Can consumer packaged goods manufacturers extract a return--on--investment from implementing Electronic Product Code tags at the case and pallet level?
The answer to that question will help determine the level of efficiency in the supply chain in the future. The EPC is an electronically coded tag that uses radio frequency identification (RFID) to provide real--time, automatic tracking of goods in the supply chain.
"We believe the EPC will enable the re--engineering of the supply chain, creating multiple benefits in efficiency, cost savings, improved customer service and greater product availability," says Dick Cantwell, vice president of The Gillette Co., Boston.
The stakes are high for CPG manufacturers. Wal--Mart Stores has been joined by Target, Albertsons, Tesco, Metro Group and a handful of other retailers, as well as the U.S. Department of Defense, in mandating that suppliers tag pallets and cases delivered to their distribution centers.
Just recently, EPCglobal US released the EPC Value Model. This report includes spreadsheet tools to allow CPG manufacturers to assess the value of implementing EPC technology based on their own business conditions. CVS, Metro Group and Wal--Mart Stores helped develop the report, along with Gillette, Johnson & Johnson, Kimberly--Clark and others. The report is seen as a milestone in the rollout of EPC tags.
"This is a foundational step for the EPC global community in understanding how value is derived from RFID implementation," says Mike Meranda, president of EPCglobal Inc., Lawrenceville, NJ. "It is the first widely available tool where a company can identify its own hot spots for RFID value."
EPCglobal is a joint venture between GS1 (formerly EAN International) and the Uniform Code Council (UCC). The not--for--profit organization aims to establish and support the EPCglobal Network as the global standard for real--time, automatic identification of information in the supply chain of any company, anywhere in the world.
According to Meranda, the model allows a company to input its own data. Then, the model helps project and quantify where value will be derived for an individual company. Those that have already implemented EPC can find out if gaining more value is possible.
"The importance of the release is that it lets everyone agree, or agree to disagree, about what is the starting point for doing an evaluation. It lets companies talk more openly about where EPC or RFID makes economic sense today and where it doesn’t," says Chris Clauss, Worldwide Auto I.D. Leader for IBM, Armonk, NY.
Standards Still An Issue
Widespread tagging of cases and pallets brings up two issues, according to Clauss. One deals with hardware and the other with software. With the former, it's making tags and readers cheaper and inter--operable. It's also making sure there are good levels of "read" reliability. With the latter, the issue is how many vendors are going to develop appropriate software. Will they adhere to standards for inter--operability?
"For CPG manufactures, the primary challenge to implementing at the case and pallet level is making sure that the EPC data is captured in the appropriate business context to ensure that the company can derive ROI from tracking goods movement and inventory across the supply chain," says Jon Karlen, director of product marketing at Oat Systems, a Waltham, MA--based pioneer in RFID software.
"Most CPG companies will find the initial payback on investment in RFID by taking advantage of the RFID data shared by the retailer," he adds. "But business context is required to turn the EPC data into valuable business information. For example, if the CPG company wants to improve promotions execution and ensure that promotional items reach the sales floor on the day of the launch and in compliance with the plan, the company will need to make sure that it links the promotional code to the correct items as it ships to the retailer. Then the company can track these products to the sales floor. That is an example of the business context required to drive ROI in RFID."