Case Study: Retailing Without Borders

When a $79 billion company talks, people listen. The Metro Group, based in Germany, operates retail businesses in 30 countries and counting, including recently taking over Wal-Mart's operations in Germany. Within this vast retail operation lies an information technology services division called the MGI Metro Group Information Technology, and within that division Dr. Gerd Wolfram, managing director, is responsible for Advanced Technologies, IT strategy and IT procurement.
While facilitating numerous IT projects at any given moment, when asked what his most significant IT project is right now Wolfram states simply: "RFID."

Wolfram, who holds a PhD in business administration and economics, has worked with the Metro IT department for more than 16 years. "I started in IT in the department store chain with responsibility for office communications and the help desk. I moved over to MGI in 1996." MGI now employs approximately 1,555 IT associates.

"We are the internal IT service company for our different brands operating department stores, grocery stores and other retail operations. "We operate a total of 2,400 stores in 30 countries," Wolfram explains. The Metro Group retail store banners include Metro Cash & Carry, Real hypermarkets, Extra supermarkets, Media Markt and Saturn consumer electonics stores and Galeria Kaufhof department stores. "We provide them with different IT services including supply chain, planning, POS systems, data warehouse systems, payroll, financial reporting and more."

But Wolfram's latest focus has been on the testing and development of radio frequency identification (RFID) technology. Despite skepticism and hesitancy within much of the retail industry, Wolfram remains a dedicated supporter of the technology and its potential benefits. Wolfram received initial exposure to RFID in 2000 when Metro joined the Massachusetts Institute of Technology (MIT) RFID research lab in Boston. In 2003 the company opened its RFID-enabled Future Store to great fanfare and instituted its first RFID rollout in 2004.

Moving to Gen 2

Metro has been working with 50 of its suppliers since 2004, installing tags and readers to RFID-enable the supply chain, from warehouse to store. With next-generation technology in place in 2006, "we are now preparing for a bigger rollout" in 2007, Wolfram states. "We will install more stores with RFID technology and we will have more suppliers ramped up."

But before initiating this expanded rollout, Metro took a step back and addressed some concerns regarding tag read rate and reader accuracy at the point of product distribution. In the fall of 2006, Metro conducted a test at one of its distribution centers in Unna, Germany. During the test, 36 dock doors were simultaneously loaded with pallets containing 62 cases of a variety of products. The goal was to determine if simultaneous readings would produce high-quality results.

"The trial was very successful," Wolfram says. "This is an important finding for supply chain applications in DCs because it means that both stationary dock door readers, as well as mobile readers on forklift trucks or in handhelds, can be synchronized to use the same channel." The tests demonstrated average tag read rates of more than 95 percent. Previously, time constraints and bandwidth regulations inhibited widespread RFID usage with a large number of simultaneous readers.

For the test, Reva Systems provided the RFID network infrastructure and Impinj, a semiconductor and RFID technology provider, amongst others, supplied the RFID technology to facilitate the project.

Focus on Globalization

Shifting its focus to country-to-country use of RFID is a natural next step for Metro. In 2006 the company began a pilot test to determine the effectiveness of RFID when tagged onto cartons of product before the cartons are placed into shipping containers. The pilot is testing the supply chain before and after shipments between China and Germany. The new Metro initiative, begun in October 2006, is called Advanced Logistics Asia (ALA).

Wolfram explains: "After 40 days of travel, we will receive the container, open it and, using the same reader, compare before and after shipping lists." If this project proves successful, the next stage would be to start the process with the suppliers, he notes.

As part of ALA, Metro teamed with GS1 to set up the Supply Chain Innovation Center in Hong Kong. The center features an RFID lab where retailers and suppliers can experience and test RFID under realistic conditions.

Once Wolfram proves an ROI for the ALA project at the container, pallet and case level, he plans to move on to item-level testing. The first items tagged will be apparel, he notes.

Although many industry experts and observers would raise an eyebrow to Wolfram's optimism about widespread adoption of RFID, particularly at the item-level, Wolfram expects the European apparel industry to be on board in the relatively near future. He's less optimistic about the supermarket industry coming online, though. "Supermarkets will take longer," he says. He predicts that the widespread use of RFID at the item-level will be prevalent in the European supermarket industry within 10 to 15 years, as well as in the U.S. "We don't do business in the U.S., but I would think it will be the same timeframe."

Alert to Consumer Privacy
One of the primary barriers to RFID implementation in consumer products is the issue of customer privacy. Consumer advocacy groups have raised concerns over the ability of the tags to be tracked after the items leave the store. In response to these concerns, companies like Metro and Marks and Spencer are running customer education campaigns to insure that consumers are informed about the use of RFID tags.

"We have signs around the store and on the products" letting customers know if items include RFID tags, says Wolfram. The company also publishes a frequently asked questions page on its Web site and several brochures to help consumers better understand the technology, its uses and its benefits. Moreover, the Metro Group has developed a De-Activator. This device permanently disables smart chips on purchased items. Marks and Spencer is using removable tags and has produced informational brochures for consumers, assuring them that the tags will not be scanned at checkout.

Once the full benefits of RFID are realized, Wolfram says, then privacy and other concerns will be assuaged. "The problem is that not all of the benefits are available right now," he notes. "RFID offers a big benefit for the retailer and the consumer. The consumer has to eventually understand this."

Workplace of the Future
In addition to its RFID initiatives, Metro is focusing on what it is calling the "workplace of the future," which facilitates better communication in the store via a network portal. "Every employee uses the portal and collaboration tools that create efficiencies in the work environment."

Collaboration also is the key element of a new initiative with suppliers. "We are developing a portal which will offer internal data to our suppliers such as RFID data and promotional information," explains Wolfram. The supplier portal was implemented in March of 2006 and received immediate positive feedback from the supplier community.

"They appreciate having more insight into what we are doing in the stores," notes Wolfram. "The more data they receive the better able the suppliers are to collaborate with our people."

Efficiencies created from improved supplier-retailer communication are numerous, according to Wolfram. "We expect to see less out-of-stock items, improved sales, better promotional planning and better product development."

A few of the areas Wolfram is focusing on inside the store include upgrading POS registers and shelf labeling systems. In addition, the retailer is rolling out self-checkout.

Three-Pronged Philosophy

Ongoing, Wolfram is focused on three primary areas as Metro continues to grow and expand into more countries: 1) RFID and a continued effort to create a more efficient supply chain; 2) Productivity improvements, in the form of employee portals and wireless communication devices; and 3) Supplier link, including enhanced collaboration with suppliers via the supplier portal and a greater focus on sharing store data.
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