RFID ... For Customers?

Introduction

Recently I spoke at the National Retail Federation[1] in the center of retail: New York City!

The big buzz this year, no surprise, was about RFID.

Since much of the current activity has been focused on logistics—a clear winner as a starting point—we are missing the dialogue on the consumer side of the retail equation—merchandising, and most important, the customer experience. I was pleased to be given a small sliver of time to talk about this at such a huge and buzzing conference.

There are a bunch of misconceptions about RFID in retail that were front and center in our discussion—poor ROI, reluctant consumers, over investing, overly "well-honed" processes—instead of attacking the huge delta of lost sales and waste still in the retail supply chain.

Replenishment—Making it Smart

First, I want to take issue with the whole concept of POS, telling the whole story about replenishment. I have really come full circle on this issue, watching the actual behavior of customers. I used to think, "who needs smart shelves," because replenishment signals are only valid based on POS. True enough. It is not what is happening at POS that is the real issue! It is at the shelf.

No doubt there are issues around replenishment of stock items. And fine tuning accuracy of demand of stock items is always good. But, you have to wonder why we spend so much money on fine tuning what's not broken. There are known technologies and processes for replenishment, what I call dumb replenishment. Because in reality, it does not show you what the customer was looking for, or what they contemplated. (That's why so much effort has been put into web technologies that shadow the customer's moves—more on that later.) What happens when the customer is looking for items you do not have? Do you have any way of collecting this information? And when the customers substitute (here is where the dumb replenishment comes in), even though the customer wants something else, your system says to replenish that item.

Frequently, though customers might substitute once, they may not a second time. They move on to another retailer, possibly returning the original item when they find what they really want. Now it costs you more money to serve the customer. There is a huge delta in understanding what should be on the shelf (aka: unforecasted demand or forecasted but not available).

So intelligence at the shelf does matter, a great deal in fact. For so many stores, there is stock near by, but the sales people don't know it. So if you are lucky enough to have a customer ask, there is little chance that the store sales person will be able to fulfill the need. Most retail stores (other than the Saks and Talbots of the worlds) have very poor connectivity (drug stores are notoriously bad) with no inventory locating systems in the store or across the network.

More investment needs to be focused on the zone of uncertainty—understanding the issues and how technology can help improve sales and the customer experience.

Customer Experience

So, back at the shelf, I do think that Gillette and MIT/Auto ID only got half the story, looking at shrinkage. But there is more positive information to collect at the shelf. Fortunately, other innovative firms are looking at the whole retail experience.

Sensing intelligently and linking or synchronizing items to the whole network is actually a very sellable construct to consumers too, if you think it through.

The issue is, what happens from the moment the consumer enters the store. Do we understand their needs, educate them on products, ensure they are finding what they need, up sell where appropriate and make the experience productive, educational and well, fun? Linking personal identity (smart cards), to sales, or lack of sales is key. The customer enters your environment—huge potential value might be in store, if the relationship is managed intelligently.

Return on Investment

Another assumption, with fallacious roots, is that ROI is based on 5-25 for low end consumables—tooth paste and shampoo. Of course, it is quite a stretch to justify that! But, the reality is that the huge amount of retailer products are high-value goods—electronics, cosmetics, jewelry, handbags and luggage, shoes, apparel, autos, etc.

The other truth is that many items are already being tagged—by the retailer. Today, though, that tag has a short life from the stock room to cash register. So, for many items, we are moving the process back in the chain, creating a longer life and adding value to the RFID investment through logistics, security, and other processes.

So many tags are reusable, items are high value, and the range of care and services customers need is large, so the over-simplistic assumptions some people are talking about need to be thought through!

Once the base investment is made (we are not saying it is a trivial investment) there are many subscribers to the information. That intelligence can be used in so many places. It behooves the enterprise and their supply chain partners to truly collaborate as this new enabler becomes locked in to narrow perspectives.

"We don't have a transmitter problem, we have a receiver problem."[2] Even customers can see many valuable uses—from product and quality assurance to warranty/guarantees (have you ever sorted through all your papers looking for the part warranty?); from rapid product fulfillment (they did have that in stock, after all) to speedy price checks.

Placing the customer in the center of our thinking, in the store and across the supply chain, will allow the most valuable use of this exciting and emerging technology.

[1] January 17, 2005

[2] Tom Friedman, The New York Times

About the Author

For more than two decades, Ann Grackin, Chief Executive Officer, has been on the frontlines of the Supply Chain Management technology and e-commerce frontier, leading global strategy and technology implementations in the high technology, semiconductor, automotive, textile, and apparel industries.

ChainLink Research is a bold new supply chain research organization dedicated to helping executives improve business performance and competitiveness.