June 23, 2013

RFID in Indian Retail Sector

It was in the year 2005 that Wal-Mart made it mandatory for its suppliers to use RFID. In 2008, the Future Group incorporated this technology in their operations through a tie-up with Cisco Systems. Given that the technology isn’t new, and has huge potential to tackle many issues in modern retail sector, its penetration has been rather slow. RFID tags were first used commercially in 1960s by Sensormatic, Knogo and Checkpoint which developed systems to counter the theft of merchandise. At that time, they could only detect the presence or absence of tags; however the tags could be made inexpensively and hence were quite effective in reducing pilferage. These systems were known as Electronic Article Surveillance (EAS).Over half a century later, widespread application of this technology is still in its nascent stage.

The various hurdles on the way of wide acceptance of RFID systems can be categorized as either technical or managerial. The major technical issues are:
1. Collision: RFID tag readers face problems when they 'collide' with each other. The signals from one reader may interfere with those from another, especially when their physical coverage overlaps. 
 2. Lack of allotted frequency band: RFID works on radio waves, which are regulated by the governments all over the world. There exists no international agreement on the frequency band to be allotted for RFID. Given that this technology can heavily change the face of supply chains globally, this is a huge hindrance in the way of its global adoption.
3. Signal detection and interference: The RFID tags also have a tendency to interfere with each other's signals, thus making it difficult for the tag readers to detect them. Adding to the difficulty, the signals are partially blocked by certain types of packaging materials, metals and liquids.
 On the other hand, the following are the managerial issues:
1. Lack of Technology Standards: Many organizations prefer to have their own proprietary RFID systems because of the fear that their RFID tags could be read by their competitor, leading to a serious leak of sensitive information. Thus it has been very difficult to reach a consensus on a universal technology standard for RFID.
2. Lack of Acceptance by Supply Chain Partners: Even a giant like Wal-Mart had faced some difficulties in implementing RFID in its supply chain due to resistance from some of its supply chain partners. RFID might not make sense to everybody, especially given the high initial costs of implementation.
3. Returns on Investment: Implementation of RFID usually costs a lot and the break-even period and returns on investment might not be acceptable for every retail business.
4. Customer Privacy: Some of the applications of RFID come with a baggage – customer privacy issues. Hence a lot of contemplation has to be done on these aspects.
5. Data Management Problems: RFID systems generate a lot of data in real time. Managing this data would require major changes in the data structures of master files to maintain consistency across the firm and its value chain participants.
6. Expensive for Low-Value Merchandise: The cost of RFID tags varies from Rs.5/- to Rs.100/-, largely depending on the type – passive (not self-powered, derives power from the signals of the tag reader), Active (completely self-powered) and Semi-passive. Even the cheapest RFID tags would not justify their item-level application on low-value merchandise like small toys, chocolates etc. Currently, the tags are used on pellet-level, box-level or container-level in such cases, thus limiting its capabilities.


Now let’s have a look at some well-known applications of RFID in retail sector:

Source: www.thehindu.com
1. Out-of-stock Warning: Stock out is a bigger evil than excess inventory in retail. RFID tag readers can detect the number of units of each SKU on the shelf in a retail store in real time. This enables the implementation of an out-of-stock early warning system. This system can also be integrated into a vendor-managed inventory platform. The same concept would work in warehouses, thus benefitting the whole retail supply chain.

2. Shoplifting: Shrinkage, i.e. unaccounted losses in retail, is perhaps the most daunting reality for  retail businesses, and its major cause is shoplifting. It should also be noted that the RFID usage mostly seen around us relates to security of the merchandise, which shows that the benefits of RFID in this aspect already exceed the investments.

3. Supply Chain Visibility: The ability to detect each unit or pellet of each SKU in retail setup as well as warehouses and even during transportation (RFID readers can be placed in the vehicles and connected to the GPS) can be translated into very high visibility across the supply chain. This helps in combating the dreaded bullwhip effect, making better forecasts and avoiding shrinkage and other losses in the supply chain.

4. Rapid Inventory Counting: Inventory counting is an essential exercise in any retail business to avoid or at least detect shrinkage. It is executed very frequently in high-value retail businesses, e.g. once every 24 hours in some jewellery retail outlets. But even in FMCG retail, it is done once every few months. Needless to say, inventory counting is heavy on both manpower and time. RFID can make this process very quick and easy. 5. Rapid Check-out: Though shopping in an organized retail setup has become a means of social interaction and recreation for many consumers, it also has some trade-offs, and the worst, undoubtedly, is waiting in a queue for checking out. The currently popular UPC (Universal Product Code) barcode system makes a particular alignment of the barcode with the barcode reader necessary for proper detection and reading. This, and the fact that each item in the shopping cart must be read individually, constitute a major part of the waiting time of the customers. RFID system would allow almost immediate check-out and virtually zero waiting time by reading all the items in the shopping cart instantaneously and in one go.
There are also some potential applications of RFID that are not so obvious, like:

1. Identifying Consumer Behaviour Patterns: This is already being done with the help of membership cards by recording and analysing the buying patterns of the respective customers (card-holders). To go further, RFID tags can be embedded in the smart shopping cards, and then the presence or absence of the respective customer in the store can be detected. In fact, it is possible to track even the movement of the customer within the store. This data can throw up new, a fruitful insight in consumer behaviour. It is also technologically possible to identify how customers observe and react to different items on offer in the retail store. For example, for a particular SKU’s trial pack, the number of times it is picked up and placed back on the shelf can be determined. 2. More Efficient After-Sales Services: The ability to uniquely identify a particular product can be used to create a history of its service which is easily accessible. This would be something similar to sharing of a person’s medical history across different hospitals for better diagnosis. Though we have a long way to go before the huge potential of RFID is identified and utilized by the retail industry, the hopes have gone up owing to the recent developments in “FDI in Retail” and the efforts of organizations like EPC global Inc. Acknowledgement.


1.Sumeet Gupta, Sanjib Pal; An Analysis of Issues and Possible Remedies in the Adoption of RFID in Retail Chains of India, in Cases on Supply Chain and Distribution Management, IGI Global, Eds. MitiGarg & Sumeet Gupta, Pgs. 387-400.
This article has been written by Sumeet Gupta. He is a professor in the area of Information and Technology Systems at IIM Raipur. His areas of research includes Management Information Systems (Technology Adoption), Virtual Communities, Supply Chain Management.
This article was published in Strive (Volume 2, Issue 2)

1 comment:

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