RFID Technology -Benefits

Radio-Frequency Identification Small electronic devices consisting of a small chip and an antenna
that provides unique identity of the object when scanned •

Direct Benefits • Employee Identification • Product Identification • Ease of Billing and Reduced
Shrink • Improving On-shelf Availability

Indirect Benefits • Improved productivity • Improving planogram • Cost reduction in planogram

RFID Technology –Challenges

• Problems related to implementation and standardization • Dependency on suppliers for

implementation –Backward integration • Expensive tags • Cost of installation of readers • Reading
Algorithms not very efficient • New Technology not available to all suppliers • Threat of security
from competitors • Difference in the quality of RFID tag affect the information reading by sensor •
RFID tags uses radio frequencies which have their benefits and limitations

Objectives

• The underlying mission for the company is to provide its customers with a contemporary lifestyle
and also to achieve perfection in all their endeavors by ensuring excellence, commitment and
integrity in order to be a leading national developer with commitment to create value for customers
and loyalty to customers

• They also want to become leader in RFID technology which they believe is the future of tomorrow

• To improve the performance of retail supply chains by incorporating RFID technology

• This will improve performance in terms of reduced shrink, increased product availability, better
data quality, and higher labor productivity

Problems Faced by METRO Group

• There are various issue faced by the METRO Group while implementing RFID technology •
Increased complexities and increased implementation cost when switching from pallet to case level
tagging • Many from the top management believe that many of the METRO’s supply chain problems
could be solved without the use of new technology like store improvement, DC processes and HR
practices • Numerous changes have to made to METRO’s ITsystem to switch to CASE level tagging

Human errors like suppliers sometimes forgot to put tags on pallets or putting the tag on the wrong
side of the pallet • Technology problems like reading tag information through metal and water with
the existing tags • Problems with the middleware • Suppliers used low quality tags which made it
difficulty to read tags • Suppliers can easily switch to barcodes to read shipments • RFID
implementation involve significant cost for METRO as well as suppliers

Four Options

1. Sticking to the earlier retail supply chain process that is using barcode

2. Incorporating RFID technology in the retail supply chain

3. Instead of adopting new technology improving existing store and DC processes, giving better
training to employees, creating initiatives to reduce employee turnover, and limiting the size of the
backroom or eliminating it altogether

4. Switching from Pallet level tagging to Case level tagging

Evaluation: Option3

• This option focuses on improving the supply chain activities that are within the boundary of the
organization but since METRO Group deals with many suppliers, improvement must focus on
integration across the entire supply

• Moreover it is uncertain that this improvements will really convert to value added to the supply
chain

Evaluation: Option4

Following observations can be made from Financial Benefit from Pallet Tagging for Manufacturer
and Retailer

• Considering the redundant task being done by labor and computing on per pallet bases it is
observed that Manufacturer saves around €-cent 50 and Retailer benefit €-cent 15.7 • For a case
level tagging the observed cost benefits €-cent per case to manufacturer is €-cent 7 per case and to
the retailer is €-cent 8.9 per case

Evaluations • Assuming about 30 cases in a pellet we get a pellet benefit for case-level tagging = €-
cent 210 per pellet and €-cent 267 per pellet • Hence per case tagging is more desirable financially
as compared to per pallet • This is because due to per case tagging we are able to improve not only
the labor productivity but also shipment accuracy and product availability improving the total CLV
Implementation and Recommendation

• By mid-2005, METRO group has successfully implemented RFID technology in its supply chain
covering 33 suppliers, 13 stores, and 9 DC and had already started realizing benefits • Second
generation tags which are cheaper and offer improve read rates would soon be available • Many
suppliers will be concerned about the increase in implementation cost by employing Case level
tagging but this will provide valuable information like point of sales data and inventory data from
Metro store • We believe that RFID technology will directly add significant value to the supply chain
as compared to other options • Successful incorporation of RFID technology will provide METRO
Group with sustainable competitive advantage • We believe that adoption of RFID Technology is in
line with company’s mission of providing contemporary lifestyle to its customers
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BENETTON
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