Woolworths Case MBA Team 2:

SCM 502 / MIS 503SCM 502 / MIS 503October 21, 2005October 21, 2005

Woolworths CaseWoolworths Case

Woolworths Group plc and its problemsWoolworths Group plc and its problems RFID: Technological ReviewRFID: Technological Review Pilot ProjectPilot Project Financial AnalysisFinancial Analysis RecommendationsRecommendations

Woolworths Main FocusesWoolworths Main Focuses

Principal UK retailer of products for homePrincipal UK retailer of products for home Entertainment (E.UK, 2 Entertain, and Entertainment (E.UK, 2 Entertain, and

Streets Online)Streets Online) Home & FamilyHome & Family Kids (toys and clothing)Kids (toys and clothing) ConfectionaryConfectionary

Average annual income - Average annual income - £2.7 billion£2.7 billion

Woolworths Major Management Woolworths Major Management StrategyStrategy

Centralize accountingCentralize accounting Invest in new technology and new Invest in new technology and new

information systemsinformation systemsRationalize the store baseRationalize the store baseReduce the costsReduce the costsCentralize distributionCentralize distribution

Woolworths Major ProblemsWoolworths Major Problems

Inventory shrinkage (56%):Inventory shrinkage (56%):1.1. Incorrect shipment deliveriesIncorrect shipment deliveries

2.2. Stock lossesStock losses

Theft (44%):Theft (44%):1.1. Theft in transitTheft in transit

2.2. ShopliftingShoplifting

RFID: Technological ReviewRFID: Technological Review

RFID – RFID – Radio Frequency IdentificationRadio Frequency IdentificationGeneric termGeneric term for technologies that use for technologies that use

radio wavesradio waves to to automatically automatically identifyidentify people or objects people or objects

An RFID TagAn RFID Tag

CHIP

ANTENNA

SUBSTRATE

Active RFID TagsActive RFID Tags

Active TagsActive TagsCatch the attention of the RFID reader by Catch the attention of the RFID reader by

sending out a signalsending out a signalFunction with battery powerFunction with battery powerCan be detected over a greater distance Can be detected over a greater distance Are more expensiveAre more expensive

Passive RFID TagsPassive RFID Tags

Passive TagsPassive TagsAlert the tag to communicate through a Alert the tag to communicate through a

reader when the reader’s signal is detected reader when the reader’s signal is detected by the tagby the tag

Communicates without battery powerCommunicates without battery powerDerives power from the reader’s Derives power from the reader’s

electromagnetic fieldelectromagnetic fieldSmaller range of detectionSmaller range of detectionRelatively inexpensiveRelatively inexpensive

How RFID works?How RFID works?

RFID Tag RFID Reader Middleware

Enterprise System

Why use RFID?Why use RFID?

Labor-saving technologyLabor-saving technologyMonitoring and controlMonitoring and controlSecuritySecurityTransparencyTransparency Information integration and flowInformation integration and flowMeet customer specificationsMeet customer specifications

Woolworths Pilot ProjectWoolworths Pilot Project

Serviced its 800+ stores through 4 DC:Serviced its 800+ stores through 4 DC: 2 primary and 2 seasonal 2 primary and 2 seasonal

100,000 roll cages (large items) 100,000 roll cages (large items) Totes for smaller items Totes for smaller items Initial challenge: define a manageable scope in Initial challenge: define a manageable scope in

terms of the products, vehicles, stores and DC. terms of the products, vehicles, stores and DC. SwindonSwindon - “proof of concept”- “proof of concept” System tracks dollies to stores and back again System tracks dollies to stores and back again


““Russian Doll” strategy achieves item-level visibility without Russian Doll” strategy achieves item-level visibility without item-level tagsitem-level tags

Combined technologies to reduce theft and lost items:Combined technologies to reduce theft and lost items:

- Bar Codes on individual items and tote boxes- Bar Codes on individual items and tote boxes

- Active RFID Tags - Active RFID Tags

- Short & long range RFID devices within DC- Short & long range RFID devices within DC

- RFID Readers to track movements from DC to stores- RFID Readers to track movements from DC to stores

- Global Positioning System to track vehicle on route- Global Positioning System to track vehicle on route

- Wireless Wide Area Network to transmit data to control- Wireless Wide Area Network to transmit data to control

systemsystem


Outbound distribution technologies:Outbound distribution technologies:

Automated Storage and Retrieval System:Automated Storage and Retrieval System: uses uses robots to stock merchandise in totes on the shelves robots to stock merchandise in totes on the shelves and to extract merchandise bound for storesand to extract merchandise bound for stores

Pick-to-light System:Pick-to-light System: employees are guided employees are guided visually by lights to exact bin locations to pick small visually by lights to exact bin locations to pick small items and place it into totes destined for each storesitems and place it into totes destined for each stores

Dispatch Bay (SmartChain real –time logistic platform + Sign Post Medium Range)

Totes with Bar Codes

Sign Post (short-range device)

Electronic signature from the store manager

Symbol PDT8100 handheld computer


Savi SmartChain

Dollies with SaviEchoPoint active tags

automated stacking system

activate tags

Broadcast infoSign Post (long-range readers )

Software Systemdata

associates bar codes on totes with RFID tag on dolly

Load dollies , tags are activated and read

Vehicle

Alert w/ flashing light when wrong dollies were loaded

Symbol PDT8100 handheld computer + GPS transmitter

Encrypted sealed and punched 4-digit code

Storesdelivery

Keyed in 4-digit number to identify right stores “geofencing”

Keyed in 4-digit code to unlock the seal

Instructions on which dollies and totes to unload

Symbol PDT8100 handheld scanner

Dollies and totes are unloaded

Scan dolly

Confirm that the right dolly or totes are unloaded

Alert when wrong dollies were unloaded or too many/few

Secure vehicle door, enter seal number

Accept any returns to the distribution center

Vehicle

Connect PDT8100 to base station and transmit data Microlise’s

Transport Mgmt Center

Data was forwarded to record asset movement history

Next Stop

Dispatch Bay (SmartChain real –time logistic platform + Sign Post Medium Range)

Totes with Bar CodesTotes with Bar Codes

Sign Post (short-range device)




Savi SmartChain

Dollies with SaviEchoPoint active tags


activate tags


Software Systemdata



Vehicle




Storesdelivery





Dollies and totes are unloaded

Scan dolly





Vehicle




Next Stop




Savi SmartChain

Dollies with SaviEchoPoint active tagsDollies with SaviEchoPoint active tags


activate tags


Software Systemdata



Vehicle Vehicle




Storesdelivery





Dollies and totes are unloadedDollies and totes are unloaded

Scan dolly





Vehicle Vehicle




Next StopNext Stop



SmartChain tracking platform -> focal SmartChain tracking platform -> focal point of the tracking processpoint of the tracking process tote-pick control system tells SmartChain tote-pick control system tells SmartChain

which picks and totes are going to each store which picks and totes are going to each store TMS provides SmartChain with data about TMS provides SmartChain with data about

which order goes to which vehiclewhich order goes to which vehicle

SmartChain integrates all dataSmartChain integrates all data

BenefitsBenefitsAbility to integrate combination of Ability to integrate combination of

technologiestechnologies

Information and visibility in supply chainInformation and visibility in supply chain

Invisible to userInvisible to user

Error notificationError notification

Six Categories of BenefitsSix Categories of Benefits

ShrinkageShrinkageBookstock AccuracyBookstock AccuracyReduced Labor CostsReduced Labor CostsAsset ManagementAsset ManagementTransport EfficienciesTransport Efficiencies Identification of Future RFID applicationsIdentification of Future RFID applications

ShrinkageShrinkage

Better inventory visibilityBetter inventory visibility

Errors corrected in real timeErrors corrected in real time

Automated audit trailAutomated audit trail

Bookstock AccuracyBookstock Accuracy

Automated update of bookstockAutomated update of bookstock

Higher visibilityHigher visibility

Lower inventory levelsLower inventory levels

Improved customer serviceImproved customer service

Reduced Labor CostsReduced Labor Costs

Reduced manual check-inReduced manual check-in

Reduced updating of stock recordsReduced updating of stock records

Reduced effort to investigate stock lossesReduced effort to investigate stock losses

Asset ManagementAsset Management

Dollies, tote boxes, roll cagesDollies, tote boxes, roll cages

Greater visibility of these assetsGreater visibility of these assets

Improved utilizationImproved utilization

Reduced capital expenditureReduced capital expenditure

Transport EfficienciesTransport Efficiencies

Tracking of vehiclesTracking of vehicles

SecuritySecurityVehicle routingVehicle routingDriver performanceDriver performanceVehicle availabilityVehicle availability

Identifying Future ApplicationsIdentifying Future Applications

Workers involvedWorkers involved

OwnershipOwnershipExcitementExcitementSuggestionsSuggestions

Problem AreasProblem Areas

Efficient use of space on dollies/cages?Efficient use of space on dollies/cages?

Store returnsStore returns

‘‘Russian doll’ system security?Russian doll’ system security?

Financial AnalysisFinancial Analysis

Difficult to quantify benefits of RFIDDifficult to quantify benefits of RFID

A very conservative approach used to A very conservative approach used to estimate financial benefits of RFIDestimate financial benefits of RFID

How does the ROI of new store addition How does the ROI of new store addition compare to that of RFID implementation?compare to that of RFID implementation?

Woolworths $avings with RFIDWoolworths $avings with RFID

Reduced Supply Chain Theft/LossReduced Supply Chain Theft/Loss Inventory and AvailabilityInventory and AvailabilityAsset Utilization (Roll Cages)Asset Utilization (Roll Cages)Reduced PaperworkReduced Paperwork Improved Vehicle UtilizationImproved Vehicle Utilization

$avings Amounts$avings Amounts Theft/LossTheft/Loss

(₤ 42M) x (Expected decrease in SC theft/loss)(₤ 42M) x (Expected decrease in SC theft/loss) Inventory and AvailabilityInventory and Availability

(Total Sales ‘03) x (Expected increase between 0.25% (Total Sales ‘03) x (Expected increase between 0.25% and 0.50%) and 0.50%)

Roll CagesRoll Cages (2,500 cages/year) x (₤100/cage) = ₤250,000(2,500 cages/year) x (₤100/cage) = ₤250,000

PaperworkPaperwork Savings of ₤350,000 on reduced paperworkSavings of ₤350,000 on reduced paperwork

Vehicle UtilizationVehicle Utilization Estimated £8M to £10M savings with telemetricsEstimated £8M to £10M savings with telemetrics

Woolworths Woolworths Savings.xlsSavings.xls

Summary of FindingsSummary of Findings

New Store New Store

ROI = 1.1ROI = 1.1

VSVS

ROI = 1.3 to 8.5ROI = 1.3 to 8.5

RFID RolloutRFID Rollout(Or (Or 2.5 to 12.12.5 to 12.1 with Telemetrics Savings) with Telemetrics Savings)

RecommendationsRecommendations

RFID – cutting edgeRFID – cutting edge

Benefit Analysis AreasBenefit Analysis Areas

$trong Financial $upport $trong Financial $upport


Short-TermShort-TermPartial roll-out of RFIDPartial roll-out of RFID

Implement through fraction of companyImplement through fraction of companyStarting with passive tagsStarting with passive tags

Not on individual items (yet)Not on individual items (yet)

Continual AnalysisContinual AnalysisEvaluateEvaluateLocate and eliminate problemsLocate and eliminate problems


Long-TermLong-TermFull roll-out of RFID Full roll-out of RFID

Use of active and passive tagsUse of active and passive tags Passive tags on every individual itemPassive tags on every individual item

RFID is the way to go!RFID is the way to go!

MBA Team 2MBA Team 2::

Marcus AlexanderMarcus Alexander

Simon FrostSimon Frost

Neil HinesNeil Hines

Serhiy PonomaryovSerhiy Ponomaryov

Ramona SidhartaRamona Sidharta

Business

Woolworths Case MBA Team 2: