Understanding the RFID Renaissance (Part 2): The Path to ROI
on Jan 30, 2014
ChainLink surveyed over 120 retailers on their use of RFID. Here we look at where they are finding an ROI.
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This article is part two in our series, excerpted from our new research report, “The ROI for RFID in Retail: Use Cases Driving the Current Surge in RFID Adoption.” Part one looked at what is driving the current surge in adoption and how retailers are actually using RFID—the use cases and applications actually being implemented. Here we examine how the ROI is realized (mainly from sales uplift by reduction of out-of-stocks) and the ancillary role of other business uses of RFID such as for loss prevention, supply chain, omni-channel, and customer experience. For a complimentary copy of that report, please click here.
Many retailers are achieving a strong enough ongoing ROI to justify continual expansion of their RFID programs. We explored these to understand how benefits are being realized, what these have in common, and how these programs tend to evolve.
Figure 1 - Retail RFID “ROI Centers-of-Gravity”
The survey data and interviews reveal certain ‘ROI centers-of-gravity’ (Figure 1). Others can use these experiences to help determine a value-based path forward for themselves.
Focus on High Mix Complexity Items
One common thread we found in successful implementations is that they usually start with the area of fastest ROI. For most retailers, this is a focus on products with “High Mix Complexity,” such as size/color/style-intensive items in apparel and footwear, inkjet cartridges, certain cosmetics (e.g. eye shadow), fragrances, and certain sporting goods. What these categories have in common, besides relatively high price points and margins, is the need to keep many different variations on display, so that when the customer walks in the door, they find just the one they are looking for. The primary driver here is very tangible: Sales Uplift resulting from On-floor Availability. As mentioned earlier, these are largely a result of the increased inventory accuracy and timely replenishment alerts that RFID applications bring to the table. This is why many retailers start their RFID efforts focused on High Mix Complexity/Size, Color, and Style Intensive products.
RFID for LP? Depends on Your Starting Point.
RFID solutions offer Loss Prevention (LP) departments insights never before available.
For instance, variances at receiving are known immediately, instead of being discovered at the next physical inventory. The proper source of shortages can be identified and corrective action taken. Retailers are also investigating the use of RFID at the storefront for LP protection. However, their approach depends in part on current LP infrastructure. Retailers already using EAS may elect to keep that program intact, with RFID focused on inventory management. Those without LP technology at the storefront may elect to adopt “RFID as EAS” right away, as a sort of “free” LP.
Still others are deploying dual EAS/RFID technology to get the best of both in a single package.
Loss Prevention and Supply Chain Uses
Retailers may expand their RFID footprint in one or more other dimensions. Some have moved from a high mix complexity core set of items to tagging a broader set of general merchandise, encompassing all replenishment items. Others are using RFID as part of their overall loss prevention programs. Loss prevention benefits can be derived at virtually any point where inventory applications are deployed, and are not limited to “RFID as EAS” (Electronic Article Surveillance) installations. As such, RFID for retail LP applications are occurring across the store floor and supply chain: in receiving, in high-theft zones on the selling floor, at the point-of-sale, and in DCs. RFID gives much more precise information about exactly what is being stolen and where, allowing retailers to more effectively target their prevention efforts.
Footwear has been an interesting category where RFID has been used for loss prevention and also for making sure pairs stay together, ensuring the right shoes are on display and enabling store associates to check availability of the customer’s size without leaving their side.
Still others (especially private label retailers) are using RFID to improve supply chain performance, especially for labor-intensive, error-prone processes, by using RFID to verify pick, pack, ship, ASN generation, store receiving, and inter-store transfers. As a result of RFID-enabled supply chain processes, some retailers have seen a substantial reduction in errors and increase in accuracies, coupled with a sizeable decrease in the amount of labor required for scanning, inspection, and rework. Almost everyone who implemented RFID in their DCs and supply chain found that it exposed many opportunities for process and performance improvements. However, with some notable exceptions,1 many LP and supply chain uses of RFID were follow-on efforts that happened after the retailer realized an ROI with the core inventory accuracy and on-floor availability improvement use cases.
Supporting Omni-Channel Programs
Omni-Channel has become one of the most promising areas of growth for retailers. For many retailers, this requires implementing a “Fulfill from Anywhere” strategy where they treat all of their inventory as one giant pool—whether that inventory resides in the DC, stores, in transit, or on order from the supplier—and make it available for fulfilling customers’ orders from anywhere (online, in the store, via call center, etc.) and to anywhere. This deft supply chain management capability requires highly accurate inventory information to guarantee the reliability of the order-promising process. Telling customers “Yes, we have one in stock for you,” only to renege on it later because the inventory data was wrong or out-of-date is very bad for business, customer satisfaction, and reputation. Improved inventory accuracy enables retailers to confidently provide item stock availability to customers via online and mobile lookup, and to reliably promise availability for orders placed online, by phone, or in the store, whether delivered to the home or picked up in store. Improved real-time inventory accuracy, by item and location, is RFID’s prime contribution towards enabling a more effective Omni-Channel program.
RFID and the Customer Experience
Our research showed that the use of RFID for enhancing the customer experience—such as smart mirrors, smart dressing rooms, RFID-enabled kiosks, or instant checkout—is still low. The primary customer experience impact of RFID today is increasing the on-floor availability of the specific products the customer wants, which directly drives increased customer satisfaction (and higher sales).
Unique category, format, and process requirements can lead to innovative starting points for RFID. Project champions can come from various functions across the enterprise. Hence they discover and derive the best use cases and ROI based on their domain experience and then champion RFID across the enterprise.
1Such as jewelry or other very high-value categories, where loss prevention was the primary driver or some private label retailers who decided from the start to implement RFID end-to-end across their supply chain. -- Return to article text above
To view other articles from this issue of the brief, click here.