By most accounts, Texas-based Tandy Brands Accessories and Brazilian retailer CBD, located some 5,000 miles away in São Paulo, would appear to have little in common.
But a closer look reveals a supplier and a retailer convinced that radio frequency identification technology will transform their very different supply chains. It’s noteworthy that each is investing considerable resources to learn how to exploit RFID — without the pressure of mandates from the likes of Wal-Mart and Target. Both consider the precious commodity of time — time to overcome a pretty intense learning curve — their competitive advantage.
Though Tandy is a supplier to Wal-Mart, it was not among the 100 companies singled out to comply with the retailer’s January 2005 RFID tagging mandate. Still, Tandy volunteered to participate in that program to gain hands-on experience with RFID. “We said, ‘Let’s listen up. Let’s get out in front if this as soon as we can,’” said Jim McMasters, director of information systems at the $215 million Tandy. The considerable challenges involving cost, process change and all the uncertainties that come with an emerging technology, did not dissuade the company from pursuing its RFID initiative.
Today, Tandy is sending to Wal-Mart’s Sanger, Tex., distribution center hair bows and bracelets in cartons tagged with RFID chips from Alien Technology, embedded in shipping labels generated by Monarch printers. Come June, Tandy will ramp up to ship RFID-tagged merchandise to five more Wal-Mart centers, and the fashion accessories supplier may deploy RFID for its own business processes as early as this year, McMasters said.
CBD, the $5.8 billion retailer also known as Companhia Brasileira de Distribuição, is not as far along as Tandy but is plowing ahead on RFID pilot testing despite research findings that counseled otherwise. Together with Gillette, Procter & Gamble, Chep and Accenture, CBD spent a year examining opportunities and challenges of adopting RFID technology in Brazil, and the picture does not look too favorable in the short term.
The South American country not only lacks business drivers that make RFID an attractive proposition in North America and Europe, it also faces obstacles not encountered above the equator. Labor is comparatively cheaper in Brazil, which reduces the cost savings potential of RFID automation. Meanwhile, the cost of technology is considerably higher in Brazil due to import taxes, currency exchange rates and a hefty interest rate that rose to 18.75 percent last month.
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“If we look pragmatically at this scenario,” said Silvio Laban, chief information officer of CBD, “we should say, ‘Let’s stop here and wait until the technology matures, evolves and reaches scale abroad.’” Instead, CBD conducted an RFID test last fall and plans another test later this year.
“The best value of what we are doing here is we are demonstrating that with very little financial resources, you can start learning about this technology,” Laban said. CBD’s RFID exploration and learning dates back to 2000 through its affiliation with ECR Brazil, which Laban co-chairs. CBD is Brazil’s largest retailer, operating grocery stores under the Pão de Açúcar banner, as well as consumer electronics and appliance stores.
CBD Pilots RFID, Prepares for Next Stage Test
In October 2004, pallets containing cases of diapers, shaving cream and razors from Procter & Gamble and Gillette were tagged with RFID chips in what would be a two-month test involving 1,000 pallets at one of CBD’s distribution centers.
Despite initial problems with hardware, software, tag placement and environmental radio frequency interference, successful RFID read rates of 97 percent were achieved, Laban said. CBD used Chep pallets embedded with Alien chips transmitting to RFID readers from Applied Wireless Identifications, or AWID, at the 902MHz-928MHz UHF frequency. RFID readers, mounted on a portal through which RFID-tagged pallets passed, read data from a distance of about two feet.
Though Laban is clearly pleased with the 97 percent read rates — for an admittedly small-scale pilot — he said that finding is almost incidental at this point. He insists that testing remain technology-agnostic because process issues, rather than technology, are far more important at this stage.
“In my opinion, the success of this kind of initiative does not lie in the RFID technology. It lies in the processes that are going be designed, and even invented, to take advantage of this technology,” Laban said. “Right now everybody is concerned with radio frequency [standards], read rates, productivity issues. The burning question will be what kind of impact the technology can have on processes.”
For RFID technology to transform the supply chain — by delivering real time visibility into the movement of goods without human intervention — product data must be cleaned up, he said. Data integrity problems internal to an organization, and data that’s unsynchronized with trading partners, must be addressed before RFID’s supply chain promise can be realized. “A full-scale deployment is going to require a lot of data cleansing among companies,” Laban said. Otherwise, RFID will only succeed in delivering bad, unusable data, faster.
The data integrity problem affects nearly all companies, particularly mature organizations whose data management processes were modified over time, creating undue complexity and tainted information.
CBD’s test also underscored the importance of committing to technology standards for equipment and communications protocol. “We don’t think the company has time and money to [move ahead] with proprietary technology,” he said.
Laban said the test helped to establish parameters for calculating a return on investment and the company is now validating those parameters in terms of labor and productivity.
Tandy’s RFID Ramp Up
While suppliers in the “Wal-Mart 100” grumbled about being forced to comply with their top customer’s RFID mandate, Tandy Brands Accessories stepped up to become one of 37 companies outside the top-tier 100 to voluntarily participate. Tandy will spend about $100,000 this year on RFID tags and the tagging process on behalf of Wal-Mart.
If cynics concluded that Tandy was motivated only by the desire to remain in good graces with Wal-Mart, from which it derives 38 percent of its revenues, they didn’t know what Tandy had cooking behind the scenes. As far back as 2000, in the pre-RFID-hype days, Tandy began an ambitious enterprise resource planning, or ERP, initiative that would ultimately integrate all its business systems — from accounting and financials to distribution, sales and warehouse management. Some five years later — on Feb. 1, 2005 — the system was fully deployed and now Tandy has complete visibility into all its business processes, said McMasters.
The significance of Tandy’s ERP rollout to RFID technology cannot be underestimated. The solid, integrated infrastructure permits the company to better understand its own business processes and identify where RFID could play a role to gain efficiency. In the more immediate term, the ERP system positions Tandy well to respond to its customer’s always-changing requirements. If, and when, more retailers require suppliers to tag merchandise with RFID, Tandy will already have the infrastructure in place to support that task. Tandy has another major customer in Target, from which it derives 12 percent of its revenues, but Tandy is not yet shipping RFID merchandise to Target.
“It enables us to be agile,” McMasters said of the ERP system. “Agile is the word.
“I can tell you, three or four years ago it was a nightmare trying to keep up with customer requirements. They were changing so fast that we’d find ourselves working very hard just to keep a half step behind. I don’t want that,” he added. “I want to be ahead a half step or better.”
Key components of Tandy’s ERP system include warehouse management technology from Manhattan Associates and accounting, sales and supply chain management systems from Geac.
McMasters said Tandy has deployed RFID for outgoing shipments to Wal-Mart only but could begin using the technology to enhance its own business processes as early as this year. Item-level RFID tagging holds great promise to recapture sales lost as a result of stockouts, he said, but that’s in the longer term.
“There is an intermediate gain that could happen sooner, and not all customers can dance this one,” McMasters said. Wal-Mart said it will be able to transmit to Tandy, through RFID, movement of goods at four points in the supply chain: receipt at Wal-Mart’s distribution center, departure from the distribution center, arrival at the store’s back door and exit from a store’s back room onto the sales floor.
“Those four transactions would be very interesting to us and we already have the [technology] modifications in place to use that data” to support a vendor-managed inventory relationship. With Tandy monitoring goods’ movement right to the store level, it could cut orders to replenish stock for Wal-Mart.
“This would be a big shift and a tightening up of the pipeline,” he said. “We know there are goods stagnating and we want to understand that so we can manage the pipeline with our customer. We’d like to be as smart as they are.”