Introduction to RFID Inventory Management in Retail

Radio Frequency Identification - RFID is an established data-carrying and automatic identification technology used throughout industry, and in the retail sector, has long been touted as the Holy Grail of Inventory Management. I can remember a conversation I had with one of the IT Directors of Tesco who said to me '..whichever Retailer cracks RFID first, wins. Period'. Dramatic words indeed.

Within Retail, think of RFID as an Intelligent barcode. Intelligent because it not only identifies the product, but it uniquely identifies the product. ie I'm not just a 300g tin of beans, I'm 300g tin of beans number 54167. It can do this because data relating to the specific item is stored on the RFID tag which is attached to the item. Like a bar code, a tag is a data carrier. A bar code carries data in a visible symbol and is read by a bar code scanner using optical or infrared wavelengths. An RFID tag carries data programmed into a small computer chip and operates at a wide range of radio frequencies.

The tag is activated by radio waves emitted from an RFID reader. The reader communicates wirelessly with the tag across what is known as the air-interface. Once activated, the tag sends data stored in its memory relating to the item back to the reader.

The RFID readers vary in the range at which they can read the RFID tags. This starts from the tap and go type readers which operate at the 0 - 1cm range, think TFL Oyster card, where you tap the card on to a reader (Interestingly such system are called contactless, despite the need to touch them to the reader). This area of RFID isn't really suitable for Inventory Management and is being explored more as a quick payment method.

Long range RFID scanners can pick up tags at range's up to 200m, and its these long and medium range scanners that open up the opportunity within warehouses and store backrooms for automatic inventory counting, goods in scanning etc. Imagine being able to take in a delivery from a supplier and automatically know each individual product that is on the pallet.

Aside from the infrastructure and setup challenges associated with an RFID solution, is the challenge of what to do with all that data. The increase in data volumes associated with a change in supply chain management from pallets to individual items is huge. I've worked at 4 out of the top 5 UK retailers and they all have enterprise datawarehouses measured in the 10's of Terabytes, driven by holding data mostly at SKU level. (Some of the data held will be at transaction level, which is almost individual item level, but the volumes of this typically range in the 0 - 5% of total space utilisation). To change the granularity to be at individual RFID rather than SKU is to scale that volume by a rough factor of 10,000. (based on 1000 stores and 10 incidences of each item per store).

The data challenge for RFID Inventory Management therefore becomes how to cope with a new level granularity, which systems need to use it, how they talk to other systems, how to cope with the increased network and storage requirements.

Corporate Social Responsibility and the economic downturn

Given the unstable nature of the world economy at the moment, how will the latest corporate trend, Corporate Social Responsibility, fair as companies tighten their belts and look to cut costs?

All major retailers have Corporate Social Responsibility (CSR) statements proudly displayed on their web sites, and being green and being seen to be green, is high up the agenda in all PR and Marketing departments. Retailers are fighting to have sector leading green credentials with the humble carrier bag thrust into the limelight, centre stage. Corporate Social Responsibility is not just about being green though, it's about promoting sustainability and one of the leading bodies to define standards for business sustainability, the Global Reporting Initiative, defines five areas where business needs to focus;

o Economic
o Environmental
o Human Rights
o Labour
o Product Responsibility

With the price of energy increasing all the time, it's easy to see that focusing effort on reducing your Carbon Footprint, is good business sense, as well as providing good PR material. The green movement has successfully persuaded companies that being green makes commercial sense. However being green is only a part of a companies CSR strategy, so as times get harder will we see a relaxing of the commitments made across the other key areas.

With sales weakening across the high street many retailers will be asking their supply chain to bear the costs of poor trade. Changing payments terms for suppliers and asking suppliers for extra discount are some of the ways retailers can put the squeeze on their suppliers. For suppliers though, struggling with their own increased energy costs, this additional pressure will be most unwelcome and for many, could push them close to the edge.

This doesn't strike me as a sustainable business strategy. Sure, your suppliers will need to bear some of the costs, but the sustainable way out of the downturn would be to work together. How sustainable can it be to destroy your supplier base?

Collaboration between client and supplier lead to project success

I've been frustrated recently by being surrounded by some 'Old Skool' supplier management techniques. I've always worked in Retail so I'm used to being in environments with very strong purchasing backgrounds, and suppliers being driven hard on deals. However, recent events have left me exasperated to the point of writing this.

The recent examples involves insuring yourself against failure to deliver by a supplier, which I think everyone would agree is a good thing. You can do this in a number of ways and permutations. Two approaches at opposite ends of the spectrum are, having bullet proof contracts that claw back money or services in the event of failure, at one end, or being pro-active and putting processes and resources in place to prevent the failure ever happening, at the other.

The former appears to cost you less, you get money back for any issues and you don't pay for anyone in a QA type role etc. and therefore seems quite attractive. I've also seen this create the 'big man effect' in those people who suddenly find themselves in a position to throw some weight around, which adds to the attractiveness for some. I feel this approach is short sighted and tends to focus on cash rather than value. It ignores the opportunity cost, or cost of failure.

Organisations who take this approach would do well to remember why they embarked on those projects in the first place. Generally (I know there are some exceptions) business undertakes new projects to add value, get a return on investment, call it what you will, spend some money, get more money back (lots more hopefully!). Or in the case of service, spend on support, to prevent issues happening that will cost you lots more.

So, if we're doing projects because we want to make more money, then any failure or delay, not only costs the additional sum to rectify the problem, but also costs the lost opportunity from delivering the project. In today's rapidly changing technology world, these opportunity costs can be enormous. Here at Retail Monster we've had the opportunity to work on cutting edge projects that have delivered massive returns on investment. You can read some of our case studies here.

My experience is to avoid this type of approach like the plague and take a more collaborative approach, more partner than supplier. Shared vision, shared objectives, collaborative teams, Agile approach, which is also how Retail Monster Consulting like to work. It's one of the reasons I formed the company. If you feel the same way, then maybe you'd like to Join us too.

Organisations that take the former approach, hiding behind contracts in the event of failure, can create a blame culture, where everyone is covering their back. Avoiding blame and responsibility becomes the primary driver. Organisations who embrace the partnership philosophy set themselves up for success, the culture of the organisation becomes based on success, delivery becomes key, and everyone internally, and 3rd parties, are focused on this. Because they're focused on the value of delivery. failure is just not an option....

Corporate Performance Management

A healthy and stable business finds the balance between, often competing, stakeholders. A point I try and make in a humorous way in my previous post about my local Off-License. Corporate Performance Management is the new name for what was referred to as the 'balanced scorecard' approach to executive management. This approach aims to balance the competing stakeholders such as employees and shareholders, customers and suppliers.

Limited companies need to provide a good return for their shareholders to do that they need the best staff, who like to be paid well. The more you pay your staff, the less profit you have to distribute amongst your shareholders, or the more you need to charge your customers for goods in order to make the profit, or the harder deal you need to negotiate with suppliers in order to minimise costs, etc etc.... So we have many stakeholders who all have individual needs, which often compete against each other, but to create a sustainable business they all need to be managed well.

Corporate Performance Management, or CPM for short, is about setting upper and lower boundaries for each of these stakeholders and their interests and then monitoring the performance of each to keep within these boundaries. It's CPM that we can blame for staff survey's, who want to know if 'My contribution is recognized by my manager', 'I have an opportunity for career progression' and 'the pay I get for my job is fair'. It's also behind Retailer/Supplier code of ethics and for the rise in Corporate Social Responsibility.

Whilst mostly CPM is used at the executive level, the principal applies equally well within departments. Shops need to balance the wishes of the customer in not having to queue, with the impact on the retail wage budget in having excessive staff manning the checkouts. An area where retailers invest heavily to create the right balance, as discussed in an earlier post on queueing theory. Inventory levels are another key area where the balance between stock and availability needs to managed closely, to minimise the costs of out of stocks and the lost interest of having money tied up in stock instead of in the bank.Sustainable business isn't "all about the numbers", it's a balancing act.