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.

ISSUES

 

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.

APPLICATIONS

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.

References:

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.

2.http://articles.economictimes.indiatimes.com/2008-03-25/news/28387628_1_retail-biggies-future-group-future-in-hypermarket-format.

3.read.pudn.com/downloads165/doc/comm/755010/RFID.doc

 

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)

FINANCIAL SUPPLY CHAIN MANAGEMENT

Most of the time we attribute supply chain management to logistics, but what if supply chain management is used in the field of finance. Financial Supply Chain Management does exactly that. It is the expansion of techniques developed in the fields of finance and financial risk management into the field of supply chain management. Financial Supply Chain Management (FSCM) refers to a specific set of solutions and services to expedite the flows of money and data between trading partners - that is buyers and suppliers, along the supply chain.

RISE OF FINANCIAL SUPPLY CHAIN MANAGEMENT

Globalization and increased competition has had a profound impact on the supply chain of both the big and small companies. This has led companies to keep larger inventories to prevent shortfall, ensure just-in-time deliveries and accept longer payment terms from the buyers. This has resulted in working capital problems for both the suppliers and buyers, as suppliers need to wait for the buyers to sell the product so as to get back their money. FSCM helps the company to improve their working capital financing, accelerate the cash flow to suppliers and connect supply chain events to financing decisions. The ultimate aim is to optimize working capital throughout the supply chain, reduce total supply chain costs and increase supply chain resilience.

REVERSE LOGISTICS IN RETAIL – BEST PRACTICES IN THE INDUSTRY

Reverse logistics - “the forgotten child of the Supply Chain” is gaining prominence in the market today. Previously, the organizations were not making use of reverse logistics. But today, reverse logistics is a key tool for value addition and growth strategy. With increasing customer awareness, it is not only important to deliver the goods to them but also to make sure that a return channel also exists. Thus, reverse logistics helps an organization in not only getting the goods back but also for repairs and redistribution.

Reverse logistics is defined by the council of management as “The process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal.”. In short the travel back from the customers end to the manufacturer is called as the reverse logistics- an invert of logistics. Reverse logistics includes return policy, product recall, repairs, repackaging, recycling, parts management, liquidation, disposition management and many more. It plays a very crucial role in the field of retail it helps in building brand loyalty and better customer experience.

At the time when the retail industry is facing losses to the tune of $40 billion due to sales returns, having reverse logistics can help build the profits as high as 15% with care. In addition to it (this) the reverse logistics also protects profits, gives customer loyalty, disposal benefits and maximize recovery rates.  

Source:UPS

BENCHMARKING

Benchmarking is “measuring our performance against that of best-in-class companies, determining how the best-in-class achieve those performance levels and using the information as a basis for our own company’s targets, strategies and implementation.” Simply, it is “search of industry best practices that lead to superior performance”. Whereas best practices refers to the approaches that produce exceptional results, are usually innovative in terms of the use of technology or human resources and recognized by customers or industry experts.

Benchmark  is a point of reference against which things are measured. In business, the reference points and standards can take many forms. They are measured by questions about the product or services.

The concept of benchmarking has been around for a long time. In 1800's, Francis Lowell, a New England colonist studied British textile mills and imported many ideas along with improvements he made for the burgeoning American textile mills.

It is believed that formally, benchmarking may have evolved in the 1950's when W. Edwards Deming taught the Japanese the idea of quality control. The method was rarely used in the United States until the early 1980's when IBM, Motorola and Xerox became the pioneers. Xerox is one of the best known examples of organizations that have implemented benchmarking.

Advantages of Benchmarking:

It promotes through understanding of the company's own processes i.e., the company current profile is well understood.

It involves limitation and adaptation of the practices of superior competitors, rather than invention thereby saving time and money for the company practicing benchmarking.

It enables comparison of performance measures in different dimensions, each with best practices for that particular measure.

It allows organisations to set realistic, rigorous new performance targets and this process helps convince people of the credibility of these targets.

E-COMMERCE AND LOGISTICS

One of the interesting definitions describes logistics as “having the right item at the right time at the right place in the right quantity to the right customer” (Susan Mallik, 2010). The all-inclusive definition talks about the holistic nature of the traditional business logistics – right from production, procurement, distribution, inventory management and of course delivery across the entire supply chain. Logistics industry used to rely heavily on individual skill and dexterity of the employees. Efficiency used to be thought as an outcome of practice. However, with advent of technology, especially with information technology, revolution is happening across the business sectors.

Logistics industry also has become equipped with new ways of doing things. In many instances, manual labour has been eliminated or has been reduced significantly. Skill requirement has enhanced as well, in terms of grasp and capability around the new methodology. The new skill set required includes efficiency in using new technologies; the faster one gets hold of the technology and starts using to its full potential, the stronger it makes its presence felt in the industry. IT- Operations integration paved the way for a faster and smoother logistics industry by reducing the frequent errors and glitches.

With the advent of e-commerce, nature of business is undergoing changes. Along with it, the conventional logistics problems are also changing. Earlier the process used to be supplier driven, whereas now the drive comes from the customer. It is more of order fulfillment rather than stocking.  The good old logistics is getting changed. Typically, in Indian e-commerce industry, the back-end operation is often outsourced to some logistics firm who would take care of the physical supply-chain process with the e-commerce sites providing the user-interface with the front end operations. However, there are a few players who do manage their own distribution network partially.
In a conventional supply chain, there are two distinct players in between the manufacturers and the customers.  In the e-commerce business, the middle two layers are becoming more and more overlapping.

FDI IN RETAIL IN INDIA

FDI (Foreign Direct Investment) is an investment in a foreign country with an intention to gain managerial interest in a company operating in that country. There are many foreign players who have invested and are investing in this way in India.

The government of the host country may limit the percentage of foreign stake in any company with the intention to avoid foreign control over its country’s economy and people. This percentage varies from industry to industry depending on how crucial the industry is for the country. Even India limits the percentage of foreign stake. The industry-wise limitations are 100% for tourism, hospitality, education, roads and highways, pharmaceuticals, petrochemicals; 51% for multi-brand retail; 49% for civil aviation, insurance, D2H, public sector banks; and 26% for print media, defence, etc to name a few.
Retail industry in India is on of the most developing industries and has a huge potential to grow further. It contributes about 15% to GDP and 8% to employment of the country. It can be classified into single-brand and multi-brand retail. Only 4% of the retail in India is organised. The FDI limit for single-brand retail and multi-brand retail in India was increased to 100% and 51% respectively in 2012.

XPLORYZE 2.0- Case Study Competition

XPLORYZE is the flagship event of OPEP club conducted as part of IIM Raipur’s Annual Business  & Cultural Fest 'EQUINOX'. It is a case analysis competition in which teams from premium B-schools of the country compete against each other. The event was organised by Anubhav Sood and Abhijeet Srivastav, members of OPEP club. The case involved entry of a new retail store chain in Raipur. Students were to analyse the case based upon the data & situations given in case and come out with choice of location, format, layout & merchandising strategy.  In the first round, students from all B-schools across the country were invited to send their case analysis. On the basis of the analysis top 5 teams were to be selected for presenting their solution in front of judges and audience at IIM Raipur camps.  This time we had a total of 37 entries in the first round out of which top 5 teams were selected to present their analysis in the on-campus finale.