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01/12/2012

RFID Moves Forward By Stepping Back in the Supply Chain

2012 could well be a banner year for item-level Radio Frequency Identification (RFID) tagging in the apparel industry. Companies eager to improve inventory tracking and visibility as well as potentially drive increased sales and reduce labor costs are embracing the idea of item-level RFID at a fast pace. Indeed, global sales of item-level RFID systems to apparel companies are expected to approach $125 million by the end of 2014, according to ABI Research.
 
Today’s item-level RFID tags are a technology enabled by the Electronic Product Code (EPC) — a GS1 standard that provides robust identifying information about specific products. The use of EPC, in place of proprietary numbering schemes, is helping to take RFID to the next level.
 
“With EPC, you know that a specific product is not just a jacket, but a $500 leather jacket that came off the production line on Tuesday, March 23rd at 4:16 PM,” explains Patrick Javick, vice president, industry engagement, apparel and general merchandise at GS1 US, an organization that develops worldwide standards and solutions for global data synchronization. “Also, using EPC, companies know exactly how that jacket got from the production line to the DC and then to the store.”
 
GS1 US is playing a pivotal role in helping to boost the adoption of EPC-enabled RFID among the apparel industry. As the standards organization responsible for EPC, they have been working closely to ready retailers and their suppliers for EPC-enabled RFID initiatives. “We are focused on helping companies understand the basics about the technology and how to use it successfully; organizing their teams in order to prepare for an effective deployment of the technology; and using the information from those tags in a way that can help them effectively manage their inventory,” explains GS1 US senior vice president Gay Whitney.
 
Macy’s sees the magic in RFID
One apparel retailer taking the item-level RFID plunge this year is Macy’s. The department store giant began piloting the technology at its Bloomingdale’s store in New York City’s Soho about two years ago, then expanded those pilots to seven additional locations as well as its furniture and bedding distribution centers. Throughout the course of 2012 and 2013, the company hopes to deploy item-level RFID tags and readers in all stores nationwide for the purpose of inventory and cycle counting in its replenishment business, which represents roughly 30 percent of sales.
 
“During the first and second quarters of 2012, we’ll deploy the basic infrastructure and begin equipping all stores with the required handheld technology and tagging stations. Concurrent with that, we’ll be working to ready our suppliers across our replenishment businesses in men’s clothes, men’s basics, shoes, and intimate apparel,” explains Bill Connell, Macy’s senior vice president of logistics and operations.
 
Macy’s main goal with item-level RFID tagging is to enable stores to take more frequent inventory counts, in order to keep physical inventory files at a high level of accuracy. “Currently we count inventory once or twice a year, and this RFID initiative will enable us to count once or twice a month,” says Connell. “Inventory item files tend to deteriorate at two to three percent per month, so if you count inventory in January, by the time you are halfway through the year you could be as much as 18 to 20 percent distorted in your physical inventory accuracy.” Conducting cycle counts once or twice a month instead will allow Macy’s to achieve 97 percent to 98 percent inventory accuracy.
 
“We base all of our re-orders for replenishment product off of those inventory files and our rates of sale, so item-level RFID tagging will give us a much more accurate way to stay in stock in the right size, right color and right style of replenishment product,” Connell adds.
 
RFID from the source to the store
In addition, Macy’s is a proponent of the next frontier of EPC-enabled item-level RFID — what GS1 US and the industry overall are calling the “source-to-store” approach. The idea? To move forward with RFID by moving back in the supply chain.
 
Because retailers like Macy’s are the final stop in a long and multi-player apparel supply chain, it makes sense to begin item-level RFID tagging at the “source,” which reduces costs and allows the benefits of RFID to spread throughout the supply chain. The industry-wide approach espoused by GS1 and early adopters such as Macy’s is to make item-level RFID as much a part of the natural manufacturing process as possible.
                                                                                                          
For Macy’s, that means integrating RFID technology into the UPC ticket. “We believe that the supply chain is best served if the technology is applied as far upstream as possible, specifically at the point in time that the UPC tags are affixed to items,” Connell explains. “By making item-level RFID tagging part of the UPC ticketing process, it is more cost-effective for manufacturing because you are not adding another touch into the process. The same labor that currently applies the ticketing will apply the RFID.”
 
The cost of the labor to add the RFID tags at an overseas manufacturer is also far cheaper than it would be in a U.S. DC, adds GS1’s Javick. “In addition, tagging at the source allows more granular visibility into product and product movement. The same EPC tag will be used in manufacturing, customs clearance, inbound receipt at the DC, and outbound to the retailer, so companies gain greater inventory capability as well as quality assurance on what is being sent and delivered,” he explains.
 
“Currently, there isn’t a lot of interoperability in the standards such that companies can have visibility across the entire apparel supply chain,” adds GS1 CEO Bob Carpenter. “Companies utilize different ERP systems, and have competing communication or identification mechanisms, so being able to set up visibility across that entire supply chain will really help all those organizations carry less inventory, better manage cash flow and be faster in how they respond to consumer needs.”
 
Coming together to drive results
The industry is also coming together to help make the source-tagging process easier and more beneficial for suppliers, which is likely to boost the speed with which item-level RFID initiatives succeed. The Voluntary Interindustry Commerce Solutions (VICS) group, for instance, has developed an Item-Level RFID Initiative to establish a course of action for the adoption of EPC-enabled RFID technology throughout the retail supply chain.
 
GS1 and Macy’s are both part of this VICS mission, which is working on solutions such as a common approach to where to place RFID tags so that each retailer is not asking its suppliers to do something different. “Suppliers can benefit from the technology faster if they are not tailoring it to each specific retailer,” explains GS1’s Whitney.
 
Also in this VICS group is Hong Kong-based global apparel sourcing, manufacturing, and distribution company Li & Fung, which has been an active proponent of the importance of item-level RFID for supplier partners. Li & Fung has worked closely with GS1 US’s sister organization, GS1 Hong Kong, in reaching out to the apparel manufacturing hub in China and Hong Kong to help them understand the benefits of EPC-enabled RFID. “Li & Fung has been a leader both from a technical perspective as well as a supply chain perspective in understanding and advocating the benefits that item-level tagging can bring to supplier partners,” Whitney notes.
 
Getting supplier partners onboard is key to moving the entire apparel industry forward in its embrace of this initiative. “I can’t overstate the importance of the whole industry moving forward at the same pace on EPC-enabled item-level RFID,” notes Carpenter. “Companies like Macy’s and Li & Fung who are making investments in this technology need to know that the industry is going in the same direction. You don’t want to look back and find that no-one is following you.”
 
When the apparel industry embraces this “source-to-store” approach, the end result is what Connell of Macy’s calls a win-win-win scenario. “The first win in this use of item-level RFID tagging is having the right product in the store for the customer,” he explains. “That generates additional sales, which is a win for the retailer, which, in turn, generates additional replenishment orders — a win for the supplier.”
 
Amy Roach Partridge is a New York-based Apparel contributing writer specializing in business and technology.