22 minute read
SUPPLY CHAIN
The Fallout of Holiday Peak
As we all are well aware, the holiday shopping season seems to be starting earlier with each passing year. It was October 21 when I saw the first commercial advertising for the 2017 holiday season. To my surprise, however, I didn’t see many stories this year about people camping out for a week in the parking lot of a store waiting for the best Black Friday deals. There could be any number of reasons for this, but what we do know for sure is that retailers are now providing more options to consumers earlier in the shopping season than in previous years.
While holiday shopping patterns in retail stores is something we may all notice, there are other areas within the business that may not be as visible to the customer but are just as impactful on the business. The one thing that I have witnessed firsthand is how this new strategy is affecting the supply chain. “Peak,” as it is referred to, is the time leading up to Christmas when holiday order volume increases dramatically. That’s roughly fourteen weeks of what is now becoming pure chaos for logistics providers.
The official numbers for the 2017 peak season have yet to be tallied, but based on projections, this is going to be a record season for retail, with a large percentage being attributed to online sales. While overall this may be good for business, this is nonetheless having a profound impact on the domestic supply chain because the infrastructure supporting all these parcels simply cannot keep up with the volume of products being shipped.
Here are three key areas where the industry is failing to keep up with the changes in holiday shopping habits and some basic steps that can be taken to solve this growing problem.
The most common areas where loss occurs during peak are during the morning launch of drivers. This is when the terminal has the most amount of freight on the floor and the least amount of management oversight.
Volume Projections: It’s a Guessing Game
Most retailers have analytic models that produce estimated volume projections to determine the number of orders that will
By Glenn Master
Master is a recognized industry expert with over twenty years of experience in loss prevention and security management. He has worked both domestically and internationally specializing in supply chain, transportation, and logistics. Master has held both executive and management positions with companies such as Newgistics, Office Depot, Henry Schein, and Motorola. He is the cofounder and current board director of the International Supply Chain Protection Organization (ISCPO). He is also employed at Texas Christian University as an adjunct professor, teaching undergraduate courses in criminal justice, security, and loss prevention management. He can be reached at GMaster@newgistics.com.
be passing through the supply-chain network. This information is passed on to contracted transportation providers, allowing them to plan for the staffing models necessary to handle the anticipated product volume.
Despite all the computer analytics being used, the one thing that cannot be easily forecasted is how online ordering can be affected by the unpredictability of human behavior. This is especially true from Thanksgiving Day through Cyber Monday. In talking with my loss prevention peers in both retail and transportation, consumer sentiment was grossly underestimated going into the 2017 holiday season. So regardless of the current political atmosphere, the Federal Reserve raising interest rates, or the potential that North Korea may launch a nuclear bomb, US consumers were ready to spend money this holiday season.
This buying atmosphere creates both a positive and negative scenario for businesses in the supply chain. The obvious positive result is an increase in revenue. However, a less-than-ideal result follows when unplanned volume cripples the infrastructure that moves parcels along the supply chain. This would be the equivalent of a dam breaking fifty miles upriver with all the towns downriver flooded as a result—except the flood comes in the form of packages.
To avoid this type of catastrophe from occurring again, retailers must do a better job of preparing for a potential spike in online sales and projecting product volumes in real time. This may be challenging since most of these online orders are being placed during the Thanksgiving holiday when the majority of corporate America is out of the office. One solution would be to have retailers streamline the flow of information to logistics providers by providing daily volume-trend monitoring that is communicated immediately to transportation providers.
Transportation, Bottlenecks, and a Tangled Infrastructure
The majority of retailers that do business online don’t have their own transportation infrastructure. This means they have to contract out transportation companies to move freight. One of the most costly services in business is transportation. Therefore, most companies will look for the most cost-effective way to move that box from the warehouse to the client. This cost will vary greatly depending on several factors, which include: ■ The time it takes to deliver the package,
■ The distance the package has to travel, and ■ The method of delivery.
Typically, the more convenient the process is for the customer, the higher the transportation cost will be for the retailer. As a result, most companies will look for a balanced approach that will satisfy both the customer expectation and the costs associated with transporting the order.
What this means is that everyone is ultimately contracting with everyone else, and parcels can easily transit multiple companies before reaching your doorstep. With each touch point is an exposure to a parcel being lost or stolen. It is difficult to investigate losses in this network when volumes are normal. Add 50 percent or greater volume in a very short time span, and investigating loss becomes nearly impossible.
Some of the contributing factors to this loss include lack of management oversight, misshipped packages, and theft that is camouflaged due to operational failures. It is critical for transportation providers to be able to plan and manage this volume appropriately.
The most common areas where loss occurs during peak are during the morning launch of drivers. This is when the terminal has the most amount of freight on the floor and the least amount of management oversight. Transportation managers should also focus on conducting spot audits of drivers prior to them launching. This will not only keep the drivers honest but also allow management to find misloaded packages that occurred by mistake.
A Tight Labor Market
The labor market in the supply chain has increasingly become very tight. If you look at any major fulfillment or distribution company, everyone is fighting for the same contracted employee. This becomes a booming industry for staffing agencies but also poses a challenge for them on finding suitable people to fill open positions.
To try and gain an edge, we are now seeing companies during peak season reducing or even eliminating their applicant screening process to get employees in the door. This may result in your contracted labor having criminal backgrounds, financial issues, or drug problems. In years past, jokes would be made in the loss prevention community that staffing agencies are resorting to hiring people on the steps of county jails after they bond out from a weekend incarceration. In recent times, these types of jokes are becoming more of a reality.
Reducing or eliminating the background check process can have major impacts on your organization resulting in lower productivity rates, criminal activity within your operation, and a greater likelihood of theft.
The Future
People say there are no guarantees in life. I tend to disagree as it relates e-commerce. The trend has been and will continue to be unprecedented growth. This growth brings numerous challenges to an infrastructure that was not designed to move millions of packages in a short time period such as peak. Without substantial investment and planning, peak season in 2018 will be just as challenging for industries that are tasked with getting that holiday gift to the consumer.
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Introducing LPM Online
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LPM Online is an all-new magazine experience. LPM Online publishes every other month on even-numbered months in between our print editions. The inaugural edition went live in August. You can view it and our current edition on the LPM Online tab on our website, LossPreventionMedia. com, or by entering LPM-online.com in your browser.
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RFID AND RETAILING
THE EXPERIENCES OF TEN CASE-STUDY COMPANIES
By Emeritus Professor Adrian Beck
Since the term radio frequency identification (RFID) came into common usage within the retail environment, around the end of the 1990s, it has in many respects been an idea driven more by hope and hype than practical realization. For retailers it promised a world where supply chains would become fully transparent, with all products identifiable in real time, bringing an end to oversupply and out-of-stocks—the ultimate optimization tool, allowing retailers to truly deliver “just in time” supply chains tailored precisely to the needs of their customers. In addition, RFID offered other “game changing” benefits such as the end of traditional checkouts and associated queuing for the consumer—products would automatically “checkout” as they left the store with the consumer’s credit card being billed accordingly. (Sound familiar?)
Within the realm of loss prevention, the RFID “revolution” offered much promise, with shop theft becoming a thing of the past as thieves would be automatically identified as they tried to leave the store without paying. Similarly, problems such as returns fraud would be eliminated as the previous ambiguity around whether a particular item had actually been purchased would no longer exist—the product would “tell” the retailer its current status (bought or not bought).
Back in the early 2000s it seemed RFID was going to totally transform the retail world—indeed, it was described by one of its earliest advocates in the following glowing terms: “as significant a technology as certainly the Internet and possibly the invention of the computer itself.”
If we skip forward seventeen years, then it becomes very quickly apparent that RFID, as yet, cannot be remotely put in the same category as the Internet in terms of its impact upon the world or more specifically retailing. Arguably, it is a technology that has seriously struggled to match up to the hype heaped upon it at the end of the 1990s and into the early 2000s. It continually floundered on the rocks of physics and economics, with the “Faraday Cage” in many respects proving to be the prison “cell” from which RFID has struggled to escape. As such, many of those long in the tooth in retailing have become familiar with the sentence that starts, “In the next five years RFID will….”
However, the outlook now appears to be changing fast for RFID, and what has been seen in the past few years is a much more enlightened, less evangelistic, and more realistic approach to how RFID may be able to play a role within retailing, one that recognizes its limitations and plays to its identifiable strengths. The technology has also had the opportunity to gradually mature, away from the spotlight of unrealistic expectations, and begin to show how it can be used to help retailers resolve some of their ongoing and growing concerns. This can be seen particularly in parts of retailing that do not have a concentration of products largely made up of metals and viscous fluids, which have traditionally proved highly challenging for RFID to cope with.
Retailers focused on apparel and footwear in particular have begun to use this technology to help them manage their supply chains more efficiently, utilising RFID’s capacity to bring transparency and ease of audit into the retail space. As pressures within retailing concerning competition and growing consumer demands for greater and more accurate availability have increased (particularly with the growth of omni-channel), then some companies have begun to invest in RFID to help them respond. While we are still some way from RFID becoming “bigger than the Internet,” it would seem that a more gradual and incremental introduction into retailing is underway, one that recognizes its weaknesses but at the same time is beginning to take
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advantage of developments in the technology.
It is within this context that GS1 and the ECR Community Shrinkage and On-shelf Availability Group commissioned a piece of research to better understand about how this technology is now being used and what lessons can be drawn from its development, its implementation, and its impact on retail businesses. Based upon the detailed experiences of ten companies that have invested in RFID, the study set out to answer the following questions: ■ What is the business context within which some retailers decide to invest in RFID? ■ How do these companies begin their RFID journey? ■ What steps do they follow when undertaking a trial? ■ In what ways do they measure the impact of RFID, and what have they found? ■ How do they begin to roll it out to the rest of the business? ■ How have they dealt with the key challenge of integration? ■ What role, if any, can RFID play in managing loss prevention? ■ What lessons have these companies learned on their RFID journeys? ■ How might they be planning to use this technology in the future?
This research adopted a case-study methodology with data being collected via requests for various types of quantitative data relating to the use and performance of RFID, together with primarily face-to-face interviews with company representatives from the following companies: Adidas, C&A, Decathlon, lululemon, Jack Wills, John Lewis, MARC O’POLO, Marks & Spencer, River Island, and Tesco. Collectively, these companies have total sales in the region of €94 billion a year and purchase at least 1.87 billion RFID tags a year, equivalent to the use of about sixty tags per second.
As with any research, there are limitations in what can be achieved and presented. While this research attempted to offer an independent and critical review of the use of RFID in the retail sector, the case-study selection process needs to be taken into account when reviewing the findings. Because of the chosen selection criteria and the challenge of obtaining retailer support, no companies are represented that have trialled RFID and decided against rolling it out—the views of these types of companies are absent from this research.
In addition, there are some companies that have adopted a different approach to using RFID than those represented in this research, namely using a hard tag variant applied either at the point of manufacture or later in the supply chain. While one of these companies was approached to take part in the research, they declined, so it is not possible to include their experiences and views of using RFID. As such, it is important to recognize that the general approach adopted by these ten companies is not necessarily representative of all retail companies that are now using RFID.
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Summary Findings
Presented below are the headline results from the research. For a more detailed review of the findings, a free report is available (details of how to receive this can be found at the end of the article).
The Business Context for Investment
Driving Sales. The primary goal of investing in RFID was to deliver improvements in inventory visibility and accuracy, which in turn would grow sales.
Optimizing Stock Holding. Respondents also recognized the potential of RFID to enable them to optimize their stock holdings, reducing capital outlay and improving staff productivity.
Fewer Markdowns. Most case-study companies regarded RFID as a key tool in helping to reduce the amount of stock they offered at discounted prices.
Helping to Drive Innovation and Business Efficiencies. RFID was
frequently viewed as part of a broader organizational change project focused on putting enabling technologies in place to drive transformational change to achieve future success.
Recognising the Omni-channel Imperative. This technology was viewed as a key driver in developing the capacity to deliver a profitable omni-channel consumer experience—in effect the organizational “glue” that will hold together much of the architecture of twenty-first century retailing.
Measures of Success
Increase in Sales. Seven of the ten case studies shared data showing a sales improvement in the range of 1.5 to 5.5 percent. For SKUs identified as being out-of-stock by RFID systems, the growth was even higher. Based upon this data, the ten companies taking part in the study may have realized an RFID-driven sales uplift of between €1.4 and €5.2 billion.
Improved Inventory Accuracy. Companies typically had an improvement from 65–75 percent to 93–99 percent.
Stock Availability. Some of the companies taking part were now finding SKU availability in the high 90 percent region.
Reduced Stock Holding. One-half of the case-study companies shared data on this measure, indicating a stock reduction of between 2 and 13 percent.
Lower Stock Loss. One company suggested that their shrinkage losses had been reduced by 15 percent.
Reduced Staff Costs. One company had measured a saving equivalent to 4 percent of their store staffing costs, which if rolled out across the case-study companies would be in the region of €378 million.
Return on Investment. All ten companies were unequivocal in their assertion that the ROI had been achieved, and based upon their trial experiences, further rollout across the business was fully justified and embraced by the rest of the business, often with considerable enthusiasm and optimism.
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Role of Senior Management. The role of the senior management team in both the initiation and subsequent delivery of the RFID project was seen as paramount—without their active support and recognition of the financial imperative, virtually none of the projects would have been initiated.
Choosing a Business Leader. The RFID project leader was typically the person who had responsibility for on-shelf availability/stock integrity, regardless of where they were located within the business hierarchy.
Engaging the Business. Respondents to this research clearly articulated the importance of working hard at getting cross-functional buy-in—RFID projects have long tentacles embracing most retail functions.
Understanding Your Business Context. Many respondents considered this one of their biggest challenges—understanding how RFID will impact the business. Undertaking detailed process mapping and recognizing how products move through the supply chain was considered key, as was assessing the impact the physical environment might have on the functionality of the technology and how it would integrate (or not) with legacy systems.
Challenges of Integration. By far and away the biggest headache these companies faced as they progressed on their RFID journey was the thorny issue of integration with legacy retail systems. A number felt they had not planned sufficiently well on how to resolve this issue and counseled future adopters not only to take integration seriously but also to think very early on in the process the extent to which they
want new and existing data systems to communicate.
Seeking External Help. Virtually all of the companies taking part in this research had sought some degree of external advice as they began their RFID journeys. RFID consultancies, technology providers, other retailers, and organizations developing common standards such as GS1 were used.
Choosing RFID Technologies. Most companies had adopted a circumspect, modest, and highly price-conscious approach to the selection and use of their RFID technologies—the mantra of “keep it simple and highly focused” was very apparent.
Tag Reliability. No companies had any concerns about the reliability of their chosen tags; a more prescient issue was ensuring the tag remained attached and its position on the product was optimized.
Choice of Readers. By far and away the predominate reader technology used was handhelds provided to store staff. Relatively few companies were utilizing any form of transition readers (to track product moving between different parts of the supply chain), integrated point-of-sale readers, or exit-detection readers. As yet, none had committed to using in-store overhead readers beyond some ongoing store trials.
Avoid Tagging in Store. All ten companies taking part in this research had opted for a long-term strategy that involved the RFID tags being applied at the point of manufacture.
Standards Matter. While case-study companies varied in the degree to which they were sensitized to the importance of adopting RFID-based standards, all agreed that without them, it would be more difficult to innovate and evolve in the future. Standards were highlighted as being key in reducing confusion in the supply chain and avoiding getting locked into any particular provider.
Undertaking Trials. All companies had undertaken a combination of proof of concept trials (does the technology work?), pilot trials (how will RFID operate in our particular environment?), and development trials (how can we evolve our RFID system?). A number of companies urged caution in the speed with which pilot trials in particular were undertaken, to ensure that the full impact of the introduction of the technology could be fully understood across a range of different environments.
Measuring Impact. Ultimately, RFID is an intervention used to
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enable the business to be more successful in meeting its core objectives of being a sustainably profitable retailer. In and of itself, an RFID system is little more than a combination of technologies that provide the user with actionable data. Most case-study companies had relatively few key performance indicators (KPIs) they wished to achieve, with an improvement in sales being the most prominent. But it is important to understand how any chosen KPI will be delivered, including identifying the organizational drivers and mechanisms that will enable them to be achieved and how they will be measured.
Rolling Out RFID. All companies had committed to rolling out their RFID programs—a ringing endorsement for how valuable it was considered to be to their businesses. As with the pilot trials, some companies counseled caution concerning the speed of roll out, citing numerous difficulties they had faced by moving too quickly. Of particular importance was timing—avoiding peak times in the retail calendar and investing in high-quality and sustainable training for retail store staff.
Loss Prevention and RFID. Few of the companies regarded their RFID systems as effective tools to actively reduce stock loss, particularly malicious forms of loss such as shoplifting. Primarily this was because the tags being used (swing tags and stickers) were very easy to remove, and current exit readers were viewed as being relatively unreliable. However, some were using RFID data to better understand which products would benefit from additional security, as well as helping in the evaluation of store trials of stock loss interventions. For one retailer, an indirect benefit of store staff having more time to be on the shop floor (because RFID had reduced the time other tasks had taken) was that they could increasingly act as a visible deterrent to prospective shop thieves.
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Remember That RFID Is a Journey. Case-study companies were keen to remind prospective users that RFID systems are not plug-and-forget technologies—they require ongoing commitment to ensure they remain fit for purpose and capable of delivering the KPIs originally required by the business to justify any recurring investment.
Keeping It Simple. The final piece of advice many offered was to keep any planned RFID project simple—do not make it overcomplicated, and remember that RFID merely provides data; if you do nothing with it, then it is destined to fail.
RFID in Retailing
As stated at the beginning of this article, RFID has been on a long journey within retailing, frequently failing to live up to the hype heaped upon it by those keen to see it develop. But this research has shown that in an appropriate retail environment and by adopting an approach founded upon focused pragmatism driven by financial probity, it is a technology now capable of delivering real benefits to the retail community and its customers. It is perhaps now time to stop asking the question, “Where will RFID be in five years?”
To get a free copy of the full report and further information about the research, contact Professor Adrian Beck at bna@lc.ac.uk.
Emeritus Professor ADRIAN BECK spent his academic career in the criminology department at the University of Leicester in the UK where he focused on retail crime and shrinkage issues. He currently is an academic advisor and researcher for organization’s like the ECR Community’s Shrinkage and On-shelf Availability Group and the Retail Industry Leaders Association. Beck is a frequent speaker at conferences worldwide and a contributor to both LP Magazine’s US and Europe publications. He can be reached at bna@le.ac.uk.
