Shelf evident

21 June 2006



The impact RFID and other supply chain technologies like EDI and ERP can have on shelf availability and the importance of accurate supply chain data in ensuring the right goods reach the right store at the right time were the key themes at a recent GS1 UK conference in London. Jonathan Baillie reports.


Opening the conference, event chairman GS1 UK chief operating officer Gary Lynch told delegates that, in his view, good on-shelf availability was the single most decisive factor in determining the winners and losers in today’s cut-throat FMCG retailing environment. Tesco’s claim that its stores average 95% on-shelf availability was, he believed, one of the main reasons why it currently tops the UK supermarket league table, while Sainsbury’s ceo Justin King had put good “on-shelf availability” at the top of his “Fix the Basics” priorities in the company’s 2005 annual report, no doubt acutely conscious of the damaging effect adverse media coverage of Sainsbury’s earlier supply chain problems had had on its reputation.

The conference’s first speaker, Unilever project manager, supply chain innovation, Catherine Lord, considered the vital importance of good shelf availability from an FMCG manufacturer standpoint. She believed technologies like RFID could dramatically impact on “key day-to-day essentials” such as ensuring retailers receive the correct product metrics (dimensions) from suppliers and guaranteeing that the EAN codes and product descriptions of goods arriving in store actually match the data on shelf-edge labels.

Inaccurate product metrics where, for instance, a retailer believes the product it is due from a supplier measures 10cm3, when in fact the correct pack size is100cm3, would, she said, initially result in huge problems for shelf replenishment staff, before subsequently culminating in goods being rejected and returned to suppliers. Similar problems could occur should a pack’s Global Trade Identification Number (GTIN) code be incorrect. In both cases, she said the result would be “unhappy retailers, very unhappy manufacturers and extremely unhappy customers”. Lord believed RFID could “not only obviate much unnecessary manual data input” but would also help ensure that the right product, in the right quantity, arrived in the right condition at the right store at the right time”.

Echoing a view repeated by many later speakers, she said shoppers were “very emotional people”; research had shown that, on finding a product out-of-stock, 37% would visit another store, 19% would substitute another brand, 6% would not purchase at all and a further 22% would delay buying. The impact on a retailer’s bottom line could be dramatic: figures published by ECR (Efficient Consumer Response) UK showed, for instance, that in 2004, £2.4bn of business was lost by UK retailers due to poor availability, representing a staggering 2% of the turnover of the entire UK grocery sector that year.

In conclusion, Lord foresaw saw “huge opportunities” for RFID to improve on-shelf availability, but believed the technology’s benefits could only be fully realised if companies first “adopted and adhered to global data standards, worked to change their business mindset, implemented rigorous and robust data management processes, and automated data processes as much as possible” – as she put it, “realising that data accuracy can be sexy”.

The next presenter, Colm Maloney, senior sales executive at supply chain specialist Yantra A Sterling Commerce, said while “ supply chain complexity was already rife”, FMCG companies’ increasing tendency to outsource both logistics and manufacturing now meant “unprecedented challenges in bringing ERP, EDI and other data systems together”. A lack of co-ordination and communication between different supply chain partners could “lead to major inefficiencies, poor shelf availability, and significant knowledge gaps about where goods are”. “One leading CPG company told me recently it has 150 warehouses throughout Europe and doesn’t know the inventory situation accurately in any of them,” he said. While this was “not typical”, there was “ a major opportunity for companies to differentiate themselves via good shelf availability”.

Next on the platform was Jason Cowell, business development manager, Cisco Systems, who examined how retailers and manufacturers could “reduce shrink to improve profitability”. With retailers typically enjoying low double digit or single digit margins, Cowell believed identifying the causes of, and tackling shrinkage, whether by reducing employee or customer theft, cutting waste of perishable goods or “via a whole host of other measures”, was “more important than ever”. Shrinkage rates ranged from less than 1% (in consumer electronics) to around 4% in “high end speciality goods”, with perishable goods still accounting for around 50% of all reported retail shrinkage.

Cowell said significant barriers still to be overcome in reducing “shrink” included “siloed” data – i.e. the inability of non-proprietary data collation and management systems to “talk to eachother”, the fact that many store managers still analyse large volumes of data manually (“they simply don’t have the time to identify the major causes of shrinkage”), and an absence of any common data analysis format, even within large retail groups.

He added: “Retailers have generally been slow to adopt new technology, but over the last 4-5 years take-up has accelerated inexorably, and they now have a magnificent volume of data. What’s needed is to consolidate it into one standard format; otherwise it’s useless.”

Cowell believed RFID’s biggest impact on reducing shrink would occur with item-level tagging, which he forecast would be widespread by between 2010 and 2015. With tag prices having dropped “very significantly”, he predicted a major growth in RFID’s back-of-store use in the next two years. As evidence of how RFID can impact positively he pointed to a recent Wal-Mart study in which vital in-store criteria such as on-shelf availability were analysed over several months in12 RFID-equipped and 12 non-equipped stores to gauge the difference the technology could make. The results showed many benefits; for instance out-of-stock items were replenished three times faster in RFID-enabled stores.

Meanwhile, one of the world’s biggest personal care brands, Gillette, reportedly estimates it has already seen a 25% ROI in areas including factory productivity savings and improved on-shelf availability through deploying RFID to date.

The vital importance of accurate data collation, handling and transmission was also the theme of the Deloitte partner Matthew Stephenson’s presentation. Stephenson said that, with the substantial additional data volumes set to be generated by RFID, systems like Global Data Synchronisation and EDI would play an increasing part in ensuring international trading partners could “talk to eachother using the same language”.

Currently, many organisations had “no clear data management strategy”. Their problems, which would need to be overcome to realise the full benefits of technologies like RFID, included a lack of clearly defined roles and responsibilities in dealing with, and managing data, inconsistent standards compliance, and “labour-intensive, error-prone business processes for sharing product data with customers”. “The impact of bad data is multiple inefficiency throughout the supply chain,” he said, adding that one multinational manufacturer had revealed that 27% of all its customer service “failures” were attributable to “bad” data. Another company reported 136 errors in just 78 GTINs. In contrast, Stephenson said it had been proven that improved data quality could bring a 5-10% reduction in time reconciling invoices, a 0.5-1% reduction in inventory holding, a 5% reduction in customer handling time, a 1% cut in logistics costs, and a two-week faster process for getting new goods to market.

The next speaker, director of retail supply chain solutions at Symbol, René Schrama, was confident many of the technical challenges surrounding successful RFID implementation – such as its interaction with metals and liquids – “can and will be overcome”. “RFID is simply a technology – a means to an end,” he argued. “It’s how we harness its capabilities over the next 5-10 years that matters”.

Schrama’s statistics on out-of-stocks suggested that globally, they were running at an average 8.3%, or double this during promotions, resulting in a 4% sales loss for the retailer. “RFID can potentially make a major impact on these figures,” he said. “ In addition it could enable large retailers to significantly reduce the $40bn in excess stocks they carry annually.”

Schrama said “a huge amount of work” had already gone into optimising supply chain planning so “by and large” most goods reached stores “fairly efficiently”. “Where there’s massive room for improvement is in the last 50 yards, from backroom to shelf,” he told delegates.

While it would not suit all FMCG goods, Schrama said there were already examples of item-level RFID proving its benefits. Alongside pointing to initiatives by major pharma companies like America’s Purdue Pharma (which has established the world’s first RFID based electronic drug pedigree system – RFID Solutions, Autumn 2005), he referred to the Wal-Mart study highlighted by Cowell, where two of the many reported benefits in RFID-equipped stores were a16% reduction in out-of-stocks and a 10% reduction in manual orders.

Schrama concluded by arguing that, although RFID would, in future, play a big part in achieving the ultimate “Holy Grail” of 100% on-shelf availability, there were many other areas where improvements in current supply chain practices could have a dramatic impact. He focussed particularly on the typical “push” logistics model used by retailers and manufacturers, where forecasts of sales demand drive the entire ordering process, arguing that a “pull” system, where data from the store’s electronic point-of-sale system “triggers everything else”, would, in practice, “deliver far superior results”.

“The ultimate goal should be a system where real times updates from the EPOS system provide instant shelf- stock visibility,” he concluded. “ On-shelf availability is a serious business; because in the end, as we all know, it’s all about money!”


“One multinational manufacturer revealed that 27% of all its customer ... “One multinational manufacturer revealed that 27% of all its customer ...
“RFID could enable large retailers to significantly reduce the $40bn ... “RFID could enable large retailers to significantly reduce the $40bn ...
“Good on-shelf availability was the single most decisive factor in ... “Good on-shelf availability was the single most decisive factor in ...


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