RFID: Casting spell

Shipra Arora

All eyes were on Wal-Mart as the world talked about RFID. It was and continues to be 'the' example of RFID at work, shaping up the entire RFID landscape. As a result, the first conclusive RoI evidence coming from the retail giant is a significant step towards breaking some ice in the market with respect to the technology, and will help build a strong business case for its deployment.

A recent study conducted by the University of Arkansas and commissioned by Wal-Mart, evaluating the impact of RFID roll-out at its stores (the study is the first to compare the impact of RFID on the merchandise availability in the operating stores) indicates some clear benefits in terms of RoI and operational efficiencies. Showcasing some clear, measurable, business benefits, the study is one of the first conclusive assurances that RFID is not all hype, after all.

Considering the Wal-Mart mandate has been one of the primary drivers for worldwide RFID adoption, these results are likely to have a positive impact on the uptake of this technology among enterprises that are waiting to see some clear business-benefit case studies. However, the question is, does scale matter to make a success out of RFID implementations? Wal-Mart is operating at a very large scale. Can the same success be replicated here as well considering that many of the companies in India are operating at a much smaller scale. The key for the enterprises will be to analyze how the Wal-Mart success and learnings can be implemented at a smaller scale. According to Bimal Sareen, founder and CEO, Avaana and founder-president of the RFID Association of India, RFID can deliver value at smaller scale enterprises. It should just be targeted at addressing specific issues: “Scale does help justify it. Larger scale implementations are also more complex, and this has its commensurate cost, and savings.” Ravi Tandon, president-IT, Abhishek Industries, which has undertook one of the early RFID pilots, points out that the key is to identify the areas where RFID can provide value addition rather than implementing RFID for RFID's sake.

Wal-Mart's Numbers

RFID trial shows 16% reduction in product stock-outs

RFID-equipped stores were 63% more effective in replenishing out-of-stock merchandise

Out-of-stock items can be replenished three times faster with RFID

Manual orders placed by stores were reduced by approximately 10%, which reduced the cost of excess inventory

Tangible Benefits

According to the study, conducted over several months, Wal-Mart's customers are finding the items they want in stock, on shelves more often in stores that are using RFID embedded electronic product codes as compared to stores not equipped with it. For CIOs who are impressed with nothing less than hard-core numbers, the results are not restricted to intangible benefits alone (see box Wal-Mart's Numbers). Essentially, this meant fewer total out-of-stock items and fewer occurrences of empty shelves when the merchandise was in the backroom. Simon Langford, strategy manager for RFID at Wal-Mart was quoted as saying that an RFID tagged item made it to the shelf three times quicker than a non-tagged item, and these items were also identified as being in the back room three times quicker .

Aggressive Roadmap

As part of its RFID expansion roadmap, in 2006 Wal-Mart is expected to double the number RFID-enabled stores, along with distribution centers that service the stores. By the end of the year more than 1,000 stores, clubs, and distribution centers will be using RFID. In January 2007, Wal-Mart expects the next wave of 300 suppliers to start shipping tagged cases and pallets, thereby taking the total number of suppliers using RFID in early 2007 to over 600. This is indicative of the ripple effect the expansion roadmap will have on the technology's adoption at a wider scale globally, including the Indian enterprises who will fall under the mandate's purview.

A CIO's Learnings from Wal-Mart

Companies willing to test waters with the technology must emulate Walmart for their patience and deep understanding of the technology. They looked at the constraints of the technology and were willing to modify or change their infrastructure and processes to accomodate the benefits associated with this technology. They realized that the technology was an enabler and worked around it to get full benefits, and persisted till the real value was taken out.

One thing about what Walmart did, which is not really spoken about is the changes incorporated in their existing system to facilitate effective RFID inclusion. Wal-Mart identified RFID as the next generation Auto ID technology, and conducted the first set of trials, which resulted in just over 50% data accuracy. They then worked backwards, analyzed what was essential to get to the 90% mark, and then put in place everything to facilitate better functioning of the system. Today, they boast of over 95% data accuracy and are already starting to reap the cost benefits.

Methodology

For 29 weeks researchers analyzed out-of-stock merchandise at 12 pilot stores equipped with RFID and 12 stores without the technology. While Wal-Mart commissioned the study, the University of Arkansas conducted it independently. In order to ensure consistency of data, specific items were selected at the beginning of the study, which remained constant throughout the process. To establish a baseline prior to the study and to measure the impact of RFID, out-of-stock items were scanned every day, throughout, for 29 weeks at all the 24 stores. 

 Learnings for India

So, is Wal-Mart's preliminary success story rightly indicative of the business benefits RFID technology can deliver, which can be replicated by other enterprises. Or, is it the scale of operations alone that has warranted the initial success results. According to Pradhyumna T Venkat, head-RFID Solutions, Gemini Communication, what RFID brings in is visibility and this is the key driving force for any organization, irrespective of size. “The time is ripe for any Indian company with revenues above Rs 100 crore to look at RFID seriously. End-users need to look at RFID as a 'good' substitute to existing 'bad' business practices and, more importantly, the prevalent Auto ID technologies,” explains. Ravi Mathur, CEO, GS1 India. He further adds that organizations can implement RFID in

highly diverse and customized ways. However, they have to pick the areas where the technology can be used cost-effectively.

A key indication is that not just Wal-Mart but several of its suppliers are successfully implementing it-who are much smaller in scale and size. “It is important for customers to identify the areas for improvement, and continuously monitor progress to assess the gains. These tenets of adoption apply irrespective of the scale of the organization,” says Ananth Arunachalam, sr director, Vertical Markets & RFID, BEA Systems.

According to experts, inspite of its scale, Wal-Mart can be a learning ground for Indian enterprises considering RFID, as the fundamentals behind the technology's adoption remain the same though the intensity may vary with scale.

 Source: Dataquest