including opportunities for managing product entering the distribution center through to delivery of product to the stores. The company states that an item level RFID strategy can be used to “…improve accuracy of inventory counts, order fulfillment, shipping, order delivery and verification of proof of delivery.” For product distribution, order integrity is a highlighted theme and the company states that RFID strategies can be used to avoid disputes over product counts and reduction in costs associated with write-downs for inaccurate orders.
Additional RFID Applications
Other notable trends in RFID include the growing interest in driving the application of solutions further into the supply chain toward the point of product manufacture. As within the distribution and retail environments, RFID can be used to locate and monitor product and materials inventory. Motorola’s white paper also highlights benefits for monitoring work in process (WIP) and for supporting lean manufacturing strategies and accuracy of shipments from points of manufacture. There is also growing interest in the use of item level RFID as a tool for ensuring product integrity (anti-counterfeiting) and traceability in regard to compliance issues.
At the store level, RFID is being used for monitoring and reducing product loss due to theft. Retailers are also examining item level RFID as a tool for gathering business intelligence information within the store and at point of sale. What products did the consumer try on? How many times did a particular product go into the changing room? What sizes and colors were taken? Which of these products did the consumer actually purchase? These are just a few examples of the kind of business intelligence retailers might be interested in gathering through the use of item level RFID.
Innovative companies are also looking to use RFID to enhance the consumer’s retail experience and facilitate customer and brand loyalty. A recent article issued by AAFA points to the rise of consumer facing applications and provides a number of examples of how brands are approaching the use of RFID as part of a marketing or product customization strategy. One of the notable examples provided is the use of RFID as a fan loyalty strategy by the Tampa Bay Lightning. In this case, RFID tags were embedded into team jerseys for season ticket holders. The tags triggered a number of loyalty benefits including discounts on some fan products and concession purchases. Follow the link to the article provided to learn more.
RFID - State of Adoption
In terms of the technology itself, numerous sources state that item level solutions are largely based on the EPC Gen2 standard and according to Nathanson, the RFID tags are often attached to the garments as inlays in the hangtag and complimented with a printed bar code. These item level RFID tags are not considered to be hard or durable, but rather are expected to be consumed within a 12 month period. In other words, item level tags are typically disposed of once the garment or product moves beyond the retail setting.
In terms of adoption rates, Nathanson notes that as of 2011 global RFID system revenues for retail are less than a billion dollars and adoption has been largely restricted to a group of Tier I and Tier II retailers. Adoption is growing however and by 2015 VDC Research expects revenues to top 3.2 billion dollars. This growth will be attributed to continued adoption and scaling of item level supply chain and inventory management solutions. Nathanson observes that scaling of RFID is dramatically increasing the tag to tag reader ratio and as read volumes rise, solution providers are being pressed to provide systems that will read more tags, faster. Software and service providers are also being challenged to provide services for customization of solutions and support for integration of RFID into the retail business process. During the recent webinar, “Supplier Return on Investment Use Case Data Collection and Analysis” (AAFA, December 14th) speakers noted that integration with ERP is critical to a successful RFID implementation and one area of focus for most companies during a typical piloting phase.
Most sources consulted agree that tag prices are expected to drop as volumes increase. During the AAFA sponsored webinar, speakers touched on the sentiment that lowering per unit tag costs is crucial to broad adoption of RFID at the item level. It was also noted that companies implementing RFID strategies should consider tag cost in terms of the broader picture including freight, shipping, commissions/duty and tag application. It was also indicated that to facilitate greater adoption at manufacturing, retailers need to come to a consensus in regard to placement of tags on the product with an eye toward ease of manufacturing. In the manufacturing context the need for durability of tags to garment washing for products such as jeans was also highlighted as an important characteristic of an RFID solution.
What’s in it for Cotton?
Knowledge is power and ultimately supply chains for cotton products will reap the same benefits as others from the use of item level RFID to gather information and track products as they move through the points of manufacture and distribution and into retail. In the context of volatile or uncertain markets the adoption of a “pull” rather than “push” supply chain strategy has obvious benefits. Supply chain visibility is critical for success and is closely linked with management of inventory, materials, resources and overall lean manufacturing and business methods. Here item level RFID serves as an enabling technology solution.
There’s more to learn:
For those companies wishing to learn more about RFID, I would suggest that you investigate the VICS Item Level RFID Initiative. VICS refers to the Voluntary Interindustry Commerce Solutions Association and is a group drawing participation from retailers, technology suppliers, industry associations and academia. According to VICS part of the purpose of the Item Level RFID initiative is “…quantifying the benefits of item level RFID and exploring how it can improve business processes along the retail value chain.” One final note, as part of the research for this post I’ve consulted a selection of resources that I will be providing for the reference area in support of readers that wish to learn more. Look for these resources to be posted early in the New Year. I will also continue to keep my ears to the ground in regard to new applications for RFID and will report back on this topic as the need arises.