Chain of Thought

Item-Level RFID is Bullish Economic Indicator

It looks like the struggling economy has ended the struggle of supply chain managers who've been trying to get their CEO's attention. According to James Tompkins, president and CEO of Tompkins Associates, and a member of MH&L's editorial advisory board, the recession has given CEOs a taste of what happens to the bottom line when supply chains go awry. Tompkins and his firm will soon be releasing a position paper illustrating a “Supply Chain Value Framework,” demonstrating how supply chain professionals drive value tied directly to their companies' goals and objectives.

For example, optimal product flows and material handling excellence are tied to reducing the cost of goods sold and improving supply chain speed and productivity—both of which improve corporate margins. That's tied directly to every corporation's ultimate goal of increasing value for shareholders and investors.

As proof that they're investing fully in their own supply chains, retailers are starting to make major commitments to item-level RFID. Drew Nathanson, an analyst for VDC Technologies, a market research firm, noted recently that most RFID solution suppliers reported strong first-half sales numbers and that, for the first time in his memory, end users—particularly in retail—seem to be more optimistic than these suppliers.

He cites data taken from a recent VDC study indicating that RFID budgets are up more than 200% (over 2009) and are expected to increase by nearly 100% (over 2010) in 2011. There have been more RFID pilots done, and the rate of conversion from a pilot/evaluation to a commercial scale deployment has shortened by nearly 20%.

Supporting these figures, a recent article in Apparel magazine reported that retailers are expected to purchase 300 million RFID labels this year. Patrick Javick, director of industry development for GS1 US, the RFID standards organization, told MH&L that while users can scan 200 bar codes in an hour, RFID's ability to read labels without a line of sight enables the identification of 20,000 items in an hour. That represents a 96% reduction in inventory labor, he noted.

Javick cited a University of Arkansas report showing that standard inventory accuracy across all retailers in its study was 62% without RFID. With RFID at the item level, inventory accuracy went up to 95%. Is 95% good enough? According to a study with American Apparel Stores, the chain not only achieved 95% accuracy, but a 2-8% increase in same-store sales, and a 50-75% decrease in out-of-stocks.

“Item-level RFID is no longer a laboratory experiment in apparel,” he concluded. “Wal-Mart, Macy's, JC Penney and Dillards are coming together with the brand owners on this technology because they're seeing the value now.”

The Item-Level Committee at GS1 will be making an announcement on November 1st about the latest progress in technology adoption. Joe Andraski, president and CEO of the Voluntary Interindustry Commerce Solutions (VICS) Association and MH&L advisory board member, will comment on these developments in MH&L's November issue.

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