Data Synchronization, Consumer Focus Among Keys To Managing Transition To RFID, According To A.T. Kearney

Consulting Firm Outlines Nine Key Steps For Manufacturers and Retailers During 2004-2007 Transition Period

HostReview.com
Tuesday, March 9, 2004; 12:00 AM

CHICAGO -- Consumer product manufacturers (CPG) and retailers looking to navigate an expected four-year transition period as the industry adopts radio frequency identification (RFID) tags should focus on key areas including data synchronization and finding uses that deliver meaningful benefits to consumers, according to a new report from management consulting firm A T Kearney.

A.T. Kearney has been at the forefront in helping the retail industry analyze the impact of electronic collaboration among trading partners. Since 2001, the company has led three studies for the Grocery Manufacturers of America and the Food Marketing Institute, examining the impact of common data standards across retailers and manufacturers. A November 2003 A.T. Kearney study was the first to calculate the cost of RFID adoption for CPG manufacturers, pinning it at roughly $33 million annually for a $5 billion manufacturer.

A.T. Kearney’s new report, RFID/EPC: Managing the Transition, sees 2004 through 2007 as critical years, as the industry rushes to adopt RFID in response to a mandate from Wal-Mart. Specifically, 2004 and 2005 will see many test programs as retailers, CPG companies and technology vendors learn what RFID can do. By mid-2006, A.T. Kearney anticipates that clear winners will emerge from the numerous vendors now developing the technology. During this transition period retailers and CPG manufacturers must closely collaborate on RFID trials and not risk money or consumer goodwill on uses that don’t provide a clear consumer or business benefit.

“Retailers and CPG companies must avoid focusing too intently on the ways RFID tags can be used and instead stay focused on how RFID can improve consumer value and address complex business issues,” said Dave Donnan, A.T. Kearney vice president and author of the report. “Companies need to be realistic in their approach to adoption and concentrate on using RFID to achieve maximum benefits such as reduced out-of-stock items and labor cost savings. Technology implementations in the retail industry always take longer than anticipated.”

According to A.T. Kearney, companies looking to successfully navigate the RFID transition period should focus on nine key areas:

Complete data synchronization efforts. Many manufacturers and retailers still exchange inaccurate product data despite industry efforts toward standardized data formats. A.T. Kearney’s analysis for the GMA and FMI found companies can gain $1 million in additional earnings for every $1 billion in sales through data synchronization. Even more significant, without data synchronization between trading partners, much of the data exchanged using RFID will be wrong.

Promote consumer-level benefits. Consumer concern about privacy issues surrounding RFID can be attributed to miscommunication and lack of understanding about the technology. Rather than tout the intangible cost saving benefits to consumers, retailers should focus on testing RFID applications that will clearly improve people’s lives. Examples include easier item traceability for food safety, control of counterfeit products -- particularly drugs -- and providing easier access to warranty information.

Solicit other supply chain partners. For most manufacturers, one retailer, no matter how large, will not be enough to justify the expense or generate the enterprise-wide benefits of RFID. Achievement of supply-chain-wide inventory visibility and retail in-stock position benefits requires wide adoption of the technology.

Manage parallel systems for several years. Inventory management systems will need to be agile enough to accommodate a variety of data capture technologies, from bar codes to RFID, during the transition period.