technologyreview TRACK AND TRACE
expanding their use of RFID technology beyond the pilot
stage. When a greater percentage of the SKUs require tags—
for example, all jeans bound for Macy’s stores, not just a few
pilot locations—it becomes more economical to move the
tagging process out of the DC and back to the manufacturing plant or garment factory, says Hill. (For more information on how to decide when it’s time to make the switch, see
sidebar, “The tipping point.”)
Once SKUs are coming into the DC with tags already
applied, it makes sense for distribution centers to start looking at how they can use the tags to improve their internal
operations, says Wheeler. For instance, some DCs are looking
into installing an RFID scanning tunnel—a fixed RFID scanner that’s embedded into a tunnel positioned over a conveyor. The scanning tunnel would then be used in the inspection
of inbound shipments, says Hill. Instead of having employees
open up 10 percent of the boxes in an inbound shipment to
conduct a manual count, the scan tunnel can automatically
do a count of 100 percent of the inbound cartons.
By automating the process, RFID makes these checks
faster and more accurate, says Mensch. “Our customers that
are deploying RFID are seeing direct improvement to their
bottom line,” he says.
Yet to get a return on investment for the hardware involved,
companies must be tagging a high volume of items, with the
tags applied at the source, says Bruce Stubbs, director of industry marketing for distribution center operations at Intermec.
Hill agrees. “We haven’t seen anyone implementing item-
level RFID just for improving incoming inspection at the
DC,” he says, noting that such a move simply wouldn’t pay
off. “But if the company has already made the investment in
the tag to get the accuracy benefit in the store, the incre-
mental investment in the scanning portal is not that much.”
Scan tunnels and readers can also be used on the out-
bound side to ensure the accuracy of a DC’s outgoing ship-
ments. “DCs do a very good job of ensuring inventory accu-
racy of their shipments out to the stores, but quite often it’s
very labor intensive, involving multiple levels of checkers,”
says Hill. “But if I have RFID on all of the items, I can do all
my picks and do an automatic scan of the carton label on
the way out to make sure all the items are there.”
As an example of how this might work, Hill cites a pilot
the Department of Defense is conducting with vendors that
assemble kits given to recruits heading out to basic training.
The vendors are using RFID readers under packing tables to
make sure the right items are placed in the kits.
The tipping point
WHERE DO WE GO FROM HERE?
While the use of item-level tags in stores has been heating
up in the last three years, things have been moving more
slowly at DCs. “It’s great that RFID is being adopted in [the
apparel] sector, but we need to look closer at how we can
enable distribution organizations to tap into the technolo-
gy and leverage it—to use it to do more data- or informa-
tion-sharing throughout the supply chain,” says Liard.
“That’s beginning to happen but not as fast as we’d like.”
What may kick adoption rates up a notch is the growing
trend toward omnichannel retailing—or the effort to provide
a consistent retailing experience across all retail
channels: brick-and-mortar stores, websites, cata-
logs, and mobile devices. According to Hill, accurate
inventory is the foundation for omnichannel retail-
ing. If you want to offer customers the option of
ordering a product online and picking it up at the
store or if you want to push a coupon to customers
via their mobile devices, you need to make sure you
actually have the item in stock.
Item-level tagging allows retailers to conduct
inventory counts more easily and quickly than
they can with bar codes alone. In fact, with item-level tagging, inventory accuracy levels typically
jump to 95 percent, says Hill. This means retailers can confidently offer customers the option to
pick up in the store, for example.
To make all this happen, Liard says that companies must start talking with their partners about
how they’re going to use the data they’ll now have
at their fingertips. “We know that RFID can help
with better visibility, anti-counterfeiting, and
theft protection,” he says. “But how are we going
to share that information? What information is
important to me as a distribution center versus
you as a manufacturer or you as a retailer? That’s
what DCs need to start being concerned about.” ;
As item-level RFID tagging moves out of the pilot phase and into
more widespread use, it makes sense to move the tagging process out
of the DC and back to the manufacturing plant or garment factory.
But how do you know whether you’ve reached that tipping point?
Some basic back-of-the-envelope calculations can help you make
that call, says Mark Hill of Avery Dennison, a supplier of RFID tags and
printers. Let’s conservatively estimate that an RFID tag costs 15 cents
per item, and (assuming the DC is in the U.S. or Europe) labor and
overhead come to 30 cents per item. That means the total cost for
tagging goods at the DC is 45 cents per item. If you’re only tagging
10 percent of the items, the cost equals out to 4. 5 cents per item,
compared with 15 cents per item if all goods are tagged at the source
(labor costs tend to be negligible at the factory because RFID chips
can be incorporated into existing hang tags or care labels). This
means it’s worth the extra cost to tag at the DC during the pilot stage.
“In the U.S. and Europe, the cost of labor and overhead is probably
more than the cost of the tag,” Hill says. “If 10 percent of my goods
need an RFID tag, I’m just going to do a value-added service line. But
if it’s 60 percent, I could save money by having tags put on every item
at the source and open up the opportunity to have visibility throughout my supply chain.”
