RFID at the METRO group

Sec B Group 6 | Anjani Kumar | Nikhil Narayan | Pavan Kumar Gathala | Pradeep Kumar | Rajagopalan S | Vivek Krishnan | Vishwas TM

SCM - Case analysis on

Company

A wholesale business serving commercial customers

Founded in 1964 by Otto Beisheim and company went public in 1996

In 1996, Company merged its cash and carry operations with its retail holdings into one holding company, The METRO group

Company operated in more than 2300 locations in 30 countries

It was organized around 6 independent sales divisions – Cash and carry (wholesale), Real (hypermarkets), Extra (supermarkets), Media Markt and Saturn (consumer electronics) and two other divisions

The flow of Goods

Packed items into Cases and then put on pallets. These pallets were stored either in Plant Warehouse or Manufacturer’s DC

Here, at Metro DC, Pallets are normally repacked into Mixed pallets

Final sales point. Store Employees opened the pallets and transferred the cases to the selling floor

Pallets are sent by truck to Metro owned DC’s or Stores

A typical Extra Store received 24 to 26 pallets per week from Metro DCs

Factors that contribute to in-store logistics problem

Problem Reduction from Case and pallet level RFID

Reducing Shrink in the supply chain

Improved On-Shelf Availability and Reducing Out of Stocks

Improving Planogram and Promotion Compliance

Productivity and Labour Efficiencies

Increase Customer Service level

Increase Fill rate

Reduced Lead time

Both Manufacturers and Retailers are benefitted as Demand variability is reduced

Total Supply Chain Surplus is increased

Process improvement with implementation of RFID at Metro

Potential Benefits

Improving labor productivity through automating processes conducted manually

Replacing existing processes with more efficient ones

Reduction of inventory counts

Improved Product availability

Using Pallet level to improve Truck loading process

With RFID, truck driver could automatically check the identity of a pallet – No Manual

Scanning

No need of Supervision of entire loading process

10 minutes of supervising time for each of the 15 trucks leaving the warehouse

everyday. Euro 0.2 per pallet shipped is saved

Process improvement with implementation of RFID at Metro

Using case level to improve Mixed Pallet picking

The picker no longer have to manually enter the number of cases picked

4 minutes is saved for every 1300 pallets picked per day

A cost of euro 0.017 per case is saved

Reduced picking errors, warehouse employees no longer have to check the pallets

Using case level to improve shelf Restocking

RFID would improve in-stock rate from 96% to 98% due to improved replenishment

and reduction of picking errors

This would lead to a 0.5% increase in store sales

Profit would increase by euro 0.5 per additional product sold

Efficiency improvement, theft reduction and improvement of product availability

Is RFID a Good Investment for Metro? (1/5)

Cost Savings for Case Level RFID Tagging  For Metro Cents

Labour Productivity Elimination of counting in receiving goods 0.30

Labour Productivity Labour reduction in picking mixed pallets 1.70

Labour Productivity Elimination of sample checks of mixed pallets 0.30

Labour Productivity Reduction of Inventory Counts 0.10

Shipment Accuracy Reduction of mispicked cases 1.50

Product availbility Increased profit from better on-shelf status 5.00

Shrinkage Reduction in Shrinkage 0.60

  Total Saving 9.50

  Total Saving per month per store 91,200.00

  Total Saving per year per store (Euros) 10,944.00

  Total Savings for Metro (Euros) 27,36,000.00

  Total Costs for Metro (Euros) 59,80,000.00

*Considered 250 stores and 10 warehouses

Is RFID a Good Investment for Metro? (2/5)

  Cost Savings for Pallet Level RFID Tagging

 

  For Metro Cents

Labour Productivity Automating bar code scans in receiving and storing pallets 11.20

Labour Productivity Automating bar code scans in order assembly for store shipment 2.80

Labour Productivity Truck Loading for store shipment 1.70

  Total Saving per pallet 15.70

  Total Saving per month per store 2,47,275.00

  Total Saving per year per store (Euros) 29,673.00

  Total Savings for Metro (Euros) 2,96,730.00

  Total Costs for Metro (Euros) 2,30,000.00

Is RFID a Good Investment for Metro? (3/5)

  2004 2005 2006 2007 2008 2009

Total Savings witnessed   27,36,000.00 28,72,800.00 30,16,440.00 31,67,262.00 33,25,625.10

Total Costs 59,80,000.00          

Total Cash Flow for Case tagging -59,80,000.00 27,36,000.00 28,72,800.00 30,16,440.00 31,67,262.00 33,25,625.10

Total Present Value at 10% discount rate 53,76,017.72          

  2004 2005 2006 2007 2008 2009

Total savings witnessed   2,96,730.00 3,11,566.50 3,27,144.83 3,43,502.07 3,60,677.17

Total Costs 2,30,000.00          

Total Cash Flow for Pallet tagging -2,30,000.00 2,96,730.00 3,11,566.50 3,27,144.83 3,43,502.07 3,60,677.17

Total Present Value at 10% discount rate 10,01,604.95          

Is RFID a Good Investment for Metro? (4/5)

Cash Flows – Case Vs Pallet

Is RFID a Good Investment for Metro? (5/5)

RFID is a Good Investment for Metro, because with this technology they can reduce shrink and other benefits are increased product availability, better data quality and higher labor productivity

Metro can earn savings of € 296K million per year if RFID is implemented at pallet level tagging

Net present value of this project over 5 years is € 1 million using pallet-level tagging and € 5.3 million using case-level tagging

Metro should implement RFID using case-level tagging so that it can earn more savings with better service

Analyzing the options

Limited launch of RFID was the right move New IT implementations are extremely difficult and it is often impossible to

foresee all of the possible problems By doing small test cases and rolling out RFID to only a few supplier they greatly

increased their chance of success

Company did a nice job of getting full "buy in" by top management The RFID implementation would definitely take several years and if top

management did not fully buy in then support for the project would begin to wane

Company did a nice job of doing research to immediately substantiate their benefits of RFID.  This research helped to prove the merits of the project.  Furthermore, because

they did research internally and through outside consultants, the benefits of RFID could proven and authenticated.

Analyzing the optionsStop RFID and focus on Traditional method

Shrinkage may not be reduced with traditional methods

On shelf availability and out of stocks can be improved but overhead increases.

Retailer may not be ready to share sales data with manufacturer

Metro’s objective is to increase in-stock rate from 96% to 98%. Achieving this with

traditional methods may be a problem

Expand the Scope of current Pallet level RFID roll out

Second generation tags would be available and Metro wanted to replace older model

These Gen 2 tags would have one global standard, offered improved read rates and

were cheaper

However, Metro had to replace existing readers with new ones compatible to new tags

Recommendation: Case Level RFID

Pros Since the overall savings increases in case level RFID, we suggest

Metro to do a pilot study with case level RFID

Based on the learnings in pilot study, it can go on a full scale implementation of case level RFID

Cons Lot more involvement from both manufacturers and metro Manufacturers have to purchase more tags Manufacturers have to change processes inside their plants Read rates may not be 100% Data storage in IT systems needs to be changed Metro has to invest in training at its stores and DCs

Thank You