Supply Chain: Connecting the Dots

5/1/2004

Retailers harness collaborative technologies to deliver better consumer value

At our recent RIS News Retail Executive Summit, supply chain technology and collaboration issues surfaced throughout the event, from networking lunches and topic table discussions on RFID and supply chain transparency to presentations from the stage. RIS recognizes that these areas of discussion are of keen interest to retailers.

What follows is an executive summary of an important new report from A.T. Kearney and Kurt Salmon Associates on connecting the dots in the collaborative supply chain, from data synchronization to standards, by harnessing powerful supply chain technologies to ultimately deliver a greater value proposition to consumers. Based on comments we've heard from retail executives on this issue, we wanted to share this overview of the report with our readers and provide you with the information needed to request the comprehensive report from its authors.
- John Hall, Senior Editor

Background
Data synchronization is moving forward but much remains to be done, both in the United States and globally. Companies must continue to drive implementation of data standards, item registry and data synchronization. This must remain a top priority even as new collaboration-enabling technologies, such as Radio Frequency Identification (RFID) and the Electronic Product Code (EPC), begin to take center stage. Without Global Data Synchronization (GDS), the future of collaborative technologies, including EPC, is uncertain.

To address the connections between GDS and EPC, the Industry Affairs Council of the Grocery Manufacturers Association (GMA), along with the Food Marketing Institute (FMI), and National Association of Chain Drug Stores (NACDS) engaged A.T. Kearney (ATK) and Kurt Salmon Associates (KSA) to perform industry research and publish the findings. The result is the action plan to "Connect the Dots."

Findings
Interviews with more than 100 executives from more than 80 organizations revealed that the stairway model for electronic collaboration published by the GMA/FMI Trading Partner Alliance in 2002 remains a valid model. Additionally, it is broadly accepted that the three foundational steps built through GDS must be completed to realize the full benefits of electronic collaboration. The findings regarding GDS were consistent:

1. There is broad consensus that GDS, using UCCnet as the single global registry, is the right path forward. However, many elements of GDS are only now beginning to take shape, including direct store delivery (DSD), and perishable, private label and extended attributes, such as price, promotion and image.

2. Major benefits will only be realized with broad trading partner participation. Savings by any one company will depend on its ability to encourage its trading partners (customers or suppliers) to be part of the collaborative solution — the so-called "network effect."

3. While many companies have subscribed to UCCnet, less than 1 percent of global sales involve registered and synchronized products. Companies must continue data synchronization efforts through UCCnet and actually publish and subscribe to data on the GLOBALregistry. The metric should be changed from simply counting the number of subscribers to UCCnet, to tracking the sales volume transacted.

EPC holds the promise of building upon EAN.UCC barcode technology. By shifting from graphic-based to electronic codes, EPC will create dramatic cost savings, while revolutionizing the way trading partners interact. The findings regarding EPC were consistent with the state of technology and reflected a strong interest and commitment to implementing RFID.

1. The EPC code should be adopted as the global standard for electronic product identification. Numerous consumer packaged goods (CPG) manufacturers and retailers are piloting EPC. To date, the pilots have strongly confirmed the promise of EPC and, while media coverage has created some misperceptions about the timing and cost of certain EPC applications, it is clear from our interviews and research that EPC is coming quickly and that its impact will be profound.

2. Pallet- and case-level applications of EPC will be widespread within three years. EPC adoption rates will vary by company and product type. Product characteristics, such as item cost, out-of-stock sensitivity and safety assurance will cause some products to shift to EPC more quickly than others.

3. Maximizing the benefits of EPC will require the strong foundation of GDS. EPC fits naturally on the electronic collaboration stairway and requires the initial steps leading to trading partner data synchronization. It is imperative for the industry to ensure the time and capital investment in EPC does not diminish the strong commitment to move forward with GDS.

The last finding on EPC is critical, as this study indeed confirmed the "connection between the dots."

1. GDS is still the number one priority. GDS early adopters are just now beginning to realize the benefits of synchronizing data. While the benefits are significant, these companies found that time and investment is required to clean up internal systems and re-engineer processes to exploit GDS.

2. GDS is foundational to EPC. Companies must pay the price of GDS implementation before the collabor-ative benefits of EPC can be realized. Without GDS, EPC technology represents nothing more than a more expensive barcode.

3. Companies should begin exploring the EPC possibility now. Regardless of business type, companies must start defining a business case for EPC. As with those companies that have implemented GDS, moving forward with EPC will put additional demands on resources and infrastructure. New standard-ization challenges put a premium on industry collaboration and project coordination.

Recommendations
Connecting the dots to achieve promised benefits requires individual company and industry-wide action. The ATK/KSA report provides detailed action plans for companies, standards bodies, industry organizations and solution providers. Recommendations are summarized as follows:

Manufacturers, Retailers and Third-Party Service Providers
1. Commit to the Global Data Synchronization vision and define a systems plan for implementation.

Evaluate and establish timing for subscribing to UCCnet.
Evaluate master item data storage and plan architecture for the future.
Identify and prioritize categories for implementation.

2. Cleanse data and secure partner agreements.

Determine and implement required data remediation and cleansing.
Set outsourcing strategy and if applicable, select partners: integration, data pool/catalog, messaging.
Coordinate rollout with trading partners along product categories and lines of business.

3. Adopt enhanced metrics for measuring GDS and include on corporate scorecard.

What percent of my data is ready to be loaded to or from UCCnet?
What percent of my data is loaded into my data pool?
By supplier, what percent of the items carried is available through the registry?
What percent of my sales volume is based on synchronized item data?

4. Form a cross-functional EPC core team.
RFID and EPC may touch every aspect of the organization; include all appropriate functions.

Manufacturing, packaging, transportation, distribution
Merchandising, store operations, loss prevention, store planning/construction
Sales, customer service
Marketing, finance, inventory planning, IT

5. Assess the attractiveness of EPC applications.

Identify value chain pain points that can be relieved.
Evaluate various applications' attractiveness based on cost effectiveness (tags and infrastructure) and payback, ease of implementation and organization readiness.

6. Develop EPC business cases and pilots (including training and budgets).

Pilots afford companies the opportunity to assess true benefits and costs.
Business cases should be updated with pilot results to reflect experience and learning.
Recognize the importance of education in ensuring benefits are fully realized.

7. Inventory and evaluate existing wireless systems for potential interference problems.

RFID systems require careful planning to avoid interference.
Companies must plan to encounter issues to resolve.

8. Join EPCGLOBAL.

Share in the wealth of knowledge as it develops.
Participate in setting the direction for future developments.

Industry Associations and Standards Bodies

1. Promote enhanced GDS metrics.

Incorporate proposed scorecard metrics into surveys, studies, and other industry work.

2. Ensure "in process" standards are finalized and implemented (e.g., price/promotions, DSD, private label and others).

Standards must be developed in a timely fashion to support industry movements and adoption.
Industry segments awaiting extended attributes and additional business models are ready. Organize their involvement and energy to push standards forward.

3. Accelerate standards development for additional product areas not yet supported.

Today's diversified retailers and mass merchants need a system that works across all product lines.

4. Encourage exchanges, EAN member organizations, and country and data catalogs to embrace the GDS vision.

Continue to clarify and define the role of industry bodies in the GDS and EPC networks.

5. Endorse EPC as the global RFID standard.

The industry needs one standard to ensure the lowest-cost, globally accepted solution.

6. Develop a response to consumer privacy and safety concerns about EPC.

Aggressively publicize development work on privacy options.
Communicate realistic and valued eventual at-home benefits.

7. Aggressively promote the concept of open standards for RFID.

Specifically, frequency protocols and product identification and current critical standards.

Solution Providers

1. Ensure GDS offerings are focused and easy to understand.

Companies will embrace GDS only when they understand the complete solution and each party's role.

2. Embrace GDS vision with open, non-proprietary solutions.

Resist the temptation to differentiate through nonstandard solutions.

3. Focus on customer requirements and consumer benefits.

4. Accept GDS as a complement, not a competitive threat, to EPC solutions.

Implementing EPC without synchronization of the underlying data will limit the payback value of EPC.

5. Embrace the concept of open standards and join EPCGLOBAL.

Join industry leaders in moving EPC into high-value commercial use in a standard, open manner.

The full report "Connect the Dots" was published January 2004 by A.T. Kearney and Kurt Salmon Associates. A.T. Kearney is a corporate-focused management consulting firm with offices in more than 35 countries in Europe, Asia Pacific, the Americas and Africa. From concept to consumer, KSA helps clients in the Americas, Europe and Asia-Pacific. For more information about the report and the companies, visit: www.atkearney.com and www.kurtsalmon.com.