Tremendous progress has been made in the realm of supply chain management since 1989 when Wal-Mart made point-of-sale (POS) data available to its suppliers. Initiatives in category management, vendor-managed inventory, direct-to-store delivery, electronic data interchange, advanced shipping notice, and collaborative forecasting replenishment have eliminated costs from the supply chain, improved inventory turnover, and increased sales.
Today, the battleground for maximization of supply chain performance has come to depend largely on execution in the last 100 feet the distance between the receiving docks of a retail store and its customer checkout counters. While new systems and technology have improved the visibility of goods from manufacturing to store delivery, they appear to fall into a “black hole” once they reach the retailer’s receiving dock, either directly from the supplier or through the retailer’s distribution center. The operational steps currently undertaken in the final 100 feet are burdened by inaccuracies, delays, and suboptimal in-store execution.
According to the management consulting firm VeriSign, nearly 70 percent of chain retail stores fall below compliance levels for key operational processes. Over 70 percent of out-of-stock (OOS) scenarios are the result of store staff’s inability to locate items in the store. Furthermore, an inexperienced and uncommitted workforce contributes to nearly 50 percent of the shrinkage issues that cost retailers, on average, two percent of sales.
OOS scenarios are usually the result of inaccurate inventory lists and product locations that lack visibility, causing shelf-outs and “can’t find” situations. Sales lost to competitors due to OOS total $93 billion, according to the 2008 store systems study produced by Retail Information System News (RIS) and research partner IHL Group. This study polled 124 individual retailers operating over 85,000 stores and earning a combined total of $460 billion in annual revenue. It found that “… if a retailer completely fixes the [OOS] problem, it could increase same-store sales by 3.7% by converting out-of-stocks into transactions. Put another way, the average retailer loses the equivalent of $3.19 for every transaction it makes, either through lost sales of specific items or by creating a situation where shoppers purchase nothing in the store, even though they came in to buy.”
The lack of adequate business processes and information synchronicity between trading partners as well as poor quality and turnover of part-time retail store employees truly exacerbate the problem. Some major contributors to operational problems at the store are:
- Less than 100 percent usage of advanced shipping notices (ASN) from suppliers
- Suboptimal receiving practices at the dock
- Lack of adequate product location and shelf replenishment systems in the back room
- Difficulty ensuring proper shelf placement of products that customers have scattered in the store
- Inaccurate product data exchange with supplier
- Difficulty taking frequent and accurate physical inventory
- Product theft
In other words, even if the supply chain does everything right, it does not ensure that products get onto store shelves in a timely and accurate manner. The “black hole” distorts the decisions made for replenishment, promotions, and returns management. The result is lost sales, excess inventory, receivables write-offs, and an overall high cost of doing business.
The oft-quoted “Bullwhip Effect” explains how small amplitudes in the last 100 feet of retail are considerably magnified in the supply chain upstream. That is, insufficient and untimely visibility of inventory has a disproportionate impact on stock-outs, inventory turns, product mix, promotional effectiveness, and product returns.
The resultant increase in the amplitude of the demand or on-hand inventory signal could range from 20 to 100 percent. While mass merchants and retailers are embarking on certain steps to mitigate the problem, a systematic approach is required wherein in-store operations and merchandising and information systems work together to overcome deterrents to both higher levels of customer satisfaction and profitability. Additionally, business intelligence and exception reporting through analytics can provide a compass to navigate through the black hole.
How Can RFID Solve the Last 100-Feet Dilemma?
Technology has come to the rescue. With Radio Frequency Identification (RFID) technology, the last 100 feet can now be managed and monitored effectively by the manufacturer and the retailer. Nearly four decades ago, the Universal Product Code (UPC) produced a unique DNA for the supply chain. Today, a new product numbering standard, the Electronic Product Code (EPC), in conjunction with RFID technology, goes far beyond simple product identification; it gives the ubiquitous barcode a makeover. RFID enables the retailer to monitor inventory and product movement between the dock and the checkout counter in real time to facilitate optimal management decisions.
Dr. Bill Hardgrave, founder and director of the RFID Research Center at the University of Arkansas’ Sam M. Walton College of Business, found that Wal-Mart saw a 16 percent OOS reduction in 2005, the year it launched RFID. In addition, for RFID-tagged items, manual reordering was reduced by 10 percent and replenishment was executed three times faster than for non-tagged items. By the end of 2008, Wal-Mart’s top 1,000 product suppliers will have complied with the retailer’s mandate requiring all pallets and cases to be RFID-tagged. Over 1,300 Wal-Mart stores are currently RFID-enabled.
At Best Buy International, the application of RFID on a test basis has resulted in an increase in on-shelf availability from mid-80 percent to 93 percent, with promotional availability even higher. Procter & Gamble used RFID to track its FusionTM razors’ placement on store shelves in 400 retail locations and was able to get the razors onto shelves 11 days faster than normal for product launches. British retailer Tesco is going one step further with RFID technology by introducing so-called “smart shelves” that record any changes as a product is removed from the shelf. In the future, such information may even help retailers interact with their customers as they navigate through the aisles of a store.
The establishment of business processes utilizing RFID data appears to be the next breakthrough opportunity at retail. Vendors of RFID technology are embracing the economics of these low-cost tags prices should fall to as low as 10 cents per tag in the not-too-distant future, depending on volume. RFID readers are already plentiful and range from installed systems in loading docks to readers embedded on forklifts to handheld models.
How Does RFID Work?
RFID technology, utilizing the EPC code, assigns a unique number to every single item that rolls off a manufacturing line, allowing every company in the supply chain, including retailers, to track products at the individual or case or pallet level. This means that every single item on a shelf can be traced back to its manufacture and sale (or to when it went missing).
Due to the enormous quantity of unique numbers required to track at the item level, the EPC utilizes a 96-bit numbering scheme. EPC tags are encoded with both the product identification and a unique serial number that has the potential to greatly reduce or eliminate the number of errors resulting from items not being counted or located properly. As this technology is further adopted, it will lead to automated in-store shelf replenishment and electronic proof of delivery, thereby reducing inventory write-offs that result in discrepancies between receipts and shipments.
An RFID system consists of a tag/label/PCB (printed circuit board), an antenna that communicates with the tag, and a controller that manages communication between the antenna and the personal computer (PC) or programmed logical controllers (PLC).
RFID employs radio frequency communications to exchange data between a portable memory device, a host computer, or PLC. An RFID tag/label/PCB contains a coil and a programmed silicon chip, and comes in a variety of sizes, memory capacities, and temperature ranges. Tags can be powered by an internal battery (called an “active tag”) or by inductive coupling (a “passive tag”). The antenna uses radio waves to read and write data to the tags/labels/PCBs, and the controller manages the communication interface between the antenna and a PC, PLC, or server.
The management consulting arm of VeriSign recently reported that the inventory of an RFID-enabled store was more than 99.5 percent accurate, as opposed to traditionally inventoried stores, which can be off by as much as 15 to 20 percent. In addition to realizing further sales, RFID greatly reduces the need for safety stock. Finally, the increased visibility of product movement and location provided by RFID makes it possible to compare actual inventory count and location against model stock, enabling proactive responses to potential OOS conditions.
Store Merchandising: Where the Rubber Meets the Road
In June 2007 at the second annual conference of the Entertainment Supply Chain Academy (ESCA), executives of major national merchandising companies provided unprecedented insight into the realities of in-store merchandising in the last 100 feet of the supply chain. They revealed that merchandisers are the unsung street warriors who touch and feel the weakest link of the physical delivery of goods across a wide spectrum of industries, such as entertainment, apparel, consumer electronics, financial services, and communication.
These merchandising companies, such as Mosaic, SPAR, Handelman, and Anderson, cover all product classifications and classes of trade, including mass market, drug store, electronic store, convenience store, and grocery chains. The broad array of services they provide and that impact the last 100 feet of the supply chain includes in-store merchandising, event management and staffing, promotion management, category management, auditing for vendor-managed inventory (VMI), fixture asset tracking, returns and recycling management, web-enabled visibility, and RFID technology solutions.
According to Jack Talley, vice president of sales and retail expansion at Sony Pictures Home Entertainment, the basic responsibilities of merchandisers include:
- Restocking replenishment product
- Setting all products on dedicated fixtures according to plan-o-gram
- Blitzing all new and promotional products on street dates
- Locating back stock and excess products every visit
- Executing revisions/change-outs and promotions
- Sending OOS reports after every visit
- Providing cycle counts and quarterly physical inventory counts
- Verifying price updates
- Processing all returns and pull-downs, and placing products to be returned in an easy-to-find location
- Performing fixture audits as necessary
The scanning of RFID tags or UPCs on products enables merchandisers to perform in-store replenishment, take inventory of exception items, and facilitate returns. The ease of capturing item-level RFID data enables rapid decision-making with accurate, timely, and more comprehensive data. Rather than unleashing a flood of RFID data, exception management with process controls produces immense value.
Responding to the challenges of the last 100 feet, Mark Heidel, vice president of business development at the home entertainment merchandising division of the $1.2 billion Handleman Company, says that his company has expanded supply chain and field services to overcome shortcomings in the final delivery of goods to retail shelves. These expanded services include:
Monitoring Suspicious Sales
- Utilization of software programs to study sales patterns and identify irregular selling patterns at the title level
- Deployment of field call visits to verify specific title inventory and reset as needed
- Visible client support along the promotional life cycle
- Timed field deployment to coordinate with promotional delivery
- Secured, verified, and reported promotion placement
- Utilization of a customized, drillable portal for relaying in-store merchandise information to client
OOS Reporting and Retail Adjustments
- Electronic OOS capture with UPC/EPC, with upload to customized portal
- Resetting of item discrepancies with retailers
Forward and Reverse Logistics
- Electronic returns process
- On-site returns invoice generation to eliminate discrepancies
- On-site product disposal documentation
- Customer and client support with respect to consumer buying patterns, promotional tools, and display and product feedback
- Market analysis of sales trends, high OOS stores, and ASN opportunities
- Monitoring and tracking of in-store fixtures and semi-permanent displays
- Reporting of overstock conditions
Kori Belzer at SPAR emphasizes that as a group, merchandisers can benefit from RFID technology. SPAR is currently conducting a pilot study in which corrugate displays are manually tagged and tracked once they leave the backroom and make their way to the selling floor. The system software provides data on how long the displays remain up, where they are placed, and whether or not they are moved. Customers can view an “Execution Map” online and watch as promotions hit the floors of store locations nationwide.
Merchandising staffers wear badges that are individually tagged with RFID to provide remote monitoring of in-store movements. The old notion of merchandising, with its quaint connotations of stocking, straightening, and dusting products, has been transformed into a world of handheld, web-enabled RFID scanners. It is these technology-driven merchandising capabilities that have begun to overcome some of the emptiness of the black hole.
Information Systems and Data Synchronization: The Holy Grail
With an information technology (IT) infrastructure in place at most companies, what is now most necessary to eliminate the black hole is greater collaboration among supply chain partners. IT transformation is required to synchronize POS, master, and other transaction data across the trading partners in the supply chain. Additionally, merchandiser information integration and RFID intelligence from additional data points at the retail level will provide disproportionately high value. The visibility, efficiency, and effectiveness of these processes, which cover the retail extremity of the supply chain, will have the most positive impact on the last 100 feet of the chain.
The opportunity today is to connect retail stores with suppliers to better monitor business activity in real time with greater accuracy and timeliness. The tools of business analytics and intelligence are readily available; POS information services, in particular, provide a critical link for visibility. The use of analytical tools and event exception management reporting will enable managers to deal with common execution deviations and failures in the last 100 feet. The resulting ability to respond in a timely manner to unexpected deviations in demand and on-hand inventory data will help mitigate the impact of unavoidable errors in forecasting and replenishment. Finally, the potential to gather additional points of product movement, made economically feasible by RFID, has major implications for enhancing management decision-making in the supply chain.
A major challenge of the existing business-to-business infrastructure is the maze of firewalls, systems, and applications that critical transactions must navigate to reach their final destinations usually order management systems or enterprise resource planning systems, where inventory replenishment takes place. Trading partners are made to muddle through disparate systems, platforms, operating systems, and configurations, resulting in misalignment, discontinuity in information flow, real-time or batch processing modes, time shifts, and data translation and accuracy issues. A concentrated effort to reconfigure the infrastructure for business process orientation by using service-oriented architecture (SOA), instead of the existing functional silos of excellence, will be transformational.
Multi-Pronged Strategy: The Key to Success
Improved business processes at retail, alignment with in-store merchandisers, synchronization of systems and data, utilization of analytics to respond to exceptions, and deployment of RFID technology will shrink the black hole.
The recent focus on increasing sales and reducing the costs of doing business within the last 100 feet is breaking down silos within companies as well as between trading partners. Executives in operations, information technology, sales, and marketing have found supply chain management to be a holistic approach for problem solving. In the process, supply chain agents have moved from being manufacturing-centric to consumer-centric. One is optimistic that the multi-pronged approach suggested above will soon become the strategy of CEOs of industrial enterprises, as only they are empowered to bring about collaboration amongst the functional departments of a company as well as with trading partners.
 Paul D. Mackinaw. “RFID: Lessons Learned from Mandate Compliance and Item-Level Pilot,” IRMA Supply Chain SIG Conference, March 8, 2006.
 Greg Buzek and Lee Holman. “Seizing The In-Store Opportunities,” Fifth Annual Store System Study 2008, Retail Information System News (RIS) and IHL Group.
 Hau L. Lee, V. Padmanabhan, and Seugjin Whang. “The Bullwhip Effect in Supply Chains,” MIT Sloan Management Review, 38, no. 3 (spring 1997): 93-102.
 Bill Hardgrave. “Show Me The Value: The Business Case for RFID,” Consumer Electronics Supply Chain Academy Conference, January 10-11, 2007.
 Based on discussions with Wal-Mart executives.
 Robert Willett. “The Future of the Consumer Electronics Supply Chain,” Consumer Electronics Supply Chain Academy Conference,” January 10-11, 2007.
 Devendra Mishra. “Supply Chain Management: The New Competitive Edge in the Global Marketplace,” paper, EMBA Program, Graziadio School of Business and Management, Pepperdine University, July 13, 2007.
 Mark Fisher, Mark Heidel, Jack Talley, Vic Hernandez, and Kori Belzer. “In Store Merchandisers’ Panel: Managing The Last 100 Feet,” Entertainment Supply Chain Academy Conference, June 27-28, 2007.