The RFID Tipping Point

The RFID Tipping Point

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Today’s Panelists

Brian Hume President Martec International, Inc.

MODERATOR

Alicia Fiorletta Associate Editor Retail TouchPoints

MARTEC International

RFID and Its Potential Impact On Inventory Management and Merchandising

Brian Hume 22nd May 2013

+44 1823 333469 www.martec-international.com

MARTEC International ©

Helping retailers do business more effectively. Helping vendors sell to and partner with retailers.

•  To give an overview of merchandise and inventory management in an omni-channel world

•  To show the potential for RFID to help improve inventory management and sales success

•  To examine where RFID makes the most sense in retail today

Objectives of This Session



•  How many of you have an RFID project and would you classify it as either: •  A live project progressing to full implementation? •  A pilot or test project? •  No project yet?

Poll Question 1



Category Management v Merchandise Management Category Management Merchandise Management

•  Most products sell year round •  Change perhaps 10% of the product

range a year •  Low risk merchandise •  Typically, low markdown % sales

•  Large part of product range changes every season (70%)

•  Seasons may be long (26 weeks) or short (6-‐8 weeks)

•  Risk merchandise •  High markdown % sales

•  Grocery (Supermarket, Convenience, Hypermarket)

•  DIY •  Chain drug stores •  Electrical

•  Department stores •  Fashion retailers (Not just apparel)

•  Forecas]ng based on ]me series •  Replenishment for year round goods •  Alloca]on for new items and promo]onal

li^s

•  Forecas]ng based on par]cipa]on and seasonal profiles derived from plan or LY

•  Mostly 100% alloca]on for short seasons •  Depending on country, heavier use of pre-‐

alloca]on and cross-‐docking •  May use replenishment for, say, first 16

weeks of long seasons



Summary of the Merchandise Management Process PRE-‐SEASON IN-‐SEASON

Planning (Merchandise and

Assortment)

Initial Allocations

Performance Review

Post-Season Summary Replenishment

Revised Sales

Forecast

Clearance POST-‐SEASON



•  Stock counting •  Inventory location – where is it? •  Inventory data accuracy, receiving •  Store replenishment •  Loss prevention •  Planogram compliance •  Omni-channel, especially click and collect

Merchandising Areas Where RFID Can Make An Impact



Inventory Accuracy – Stock Counting

Inventory counting is as exciting as watching paint dry Counting often introduces as many errors as it fixes Where multiple locations are involved they may not all get counted The potential for RFID is to reduce count time and substantially increase count accuracy Also it’s easier to recode incorrectly coded product

•  Is product unfamiliar to associates incorrectly identified? •  Is product in multiple locations in the warehouse all counted? •  Is product in multiple locations on the sales floor? Do all locations get

counted? •  What happens if items arrive at the warehouse incorrectly coded?



Inventory Accuracy – Where Is It?

54% of out of stock issues on the store sales floor are due to store operational problems Many sales are lost because inventory is in the stock room not on the floor The potential for RFID is to have greater visibility of exactly where in the supply chain the inventory really is, thereby enabling expediting

No sales recorded in store when buyers expected sales: •  Did the warehouse dispatch it? •  Did the store physically receive it or is it still in transit? •  Did the store do the receiving process? •  Is the item on the sales floor or on the dock/in the store stock room?



Inventory Accuracy – Receiving and Cross Docking

Auto-scanning warehouse receipts (and perhaps store receipts too) can identify supplier size/color mix errors much more quickly, potentially allowing more rectification time. If you 100% pre-allocate you may be incurring avoidable markdowns if you don’t detect and rectify at receiving time.

•  Is what you ordered what arrived in the DC? •  Supplier accuracy is generally much worse on products involving size/

color/fit, especially fashion •  Receipts can be 100% pre-allocated for cross docking, partially pre-

allocated or post allocated. •  Depending on supply chain speed, pre-allocations may get

dispatched to stores before errors are identified



Issue When a shelf is empty, do you let the store associates zero the store’s system inventory?

What’s the risk that they didn’t check back areas accurately or check other locations in store?

If your daily or weekly sales history is 5,4,6,5,3,0,0,0 at what point do you physically check inventory?

If the store has book stock, it may now be shrink

At an annual physical inventory, how many times did a zero stock on a seasonal item get increased?

A good guide to weaknesses in store procedures

Store Replenishment

RFID potentially makes re-counting and checking other locations such as stock rooms much easier and more likely to happen Lost sales in grocery is about 8-9% sales. In fashion, it’s more like 20%. The avoidable lost sales potential can be very significant.



Loss Prevention

•  Many retailers protect high value items with security tags of various sorts

•  Invest in sensors to check that tags have been de-activated before shoppers leave the store

•  Cost means these tags have to be recycled continuously and they are fitted and removed by hand in store

Use of RFID built into a seamless process can use the same tag for loss prevention and inventory management purposes, saving cost and reducing the store labor burden. This approach can then be extended into customer service applications after sale, e.g. keeping the service history of an item in the item itself.



Planogram Compliance

Did the planogram get set correctly?



•  A Martec study in the UK found the equivalent of 40 to 50 specialty stores closing per week due to the way that online sales are cannibalizing stores

•  The same study found that total online sales could grow to be 20% to 40% of chain sales depending on sector and that at least half of this would be click and collect

•  These factors mean that some consumers will have to go further to get to a store

•  Consumers, when they place a click and collect order, need to be really sure that the item will be there when they get there. In other words, inventory accuracy will be paramount, especially if the store on hand for an item is in low single figures.

•  As online sales share grows, this will become more critical.

Omni-Channel Considerations



•  Historically well known applications in pallet and container tracking, asset management, e.g. food trays, pallets, shop fixtures

Moving to item level product tagging: •  Higher value items, e.g. shoes, suits, where

size, color and fit are key dimensions •  Items where the value of individual loss is high

•  Macy’s, Wal-Mart, Zara in fashion/apparel or shoes

•  M&S in UK rolled out across clothing •  C&A Germany just gone from 6 to 25 stores

for fashion

RFID Deployment in Retail



•  How many of you have managed to justify an RFID project with an acceptable return on investment? •  Yes •  No •  Have not had the opportunity

Poll Question 2



Effective use of RFID has the potential to: •  Reduce labor costs or release labor to improve customer service •  Improve sales (or reduce lost sales):

•  Use all the inventory you have all the time •  Reduce out of stocks through data accuracy, ability to expedite because

of supply chain visibility – you know where inventory is at a more granular level

•  Improve allocations and send the right inventory to the right store more often (very important if you cross-dock in volume)

•  Improve replenishment through improved visibility •  Get the inventory on the sales floor faster •  Improve sales through improved planogram compliance

•  Reduce inventory losses or at least the cost of loss prevention •  Reduced markdowns through more accurate allocations, more time in

store, less time in transit (waiting)

Where’s the Payback?



Martec’s Retail Focus

Process

Develop best practice retail

processes

People

Equip your people with the skills

they need

Technology

Select and implement retail technology



•  This session focused on merchandising and inventory management considerations and largely ignored RFID technology and the technical aspects.

•  You can learn the basics of RFID technology, and how to take advantage of it in operations like the supply chain, asset tracking, and access control, in our Retail Development Academy’s RFID Essentials interactive e-learning course. To find out more about this online training, go here:

Learn More?

http://www.martec-international.com/products/187/rfid-essentials

Or for questions contact Brian Hume at: [email protected]

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Q&A

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Q&A // Panelists

Brian Hume President Martec International, Inc.

MODERATOR

Alicia Fiorletta Associate Editor Retail TouchPoints

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