Tesco rolls out secure supply

Related tags Supply chain Rfid Supply chain management

With agreement reached on European RFID standards, Tesco has started to roll-out the technology. Kathy Watson reports that where Wal-Mart and Tesco lead, others are sure to follow

Things are hotting up in consumer packaging as the next generation of identification tags comes on stream. Radio frequency identification (RFID) is being praised as the natural successor to the barcode: a system that will solve all manufacturers' problems -- once all the glitches have been ironed out, that is.

The system is cutting-edge technology that will provide unique identification and security for individually packaged goods from the point of manufacture to the point of sales, we are told. Certainly RFID enables huge amounts of information to be stored.

Using RFID customers are able to track every item thereby ensuring accurate stock control and re-ordering. It shows where shrinkage is occurring thereby enabling stores to cut pilfering. And where products may need to be recalled these tags are invaluable in tracking batches down.

The importance of traceability for both the pharmaceutical and food industries was highlighted at the Checkpoint RFID summit in Barcelona this year. Delegates were told that items could over the next few years be tracked "from farm to fork", so that rogue or contaminated batches could be identified and isolated without retailers and manufacturers having to recall the entire product line.

A new European law that comes in on January 1 will require manufacturers to be able to prove traceability for food products. In the US a similar law is taking effect because of the fear of food terrorism.

Garment retailers have been among the first to embrace the new technology. Marks & Spencer (M&S) is currently running a nine-month RFID trial within its supply chain after a successful pilot scheme on men's clothes at its High Wycombe store last year.

Using a tag made up of a microchip and an antenna, it can transmit unique individual product item numbers. They are contained within throwaway paper labels and can be read up to half a metre away by a remote scanner which is simultaneously scanning a host of other unique labels, facilitating stock updating and automatic replenishment.

As such, the system represents a huge improvement on barcoding which can only identify product types.

M&S has been working with Paxar, the tracking technologist. It announced recently that it had miniaturised its RFID labels to 25mm from the usual 100mm x 150mm.

On the food side M&S has already implemented RFID tagging of 3.5m returnable food produce delivery trays with development partner Intellident. When announced in 2002, the scheme was the largest supply chain application in the world.

Using the system, staff can read detailed information six times faster than before without having to access a central database. According to a company spokesman: "It gives us reduced wastage, extended production time and even later despatch times."

It enhances the company's green credentials, since M&S has been able to recycle its old trays incorporating the tags. It cuts packaging waste since the trays operate from the supplier through to the shop floor.

Not surprisingly, M&S's scheme has won awards both in 2002 and again this year.

Tesco was equally keen to leap on the RFID bandwagon but pulled back earlier this year, deterred by the lack of common European standards.

However, following the recent agreement of European standards, Tesco is now pressing ahead with implementation.

Tesco's 'Secure Supply Chain' (SSC) solution, which was due to be rolled out earlier this year, began last month. SSC aims to provide a method of tracking Tesco's high value and high shrink products through its supply chain into its stores, to help reduce shrink and drive improvements in availability.

The next stage will be to get its other suppliers to tag cases of products to drive significant improvements in customer service, availability and operational accuracy. As an incentive, Tesco, says it will work with its suppliers to help them identify the benefits within their own business.

To help in the development and deployment of this technology -- which Tesco prefers to call 'radio barcode' technology -- and to maximise the benefits that can be delivered for its customers, the retailer is also creating a supplier working group, made up of a range of its suppliers -- large and small -- to deliver these solutions. Suppliers will be given a minimum of six months' notice before Tesco would expect them to begin placing radio barcodes on products.

In contrast, Asda says it has no trials or plans under way at the moment. A company spokeswoman said Asda was waiting for the outcome of its US parent Wal-Mart's scheme to bring in RFID with its top 100 suppliers from next January. "Nothing will be decided until they have completed in the US," she says.

Pilots and trials

Andrew Mallinson, marketing director of MaxID, which produces RFID readers, believes "2005 will largely be a year of pilots and trials among retailers of clothing and food -- but we are not supposed to be telling you that". Once the technology takes off properly, a number of jobs will disappear throughout the supply chain, says Mallinson: "But that is several years down the road."

He should know: MaxID announced in the summer that it had developed a fully operational, unmanned checkout using an RFID reader that instantly identified a basket full of groceries and displayed the contents, a picture of the customer and a till receipt on screen. The system can be linked to a 'chip and pin' payments system that automatically debits the customer's account and issues a paper receipt. Or it will once RFID takes off in food packaging.

One of the biggest challenges is to ensure that the tags are read correctly. Proximity to both metal and liquid can distort the signal for the scanner. Currently only about 80-90% are correctly read, which can cause chaos to stock control. It was a weakness pinpointed recently by Simon Palinkas, Tesco's programme manager: "Unless I get 100%, I don't want to do it."

The other problem is cost. For high value goods like whisky or CDs, an RFID tag of 50p may be bearable. But for cans of soft drink each costing say 25p, even 8p extra for the tag is too much. According to Mallinson: "Suppliers won't start tagging individual items like these until prices come down." And that won't happen until more people buy into the technology.

But that impasse has been broken, at least in the US with Wal-Mart's decision to force its top 100 suppliers to deliver goods on pallets, cases and cartons that incorporate RFID tags before January 1 2005. A second tranche is likely to be 'invited' to follow by that year-end. Where the market leader goes, everyone else has to follow.

One of Wal-Mart's suppliers is Rexam, the world's number one packaging company for cans, which makes 50bn cans a year for Coca-Cola. It announced recently it was introducing RFID technology, not at the request of Wal-Mart, not at this stage at least, says Rexam global chief information officer, Paul Martin.

"No-one is knocking at our door at this stage demanding it," he explains. "We made the decision some time ago that we were going to standardise our business processes on SAP. But we also wanted to stay ahead of what our customers will ask us to do."

Using SAP software, the system will be rolled out across its 90 manufacturing plants, starting in the US.

In contrast to many, Martin believes the business case for RFID is strong. "It increases the velocity of the supply chain and increases the efficiency of operation," he says.

Rexam is using it to tag cases and pallets so that there is certainty of receipt and traceability without the need for manual input. Replenishment is automatically triggered. One of the gains is the tracing and return of its rubberised pallets that carry up to 8,000 cans each. It should considerably reduce their $1m a year replacement bill.

But Martin admits RFID is expensive. "Until we see the price tag being in the neighbourhood of 5-10 cents each it will not be cost-efficient. And we need costs to fall before we roll it out across the world."

Despite its concerns about tagging costs for low value goods, Rexam is so keen on RFID that it is using the system for ordering its core material, aluminium. It is linked to its suppliers by an Internet-based portal to ensure certainty of supply.

Return on investment

But the return on investment issue is a thorny one, and in the competitive world of food retailing costs are having to be absorbed. M&S refuses to say how much the food tray scheme has cost and when it expects payback to be.

Even in the US, there are concerns. Analyst the ARC Advisory Group has just conducted an emerging practices study among 24 companies investing in RFID and found that 95% believed payback was more than two years away. ARC's service director for supply chain management Steve Banker commented: "The situation is made more difficult because the technology is immature and current suppliers of tags are unreliably supplying a poor quality product."

In the UK, Peter Moylan, business development manager for Paxar, believes manufacturers shouldn't wait before investigating RFID. "Suppliers may not have time to wait. I think Tesco will be the first to mandate their supply chain."FM