christine spivey overby senior analyst, consumer packaged goods
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ForrTel: RFID At What Cost?Christine Spivey Overby
Senior Analyst, Consumer Packaged Goods
Forrester Research
May 25, 2004. Call in at 10:55 a.m. Eastern Time
“Do you use each technology?”Percent of firms that are rolling out the technology or have done so
Sensors
RFID tags
GPS chips
Wireless devices
62%68%
88%
94%
Most firms are aware of RFID
Base: 172 executives at North American companiesSource: Forrester’s Business Technographics® September 2003 North American Study
“Do you use each technology?”Percent of firms that are rolling out the technology or have done so
Sensors
RFID tags
GPS chips
Wireless devices
17%
9%20%
48%
62%68%
88%
94%
But they are still testing the RFID waters
Base: 172 executives at North American companiesSource: Forrester’s Business Technographics® September 2003 North American Study
Theme
Compliance is about learning the value of RFID . . . and
controlling the cost
What I’d like to discuss
• What is behind Wal-Mart’s January 1, 2005 mandate?
• What are the costs and ROI of compliance?
• How should you respond?
1960 1970 1980 1990 2000First
Wal-Mart opensFirst SAM’s Club opens
First Supercenter opens
First NeighborhoodMarket opens
Wal-Mart and RFID are a natural fit
Supply chain innovation
Shopping experience innovation
First computer to support operations
Inventory management systems
Satellite network
Electronic POS
EDI
UPC bar codes
CPFR
Retail Link
Wal-Mart.com
Self-checkout
Wal-Mart video network
RFID mandate
UCCnet
Town Test
Wal-Mart’s supply chain excellence pays off
Source: Information Resources Inc. and Forrester Research
Base: 3,574 primary grocery shoppers who haveshopped at Wal-Mart in the past month
PricesProduct
assortment In-stocks
86%
14%
86%
14%
76%
24%
Percent of US consumers who think Wal-Mart has great:
Good or excellent Poor or fair
What does Wal-Mart want?
• Deployments by January 1, 2005
• 100% readability
• Strategic thinking
» “Slap-and-ship is quite disappointing” - Simon Langford at NRF, January 2004
RFID’s promised ROI
Inve
ntor
y man
agem
ent
Out o
f sto
cks
Theft
War
ehou
se m
anag
emen
t
Pay o
n sc
an
Track
& tr
ace
Consu
mer
insig
ht
Trans
porta
tion
and
logist
ics
Asset
trac
king
Procu
rem
ent
DSD
Custo
mer
ser
vice
Order
fulfil
lmen
t
Deman
d pla
nning
100
70
60
50
40
30
20
10
0
90
80
The biggest benefits require source tagging
Inventory management
Out of stocks Theft Warehouse management
100
70
60
50
40
30
20
10
0
90
80
Reducing theft requires working with supply chain outsourcers
100
70
60
50
40
30
20
10
0
90
80
Inventory management
Out of stocks Theft Warehouse management
Improving warehouse management requires business process re-engineering
100
70
60
50
40
30
20
10
0
90
80
Inventory management
Out of stocks Theft Warehouse management
Many companies still need to do something in 2004
So what should you do?
• Start with a slap-and-ship approach
• Focus on learning how RFID works
• Minimize the amount of distribution center re-engineering
How compliance works for XYZ Manufacturing
• $12 billion in North American sales
• Three distribution centers that ship to Wal-Mart’s Texas DCs
• 15.6 million cases annually
How compliance works for XYZ Manufacturing
Distribution center
XYZ Manufacturing manually tags cases during picking and packing
Then verifies case tags on sortation conveyors
Then segregates inventory in the shipping zone
And reads pallets on the way out
Compliance costs $9.1 million in year one
Tags $7,595,000
Hardware 329,000
Software 183,000
Consulting and integration 128,000
Internal project team 315,000
Tag and reader testing 80,000
Additional warehouse labor 469,000
Training 39,000
Total $9,138,000
Highest costs underscore major challenges
• Tags make up 80% of costs
• Professional services run high — and costs will only increase
• Case-tagging adds — rather than decreases — labor
How can RFID vendors help?
• Create guidelines for case tagging
• Focus on source tagging infrastructure
» Integrated printers and automated applicators
» RFID embedded in case packaging materials
• Improve the reader/middleware/application interface
Apps
Datamanagement
Hardware/readers
Tags/labels
Don’t expect 100% readability with fragmented technology
RedPrairieManhattan Associates
SunIBMMicrosoft
ThingMagicSAMSysIntermec
OAT SystemsConnecTerra
Philips SemiconductorTexas InstrumentsIntelZebra
OracleSAP
Cisco
MatricsAlien Technology
So, how should suppliers make do?
• Pilot with easiest product categories first
• Pool tag orders with internal and external buyers
• Tie RFID to data synchronization
• Set up “one-throat-to-choke”
• Create a CEO direct report for RFID
Remember three things
• Start with a slap-and-ship approach
• Focus on learning how RFID works
• Minimize the amount of distribution center re-engineering
Christine Spivey Overby
www.forrester.com/RFIDJournal
Thank you
Entire contents © 2004 Forrester Research, Inc. All rights reserved.