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November 10, 2004

Streamlining the supply chain: RFID and beyond

The nitty-gritty of on-shelf availability is not the glamorous end of retail, but it is at the heart of a good shopping experience for consumers. Watertight supply chain management prevents lost sales and maximises profits for manufacturers and retailers, and good old-fashioned stock management practices are as essential as new technologies like RFID, as Catherine Sleep reports from Retail Logistics 2004.

The nitty-gritty of on-shelf availability is not the glamorous end of retail, but it is at the heart of a good shopping experience for consumers. Watertight supply chain management prevents lost sales and maximises profits for manufacturers and retailers, and good old-fashioned stock management practices are as essential as new technologies like RFID, as Catherine Sleep reports from Retail Logistics 2004.

If new product development is the exciting end of retail, then on-shelf availability is surely the opposite. Yet efficient supply chain management is at the crux of retail profitability. After all, as Nestlé UK group supply chain director Chris Tyas told delegates at last week’s IGD Retail Logistics conference in London, lost sales due to gaps on shelves totalled over £100 (US$184) per household last year in the UK, which leaves a big dent in potential revenue.

Radio Frequency Identification (RFID) tags are just one of the areas on which retailers, manufacturers and logistics providers are working in order to improve the service they provide shoppers and, ultimately, their own bottom line. Others include much closer collaboration between all parties in the food chain. As Kraft’s UK supply chain director Justin Cook emphasised, phrases such as ‘win-win’, teamwork and partnership may sound like hackneyed clichés, but the principles they embody are as applicable today as ever. Efficient planning is paramount but a key tenet of supply strategy today must be a focus on customers and their requirements. Using efficient supply chain management simply to strip costs is a missed opportunity; the stress must be on growth.

Supply chain collaboration is not just for the major players

For Kraft, this approach has meant focusing on exception management, for example allowing the company to react fast when demand for certain products unexpectedly soars. It has also meant working closely with retailers and sharing more data than hitherto to form a supplier/retail alliance as a platform for ongoing business growth. Given that many delegates in attendance at the conference were representing far smaller companies, it was encouraging that Cook stressed how supply chain collaboration can drive results even for smaller players, who might not have access to rich data.

Data was a topic that several speakers addressed. Nestlé’s Tyas bemoaned the fact that there was little real data or cohesion on limited availability despite pockets of good work. Moreover, most of the research that had been done focused on private label rather than branded products. It was with this in mind that the ECR UK Availability Group was formed in June 2003. It had three main goals:

¨ Measure availability through an industry-wide survey;
¨ Create a blue book that gives real insight into availability issues;
¨ Provide thought leadership to take availability studies to the next level.

Tyas, representing this Availability Group as well as Nestlé, urged delegates to get hold of a free copy of the blue book, which they can do through IGD.

Tyas reported that on-shelf availability has improved gradually over the last three quarters, with the lowest availability level recorded at the major UK retailers now 96%, improved from 92%. Most product categories have seen some progress, although there is still much scope for improvement. Much of this improvement will come about by store managers being encouraged to adopt simple measures such as those listed below:

¨ See a gap – make a note to fill as soon as you can
¨ Always follow the planogram, check the shelf and adjust regularly
¨ Take damaged items off the shelf
¨ If there is no shelf edge label, get one printed
¨ Shelf ready packaging – make sure you use it
¨ Fill the shelves with longest dates at the back
¨ You make the difference!

Investment in data synchronisation is crucial

It was interesting to see the attention devoted to such apparently basic steps to improving availability and the customer’s shopping experience. Ian Keilty and James Amoah, supply chain directors for the Big Food Group and Johnson & Johnson respectively, focused on the rather more technical issue of data synchronisation. They defined this as “a fundamental process infrastructure for a seamless flow of product information through the supply chain”. Across the industry, 30% of transactions contain inaccurate data (Source: The Case for Global Standards: Creating the Business Case for Global Data Synchronisation in Your Company, GCI and Cap Gemini Ernst & Young, October 2002).

Cross-border trading has upped the ante, while the multi-regional coverage of many retailers and manufacturers, as well as e-business developments, have brought both challenges and opportunities. Such developments demand a global approach that will give more consistency in trading partner communications, delivering increased value for retailers and manufacturers of all sizes.

However, data synchronisation can only be as good as your data. Getting and maintaining clean data is essential, and correct product codes and information are prerequisites. Kielty and Amoah challenged delegates to ask their companies some awkward questions: “What is the level of forecast accuracy in our business?” “What levels of invoice matching are we achieving?” “How long is our lead time for new product introductions?” “Is vehicle utilisation a problem?” There is no point synchronising bad data but significant gains can be reaped from good data.

As SAP UK’s Lee Bamber reinforced, forecast accuracy leads to better availability, which in turn leads to higher sales and profits. While initial outlay costs might seem painful, total supply chain management costs decrease as the degree of supply chain maturity grows.

From little acorns…

Safeway (UK) supply chain operations director Mark Aylwin also had words of praise for smaller suppliers, saying they had often proved better at supply chain collaboration than their larger counterparts. They tended to know their business better and be more responsive and nimble.

Martin Christopher, professor of marketing and logistics at Cranbrook University, said we are living in the age of the promiscuous shopper. Out-of-stock problems means consumers will switch brand, product size or store with impunity, or delay or even abandon a planned purchase. Brand loyalty is not what it used to be, so using tools such as RFID to boost product visibility and availability is a real opportunity.

Stewart Oades, chief executive, contract logistics UK & Ireland, of Exel Logistics, backed this up, saying that RFID will revolutionise the visibility, accuracy and effectiveness of the supply chain. Referring to the concern among manufacturers that they will have to pay the cost of implementing RFID while retailers will reap most of the benefit, Oades added: “No doubt there will be a fair degree of mandate from the retailers to adopt RFID.” However, he was sure that suppliers would see gains too. Particularly when used on high-end items, the gains would soon offset the costs. As some tags still cost around £15 each, they would need to, although these costs will of course come down as the technology matures. Encouragingly, he concluded by expressing confidence that “in the next three to five years, a truly universal reader and a global low-cost tag will appear”.

Ian Mumby, head of IT & supply chain at Marks & Spencer, agreed. M&S has been something of a pioneer in RFID, capitalising on the advantage of its ‘closed loop’ stock system (M&S only sells private label food). While many consider RFID to be a new technology, M&S started trials back in the mid-1990s. Mumby said that the current shortage of expertise and technology partners is hampering the development of RFID, but that nevertheless the company expects to be using RFID-enabled systems in stores by 2006. RFID intake trials took place last year and RFID intake was rolled out across depots this year.

Good news all round?

Simon Langford, head of RFID strategy at Wal-Mart, said his group was convinced that RFID was good news for all parties in the chain. Customers would of course enjoy greater availability, but he also highlighted the fact that store colleagues would have more time on the sales floor, which will be reassuring news for those who might be fearing they will become superfluous and find themselves out of a job.

It was left to Tesco supply chain director Stuart Ross to sound a note of caution about the extent to which RFID should be deployed. “Just because you can, doesn’t mean you should,” he said, explaining that manufacturers and retailers should restrict themselves, at least in the early years of the technology, to harvesting data that will be useful. Keeping your powder dry to find solutions to problems you actually have is far more sensible than throwing pots of money to mine data you’ll never use.

To find out more about the latest RFID research, click here.

To seem informal comments on this events in Catherine’s blog, click here.

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