Implementing RFID Technology for Improved Inventory and Supply Chain Management

Executive Summary

Metro has taken initiative to implement RFID tagging to better track its inventory and improve its supply chain management. The palette level tracking which has been implemented at certain stores has proven beneficial and now Metro is considering case level tagging. Given the cost savings, improvement in inventory and store level performance, the case level tagging would yield higher savings as compared to palette level tagging. Since RFID technology is evolving very fast the primary cost – price of tags, would decreases significantly and thereby would increase ROI.

Therefore, with the assumptions case level tagging is recommended over palette level tagging.

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In-Store Logistics Problem

One factor that contributes to in store logistic problems is on shelf availability of products. There’s about 6% to 10% out of stock rate in grocery retailing and that is a major problem in loss of revenue and potential loss of customers. The cause of this problem could be that the inventory already exists in store but the in store inventory system is not sophisticated enough to prevent the problem. RFID, however, can help improve inventory data accuracy and stock visibility.

Another problem is promotion compliance – because of the numerous promotions going on per store, the stores lack the resources to carry out all the events effectively and that could result in manufacture dissatisfaction due to unsatisfactory promotions. Using RFID can help in pallet and case level by giving accurate stock information so manufacturers can see how their promotions are doing as well as if markets are holding their end of the bargain. Finally, RFID can improve problems in productivity and labor efficiencies. One problem is workers unable to locate items to physically scan them with traditional readers.

With RFID, the worker just needs to be within the vicinity so no extra work needed to identify correct pallet from within a case. Another labor problem that arises is too much manual work done by workers to scan items when they arrive, with RFID, the pallets can just arrive on location and just be unloaded instead of manually inspecting codes by workers.

Process Flow of the Supply Chain

Upon production, the assembly of the pallets is conducted at the manufacturer’s plant. The pallets are stored either at the manufacturer’s warehouse or are shipped to a distribution center (DC).

From the DC the pallets are either shipped to one of Metro’s DCs or directly to a Metro store. At the Metro DC pallets are either kept as they arrive or get unbundled and repackaged as mixed pallets. Every pallet contains from 60 to 80 cases with some exceptional cases of 900cases/pallet. The above flow requires high labor force. As a next step, the stock room determines how much of the product should be moved directly to the sales floor and how much needs to remain in the stock room. There are cases where products marked for the sales floor had to be returned back to the stock room due to lack of display space.

The products displayed at the sales floor are also relocated for promotional events. A retail store receives shipments either directly from the manufacturer or from a variety of Metro DCs. In addition to the various locations the shipments originated, the size of the pallets, the pallet mix, the randomness of the delivery schedules there are also cases where a product has to be returned for quality issues or product damage.

Business Process Optimization at the Pallet Level

The major difference between barcodes and RFID tags is that RFID tags do not require a direct line of sight for scanning and processing. This leads to major process automation wherever the process scanning is required, e. g. scan barcode on pallet, scan storage barcode to verify location, forklift driver scans barcode on pallet etc. Whenever a pallet is within a read range from an RFID reader, the scanning automatically takes places, therefore, the employee doesn’t have to physically locate and scan the tag. Apart from that, RFID tags can store information about the object itself (location, case counts, etc. ).

This leads to major picking and truck loading process optimization. Whenever a pallet is created, the number of cases and pallet location can be stored in the tag and placed on the pallet. Pallet movement can then be detected by readers placed within the warehouse for improved warehouse visibility. This allows employees to locate the pallets quicker and reduce the time required to move pallets to outgoing docks for shipment. Inbound and outbound pallet inspection during the truck loading process becomes faster, more accurate, and requires less resource utilization.

RFID readers at the loading docks will be able to automatically check the identity of a pallet when it is moved onto or off the truck, eliminating in that way the need for manual scanning and inspection.

Business Process Optimization at the Case Level

Implementation of RFID tags at the case level reduces the need for forklift readers to count cases on the pallets as the case tags provide immediate signal notification of case count. As pallets are stored in the Metro DC for potential case mixing, current process flow is facilitated by improved efficiency of mixed-pallet picking.

In addition, RFID tags identify optimal picking paths for the employees or the best route to take through the warehouse when they search for the products that will consist of the mixed pallet. During shrink-wrapping, the need to label the mixed pallets is eliminated as case tags will verify and notify trucks (headed from Metro DC to Metro stores) for the pallet content. Case level RFID tags also eliminate the 1% mixed pallet case recounting process, a result of too many or too few cases being picked for mixed pallets or wrong cases altogether being picked.

The tags on the cases notify employees of improper inclusion or exclusion without the need for manual recounts. Process improvement is facilitated through more efficient shelf restocking at the store level. For the first time, employees have improved visibility of what is in the backroom, instead of relying upon memory of backroom items. This will help limit the stock outs but will also improve the inventory-ordering accuracy. Last but not least, storage mapping utilized in conjunction with case level RFID tags limits the time required for searching the replenishment cases.

When the point-of-sale data indicates that a shelf is empty, employees are notified that replenishment is required, have clear visibility of the number of that particular item available in the backroom, as well as the exact backroom item location.

Cost-Benefit Analysis

The cost benefit analysis for the implementation of RFID either at palette level or case level. In both scenarios, Metro would not be generating enough incremental profits as opposed to the investment.

Certain assumptions were made regarding average cost of tag, average number of pallets reaching DC and number of DC. In case of palette level tagging, manufacture is set to make huge savings per plant which is evident from per palette saving data as well. But for the case level tagging, Metro will be generating high incremental savings but not more than investment. Assuming that tags and portal bought by Metro runs for 5 years, Metro will break even on its investment in less than 2 years and would earn more than $11M savings per year thereafter.

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