Tagging Up: How to Make RFID Adoption a Retail Reality

Nearly three-quarters of the U.S. population owns a smartphone, according to comScore research. This means consumers are becoming increasingly "app happy" and persnickety shoppers. They expect an abundance of information to be available at their fingertips anywhere, anytime and on any product. Consumers demand multiple fulfillment options. They expect brands and retailers to know them and remember their preferences.

As a result, omnichannel commerce has turned the controlled linear retail supply chain upside down and inside out, shining a spotlight on retailers’ strengths and weaknesses and exposing the limitations of today's supply chain.

The need for inventory visibility is critical. RFID (radio frequency identification) isn't a new concept, but omnichannel retailing has given RFID adoption a new sense of urgency. From the consumer's perspective, they're expecting an "always open, always on" shopping experience, and RFID is the critical enabler that allows 24/7 networkwide inventory accuracy.

From the retailer's perspective, item-level RFID is an essential component to enable the supply chain visibility and inventory accuracy needed to know what's available, where it's located and how best to deliver it, helping meet consumer expectations anytime, anywhere.

How we talk about electronic product code (EPC)-enabled item-level tagging now has become a conversation based on necessity rather than a "someday" plan. One retailer recently noted at a RFID industry event that 70 percent of retailers rate themselves "average" or "below average" on their inventory management processes. That lack of inventory accuracy, visibility and tracking capability is one of the main causes for under-performance in the retail business.

These statistics prove that item-level RFID's streamlined operations, reduced labor costs and supply chain efficiencies can no longer be ignored. The RFID Research Center, which recently moved from its former home at the University of Arkansas to Auburn University earlier this year, found inventory accuracy can be raised from an average of 63 percent to 95 percent when RFID is adopted at the item level. To say inventory count rates increase significantly over the normal speed is an understatement — from 250 items per hour to more than 20,000. Out-of-stocks at retail can be cut in half.

In other words, which would you prefer, being able to do inventory counts once or twice a year, or 12-24 times a year? Instead of experiencing 2 percent to 3 percent deterioration per month, how about that same percentage range per year? Major retailers are already reporting these kinds of improvements.

With use cases building and return on investment being proven, retail industry stakeholders are starting to realize RFID's time has come and are investing in its future. According to IDTechEx research, the RFID market used 3 billion tags in 2013 and grew 17 percent year-over-year to $9.2 billion. Furthermore, it's expected to reach 3.9 billion tags by the end of 2014.

Of course, not all of this growth is attributed to item-level RFID. The technology is versatile and has many uses, from the convenience of Walt Disney World's MagicBands to real-time location systems in hospitals. But when retail items are tagged at the point of manufacture or at the earliest point in their life cycle, this sets in motion a chain reaction of measurable benefits throughout the supply chain, from saving significant labor hours to reducing overall costs and allowing for faster payment.

So, why now and not 10 years ago? Retailers and brands are witnessing the transformation of today's supply chain driven by consumers’ mastery of technology. Those who are taking an active role in the adoption and usage of standards-based technology in their everyday business practices are seeing a boost in sales and customer satisfaction.

Retailers who have adopted RFID into their supply chains say having true item-level data gives them a whole new level of information, which leads to more sophisticated merchandising, planning and allocation systems. Real-time visibility means cleaner data and better delivery insights into real-world conditions.

The case for "why" RFID tagging works has been clearly stated throughout the past several years. Determining exactly "how" to implement is actually easier than companies might think because of one thing: standards. Most trading partners in the retail supply chain are currently using GS1 Standards, which gives them a head start in adopting EPC-enabled RFID. The EPC system is based on the same GS1 Standards that are already used by hundreds of thousands of businesses around the world, and are supported by legacy ERP, inventory management, point-of-sale and other enterprise systems.

Consumers want a seamless shopping experience. They want to shop whereever and whenever they want. Ultimately, RFID is foundational for delivering a successful omnichannel strategy. Leveraging EPC-enabled RFID throughout their supply chain, retailers and their trading partners are now able to more closely collaborate and allow for a variety of possible interactions with customers. It's these strong collaborative partnerships within the industry and a clear understanding of RFID's benefits that will catapult the use of the technology by the end of 2014.

Melanie Nuce is vice president of apparel and general merchandise at GS1 US and leads the GS1 US Apparel & General Merchandise Initiative.