A Case Study of RFID Technology for ABC Grocery1

Matthew FishChristina FreemanPatcha Sitasuwan

Keiichi Yusa

The History of UPC Bar Coding(The Universal Product Code, 2005)

In the late 1960’s, companies involved in food distribution were confronted with

increasing costs and lower profitability. This problem looked to interrupt the long term trend in

the United States toward lower prices for consumers. Trade associations representing the two

branches of the food and distribution systems decided to seek a standard “inter-industry product

code.”

The Ad Hoc Committee was formed to investigate this code. The committee was

composed of five grocery manufacturer executives, five executives from the retail distributor

associations and technical experts for each executive. The companies involved volunteered the

time of their executives and paid out-of-pocket expenses for the benefit of buyers and sellers,

while giving no competitive advantage to one company or industry.

The recommendations that the committee gave were to adopt a code, not solely for the

purpose to optimize code scan check out systems. The most efficient design code was proposed

as a ten-digit, all numeric mixed code with a check digit for keyed codes. They also

recommended that the code be developed with scanning technology and that it be tested in stores

and implemented as soon as possible.

1 To be read along with An Improvisational Model of Change Management: The Case of Groupware Technologies by Hofman and Orlikowski

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The Case Study of ABC Grocery

About ABC Grocery

ABC Grocery is a large chain of grocery stores in the Midwest. Currently, each store has

ten employee-operated, scanning aisles. They also have eight self check-out registers. Four self

check-out registers make up what is called a pod; therefore, they have two pods. To gain a

competitive advantage, they are examining their current operations and exploring new

technologies. The technology with the most potential is RFID technology. RFID stands for Radio

Frequency Identification (Bonsor).

Current Operations

The company fist examined their current operations, exploring their strong points and

areas that need improvement. The traditional employee-operated check-out lanes are familiar and

comfortable for customers that do not like change. Older customers are especially fond of these

lines (Schuman 2005). Older customers may like these lanes because their groceries can be

bagged for them and they feel that customer service is important. The downfall of the lanes is

that they are slower and more expensive for the stores to operate because of the higher labor

costs required for the employees involved.

Their self check-out lanes lower the labor costs associated with traditional check-out

lanes because only one employee monitors each pod. The lanes move more quickly, creating

smaller lines than the employee operated lanes. 30% of customers currently use the self-checkout

lanes (M. Metz, personal communication, Nov 11, 2005). Customers can pace themselves and

retain more privacy because they are scanning and bagging all of their purchases. Some

customers, especially the younger ones, also like to avoid the cashiers and baggers altogether for

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other reasons. Almost half of the interviewees from the ages of 19 to 24 reported that they use

self-check out because, “I don’t want to deal with people (Schuman 2005).” Many think they

can check out more quickly on their own (Rausa-Fuller 2004). The store enjoys more flexibility

in utilizing employees that would have been used in bagging or scanning to perform other tasks,

such as providing better customer service, taking bags out to cars, and arranging product

displays. The final benefit the managers and executives from ABC came up with was that the

front of the stores are less cluttered and

congested since the self check-out

lanes have been implemented.

About RFID Technology

RFID tags are identification

tags that transmit information to

readers about the product they are

attached to. The readers detect the

information made available by the tag

and perform various functions with that

information through the use of the

Internet. An example of a possible real-

world scenario is as follows (Bonsor):

On a typical trip to the grocery

store, one of the items on your

shopping list is milk. The milk

containers will have a smart label

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that stores the milk's expiration date and price. When you pick up the milk from the shelf,

the shelf may display that milk container's specific expiration date or the information

could be wirelessly sent to your personal digital assistant or cell phone.

The milk and all of the other items you've picked up at the store are automatically tallied

as you walk through the doors that have an embedded tag reader. The information from

the purchases you've made is sent to your bank, which deducts the amount of the bill

from your account. Product manufacturers know that you've bought their product and the

store's computers know exactly how many of each product that need to be reordered.

Once you get home, you put your milk in the refrigerator, which is also equipped with a

tag reader. This smart refrigerator is capable of tracking all of your groceries stored in it.

It can track the foods you use, how often you restock your refrigerator and can let you

know when that milk and other foods spoil.

Products are also tracked when they are thrown into a trash can or recycle bin. At this

point, your refrigerator could add milk to your grocery list, or you could program it to

order these items automatically.

There are two types of RFID tags currently available. Active RFID tags have an internal

power supply, allowing them to be read from a further distance and contain more information.

Passive RFID tags have no internal power supply and can be read from distances ranging from10

to 25 feet (RFID and the Mainstream Supply Chain - Seven Steps to RFID Sanity). They provide

an ID number for the product, are quite small, and are less expensive. Grocery stores would

focus on this type of RFID tag for the purpose of placing one on every item.

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There are four types of frequency that RFID tags use. They are (in order of low to high

power) low frequency, high frequency, ultra frequency and microwave (Le, 1997). Ultra

frequency tags do not have a global standard and this creates problems when products are

manufactured and sold in different countries. Another problem with RFID frequencies is that it

can be relatively easy to jam at the right frequency because of the electromagnetic spectrum.

RFID reader and tag collisions are also problems with RFID frequencies. Reader collision occurs

when more than one reader signal overlaps, causing the RFID tag to be unable to respond. Tag

collision results from metal and water-based materials that interfere with the read range of the

RFID tag (RFID and the Mainstream Supply Chain - Seven Steps to RFID Sanity).

Issues with RFID Tags

There are some controversial issues surrounding the use of RFID tags on products. One

issue results from the fact that RFID tag size and patterns differ and their presence may not be

apparent to consumers (Davidson 2003). So when consumers purchase items at the grocery store

and take them home, they won’t be able to remove them if they want to. Since the RFID tags

cannot be easily removed and they still transmit information, the items that consumers purchase

may be able to be detected without the consumer’s knowledge by an outside party (Davidson

2003). In other words, someone who wants to know what products you buy may be able to find

out simply by scanning for RFID tags from a distance to the items you carry in a purse or

products in your home. Another privacy concern is that an RFID tag number can be linked with a

consumer’s credit card number (Problems with RFID).

Precautionary measures are being developed to keep consumers’ information private.

Some of the technologies being developed are “Kill Tags” that get a signal after the product is

purchased to quit transmitting information, the “Faraday Cage,” which is a container that is lined

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with metal to block radio signals, the “Hash-Lock Approach” that locks and unlocks the RFID

tag, and the “Re-Encryption Method,” which periodically changes the encryption in the RFID tag

(Juels, Rivast, Szydlo 2003). The method that best protects consumers is Blocker Tags (Juels,

Rivast, and Szydlo 2003). It is a tiny tag that transmits a large amount of signal to RFID readers

to obscure the true signals identifying each item. These tags could be placed on each bag, so the

items in the bags can be protected.

The final gathering of information on RFID tags that ABC Grocery collected described

costs and utilization of the technology. Their current costs are around $0.18-$0.40 per tag (Le,

1997). Some of this cost results from the fact that tags can be broken when used individually. So

this information needs to be backed up, which increases the cost. However, analysts predict that

when they are used as frequently as being on every item in a grocery store, the cost will be

driven down to about $0.05 per tag (Juels, Rivets, Szydlo 2003). When considering costs, the

saved costs of inventory that is stolen should also be considered. Using RFID tags, the costs of

items stolen would be reduced.

To take advantage of the current technology, some retailers such as Wal-Mart, are using

RFID on a larger scale (Brooke, 2005). Instead of putting RFID tags on each piece of

merchandise, they track merchandise by the pallet, case or carton (RFID and the Mainstream

Supply Chain - Seven Steps to RFID Sanity). Another problem associated with the cost of RFID

tags is that the question of who will pay for the RFID tags is undefined. Will the manufacturers

pay for them, will the intermediary suppliers pay for them or will the end retailers pay for them?

As of right now, it is unclear. Mike Metz explained that “there would have to be a strong

interaction between manufactures and the merchandise buying groups. There would have to be a

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large amount of money put towards the audit process, and making sure everything is working

right,” (personal communication, December 3, 2005).

Benefits of RFID Tags

Despite the problems with RFID tags, there are many positive benefits the technology can

provide. Both suppliers and retailers can easily manage their inventory by having RFID tags

transmit information about the number of items in their inventory, dates at which they are

planning to be shipped, destinations of shipping, dates at which perishable items spoil, etc. They

will better be able to keep track of inventory levels for increased demand for certain areas, times

of the year, or possible items that consumers buy together to take advantage of these

relationships. Managers will have real time information about inventory levels and suppliers can

restock items below the threshold they consider minimum automatically. This will solve the

problem that managers face concerning inaccurate information. In fact, “trading partners have

the wrong data about items 30 percent of the time,” (Brooke, 2005). Manufacturers of the

products that consumers are buying can have demographic information about the consumers that

purchase their goods to better serve the consumers’ purpose.

Fewer employees need to be used to manage and track inventory flows. From a grocer’s

perspective, the stores need fewer employees for use in bagging and cashier stations. The lines

that customers have to wait in are significantly shorter due to the nature of the check-out process;

customers fill their carts, walk through the sensor when they are ready to check out, and pay

through the credit card that they have designated for all items that were detected by RFID tags in

their cart.

Mike Metz, Director of Retail Operations for a large grocery store chain, commented on

many aspects of RFID use in grocery stores. He noted that:

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The largest benefit would be accurate item movement. Accurate movement would allow

stores to track specific items all the way from the pallets to the isles, up until the

customer checks out. This is a big advantage from the operations stand point. When a

customer has five packs of pudding in their cart, the cashier will usually scan just one,

even though the other packages may be different flavors, only the one flavor will be

scanned. With RFID tags, you will be able to know exactly every item that has left the

store. Another benefit is their will be less shrinkage. Their will be no “sweet hearting”

from the cashiers, and it will be virtually impossible for all items in the cart to not be

scanned. From less shrinkage comes a gross margin improvement for the grocer. RFID

implementation will allow grocers to automatically re-order products that they are low

on. Grocers won’t have to count items on the shelves, they will already know from their

tracking systems, which items are low and which are not.

The RFID tags benefit both grocers and customers. From the grocers standpoint they

should only implement the system if they can get all the products RFID capable. This

process could be very time consuming, and it would not be worth the time and money if

some products are not going to be able to be tracked. All the products need to be unified.

The distribution of the product pallets will be smoother in the supply chain flow with the

tags. Consumers would reap large benefits with RFID implementation. The process

would eliminate the one thing consumers hate most about grocery shopping- waiting in

line. Grocery stores would be better organized and always be fully stocked of all

products. Consumers would have to have less training on the RFID tags than they would

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with the U-scan registers. RFID would call for consumers to do nothing more than walk

through the line (personal communication, December 3, 2005).

The following table is a side-by-side comparison of RFID vs. self-checkout lanes:

Self-Checkout RFID System

Product Manufacturers

- Production forecast based on historical records

- Production based on real demand

- Inventory management based on labor and accounting method with at least minimum stock

- Demand-driven inventory management and yard management

- Marketing based on historical record from stock checking and survey

- More precisely selling record with details of particular types of products

Grocery Stores - Order and shipping based on agreement - Integrated order and shipping processes

- Shelves managed by staff - Dynamic inventory control- Check-out one item at a time - Put all items in cart and check

out all at once- Pod is staffed to check of shoplifting (Schuman 2004)

- Hard to remove RFID, protects from shoplifting

- Lack some of products - Solve problem of lack some products

Customer - Don’t have to wait for cashiers - Don’t have to wait at all

Customers’ View

From a customer’s perspective, there are benefits and problems. The benefits are less

time spent waiting in line at the store, privacy of the items that you purchase, and reliability that

the items that you want are in stock. However, there are privacy issues if the technology is

improperly used. Items can be detected by persons near you or outside of your home, and they

could possibly be connected to other information about you.

Jan Fish, a grocery shopper for over 30 years, was asked if the use of RFID technology

would change her shopping habits. She replied:

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Absolutely not, if anything I would enjoy shopping more. I believe innovation to make

life easier for the consumer is always a positive thing. During the week, lines are not

much of a factor at the local store. Yet, on the weekend the new tagging system would

make a huge difference. There would be less long lines, and less people standing up in

the front of the store crowding the front of the isles. The only thing that would be a red

flag to me is the pay system. I would not want to have my credit or debit card on file.

There would have to be a way to have some sort of pre-pay card, so that when your

money is up you can no longer pay with that card. I believe the new system would take

some getting used to, but everything evolves and changes. Their used to be no scanners,

and now they have self check out. I don’t think RFID tags would be that big of shock to

people. I will always have to go to the store, the less time I am in there the better

(personal interview, December 3, 2005)!

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Case study questions

1. What is ABC Grocery’s current situation in their stores?

2. How could ABC Grocery benefit from the implementation of RFID technology?

3. Should ABC Grocery implement RFID technology? If so, at what level (RFID on each

item, on palettes, on shipments)?

4. Keeping in mind that early adopters of new technology gain the most wealth from its

utilization, should ABC Grocery begin utilizing RFID technology before the goal price of

$0.05, or should they wait until the price of using it lowers?

5. Why would the Improvisational Method of Implementation be a good method of thinking

about how to implement the use of RFID technology?

6. Suppose ABC Grocery decides to use RFID tags on each item they sell in their stores and

check-out is fully automated. Using the Improvisational Method of Implementation, what

are the anticipated, emergent, and opportunity-based changes that could occur?

7. How must ABC Grocery align their culture to smooth the implementation process?

8. What challenges will store managers face if RFID technology is fully implemented to be

used on each item within the store?

9. What resources will need to be dedicated for the ongoing support of RFID use?

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Teacher’s Learning Plan for the Case Study

1. What is ABC Grocery’s current situation in their stores?

The store currently uses self-checkout lanes and employee-operated registers to scan UPC barcodes to check customers out and collect pay. Currently, ABC Grocery has ten employee-operated scanning aisles and four self-checkout registers. About 30% of all customers use self-checkout lanes (M. Metz, personal communication, December 3, 2005). In order to be accustomed to the self-checkout system, customers had to learn how to operate the display, use the scanner, and bag items. Some customers still do not want to learn and try all these troublesome operations.

2. How could ABC Grocery benefit from the implementation of RFID

technology?

From an operations stand point, the largest benefit for ABC would be accurate item movement (M. Metz, personal communication, December 3, 2005). Accurate movement would allow ABC to track specific items all the way from the pallets to the isles, up until the customer checks out. With RFID tags, a grocery store will be able to know exactly every item that has left the store, without discrepancy due to improper scanning of the items. The store would be better organized and always be fully stocked of all products.

Another benefit is that there are lower costs associated with the lower number of workers needed. Less time spent counting inventory and doing accounting because everything is automated will also save ABC money. There will also be less shrinkage from items that are stolen or lost. As the location of every item can be tracked with RFID tags, theft of merchandise by workers would be very difficult because it could be tracked. From less shrinkage, comes a gross margin improvement for the grocer.

RFID implementation will also allow grocers to automatically re-order products that they are low on. Grocers won’t have to count items on the shelves. The tracking system will automatically let them know which items are low and which are not.

From the customers’ stand point, this would mean that the store would almost never be out of an item that they want to purchase. Perhaps the largest benefit from a customers’ standpoint is the elimination of waiting in line. Waiting in lines for checkout is the one thing customers hate most about grocery shopping (M. Metz, personal communication, December 3, 2005). Less time spent for customers in the store can perhaps draw new customers looking for convenience.

3. Should ABC Grocery implement RFID technology? If so, at what level (RFID

on each item, on palettes, on shipments)?

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From a technical point of view, there is a challenge. One of the current problems with the RFID system is a lack of consistency of placement. All items that the store sells must have an RFID tag on it for it to be used. This means that a pack of gum that costs $0.35 must have a tag on it. Until RFID tags gain cost benefits from economies of scale, they are too expensive to use on each and every item in stock at a grocery store. They could perhaps be used on pallets or some other large unit of inventory.

4. Keeping in mind that early adopters of new technology gain the most wealth

from its utilization, should ABC Grocery begin utilizing RFID technology

before the goal price of $0.05, or should they wait until the price of using it

lowers?

There are concerns regarding the reliability and stability of the RFID system. While early adopters of new technology gain the most wealth from its utilization, technical risks and uncertainness are inevitable. ABC claims that it should only implement the system if they can get all the products RDIF capable (M. Metz, personal communication, December 3, 2005).

This process could be very time consuming, and it would not be worth the time and money if some products are not going to be able to be tracked. The distribution of the product pallets will be smoother in the supply chain flow with the tags. However, due to the cost being high to implement this system, we would do a cost-benefit analysis to find out if we get paid back on having the system in our stores. What our competitors will do could be a major factor in deciding if we will implement the system or not. We have to stay up with them in order to compete in such a competitive market. [ABC] would likely only be a pioneer of this system if there were incremental sales increases to pay back all that goes into implementing such a large and complex project.

5. Why would the Improvisational Method of Implementation be a good method

of thinking about how to implement the use of RFID technology?

Based on the journal article by Hofman and Orlikowski, the Improvisational Method of Implementation would be a good fit for analyzing the use of RFID tags in grocery stores because it is a new technology that is highly technical. The results from this system are unknown and there will likely be many changes that will occur that cannot be predicted, or at least not be predicted with accuracy as to their impacts. Therefore, management will have to become flexible about understanding the problems and successes with the system, and then fixing the problems and capitalizing on the successes. They will have to think creatively about the problems and successes to find out how they can thwart similar problems that may occur, or utilize the success in another area.

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6. Suppose ABC Grocery decides to use RFID tags on each item they sell in

their stores and check-out is fully automated. Using the Improvisational

Method of Implementation, what are the anticipated, emergent, and

opportunity-based changes that could occur?

Anticipated Changes:Faster checkouts, a shift in job responsibilities from cashiers and baggers to inventory management being the largest type of job, better demographic information transmitted to suppliers about consumers of their products, and a need for tech people to be hired to take care of bugs in the system and any failures.

With RFID, the biggest challenge for managers is how to deal with much more information brought by the system for inventory management (M. Metz, personal communication, December 3, 2005). The inventory management system will be changed to be fully software based. With RFID tags, managers will have computers to assist them with the ordering instead of having to do inventory by hand. Managers will know more about what exactly is going through their registers every time a shopper goes to check out. Since every item is tracked by tag information, sold items and items still on the shelves are identified in a moment.

The most serious assumable bug will be a reading error of tag information. This may cause the number to be too high or too low. However, when inventory is counted manually, there is also this possibility.

ABC believes that there would have to be a strong interaction between manufactures of RFID systems and the merchandising buying groups to further develop supply chain management systems that are user friendly and without bugs. There would have to be a large amount of money put towards the audit and workers’ training process, and making sure everything is working right. At a certain point in the audit and workers’ training process, ABC will have to judge if any additional full time resources to support RFID technical issues is required.

Emergent:People fearing their privacy is being violated, labor unions resisting change because fewer workers are needed, and people finding new ways to steal items.

One of the concerns of RFID technology is violation and theft of private information. Unique information of each item including product name, type, color, price, date of production, and serial number is stored in a tag. Such information can be tracked and retrieved by RFID readers through air. So, if somebody intentionally uses an RFID reader that is compatible with tags attached on merchandise, it may be possible to steal such information.

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Misusing this technology, you can even track RFID tag information of a certain item that was purchased by a consumer. If somebody intentionally retrieves tag information on an item that is in your shopping bag, your private information such as when, where, and what you bought and how much you paid will be retrieved.

In order to avoid this problem, several counter measures have been taken. The most common and effective one of such measures is a Blocker Tag (Juels, Rivast, Szydlo 2003). It is a tiny tag that transmits a large amount of signal to RFID receivers to obscure true signals identifying each item. Perhaps these tags could be placed on each bag, so the items in the bags can be protected.

At the beginning of implementation of RFID technology, ABC will find that shrinkage of items will be eliminated. However, ABC will soon find that it will emerge. By misusing Blocker Tags, workers in the stock room, or invaders from outside can steal merchandise while avoiding detection of tag information by RFID receivers. With this small chip, even a customer can steal small items from shelves in the store. ABC will not find an ideal solution because this problem has no countermeasure as of yet.

Opportunity-Based Changes:As ABC Grocery finds that more customers are coming to their store because it is fast and convenient, they start acting as consultants and are paid to help implement the technology in other stores. Another opportunity-based change could be the redesign of grocery carts to have bags already in them for customers to place their items in since bagging takes time to do and would create lines. An RFID receiver system at Exits that is customized for grocery stores could be another change, and a new inventory system where no one has to look for what products need to be replaced on the shelves is another.

7. How must ABC Grocery align their culture to smooth the implementation

process?

Because it is a new technology, there could be many outcomes that are unexpected and must be adjusted for. Grocery store chains facilitate this because the majority of the people who work for a grocery store are at the labor end and management is not a large percent of the people affected. Therefore, the workers will use the technology and find ways of using it and the management will observe this and adapt to it just as the workers had.

The employees whose work environment will be most drastically affected by implementation of RFID systems will be people who work at the front end of the store – cashiers. As majority of them are young people such as high school and college students, they have more of an understanding about computers and technologies because it is now part of their culture growing up (M. Metz, personal communication, Nov 11, 2005). If

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people do not understand technology, ABC would move them to the back of the store where they could work on stocking and receiving products.

ABC must realize that it would be beneficial to be a horizontally integrated company, making an effort to be flexible and allowing managers to make decisions. The workers need to be involved in the process to feel secure in their jobs and to work as a team to implement the technology smoothly. Gaining support for using a new system will be very important because you don’t want workers to sabotage the new system because they are uncomfortable with the changes it brings. They also need to budget time and money for the training and implementation period, find technicians to work on the system if problems arise and to maintain it, and find a back-up system if it does break down (M. Metz, personal communication, Nov 11, 2005).

8. What challenges will store managers face if RFID technology is fully

implemented to be used on each item within the store?

Implementation of the RFID system will dramatically cut back the workload on laborers, especially cashiers. Workers at ABC may feel uncomfortable with implementation of RFID for fear of layoff. ABC needs a solution to this problem. A similar grocery chain (Tops) has not laid off a single person since the implementation of self-checkout lanes (M. Metz, personal communication, December 3, 2005). When ABC implemented the self-checkout system, excess personnel were moved into different jobs throughout the store. ABC is in contract with Unions. However, the RFID system will simplify the work process of not only cashiers, but also employees that track inventory and manage the stock. This may cause a significant reduction in the labor force. ABC will have to make decisions weighing the severe cost of implementation of an RFID system against costs associated with their large labor force. Dealing with employees that are nervous about their job security will be a major factor that ABC will have to confront.

According to Mike Metz, managers at ABC will also have to learn how to deal with having so much more information and knowledge than they had before. Most importantly managers will know more about what exactly is going through their registers every time a shopper goes to check out. With RFID tags, managers will have computers to assist them with the ordering instead of having to do stock inventory by hand. So a problem that they must face is the situation that the managers don’t know how to use the software. They must make time to train them and show them how to make useful connections to increase sales.

For the ongoing support of RFID use, there would have to be a strong interaction between manufactures and the merchandise buying groups. There would have to be a large amount of money put towards the audit process, and making sure everything is working right. Finally, management would have to take time and think of easy, non-threatening ways to introduce the system to our consumers.

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9. What resources will need to be dedicated for the ongoing support of RFID

use?

A back-up system needs to be defined in case the system has flaws that are found after implementation. A conventional bar code system will be the back-up system for RFID system in case of technical problems. Then they won’t have to invest extra money or time in this respect. However, ABC will have to keep several (3 or 4) employee-operated scanning aisles for this reason. The number of conventional aisles may be reduced gradually over time, if ABC doesn’t experience major trouble with the new system.

After the system is audited and accepted by management, ABC should do a test-run of the new supply chain system with RFID technology at one of their stores that yields typical sales amounts. The purpose of this process is:

To find out in advance any technical problems with new system in practice. To train people who work at the front end of the store to be accustomed to new

system. To train people who bring goods from the stock room to be displayed for sale. To check if customers are comfortable with the new system. To estimate how much time it will take for an average customer to become

familiar with the RFID checkout process.

In case ABC finds any technical problems in practice, it will have to identify the cause of such problems immediately. Therefore ABC will need technicians at least for a certain period (let’s say 2 or 3 months) of starting implementation. They will then need to keep some of these technicians to maintain the system. ABC believes that customers would require less training on the RFID tags than they would with the self-checkout system (M. Metz, personal communication, Nov 11, 2005). RFID would call for consumers to do nothing more than walk through the line. If this proves true, RFID will be quickly accepted.

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References

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