Iowa State University MBA

1
RFID ProposalWoolworths Supply Chain Dept.

• Team 3
• Gentrie Gallagher
• Meredith Johnson
• Andrea Spiker
• Yuzuru Yamazaki

2
Overview

• Evaluated Geoff ONeils proposal to implement
  RFID company-wide
• RFID implementation
• - Need
• - Cost
• - Benefits
• - Risks

3
Internal Problems

• Inventory shrinkage
• Product tracking system
• Tight margins
• Lack of capital
• Expansion over improvement

4
Shrinkage and Lack of Visibility

• Incorrect shipment deliveries
• Stock losses in the distribution center
• Theft of goods in transit

5
Inventory Shrinkage

• In 2000, the retail industry lost about
• 30 billion in Europe
• Woolworths estimates that it loses about 75
  million each year
• 56 of the total losses caused
• by internal process errors and
• internal theft

6
Competition

• Grocery Pharmacy
• Sainsbury, Tesco / Wilkinsons, Boots the Chemist
• Superstores
• Wal-Mart
• RFID
• Stable market, small margins, and increased
  competition

7
Wal-Mart Threat

• Researching RFID for more than 12 years
• In 2003, Wal-Mart announced it will require its
  top 100 suppliers to use RFID by 2005

• Estimate Wal-Mart could save nearly 8.4 billion
  a year (www.eweek.com/article/2/0,1895,1492297,00.
  asp)

8
Pilot Program

• Background of the pilot program
• Objectives of the pilot
• Technology as an enabler
• RFID as well as other technologies
• Outcomes of the pilot
• What does this mean for the future?

9
Pilot Program Background

• In 2000, our RFID pilot program was implemented
  at Swindon Distribution Center
• Funded by Woolworths/Home Office RFID initiative
• Pilot program able to track all 16,000 dollies
  and associated totes

10
Pilot Program Objectives

• Gain visibility of our supply chain
• Reduce inventory shrinkage
• Reduce incorrect deliveries
• Increase product availability

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Pilot Program Technology

• Distribution Center to Truck

12
Pilot Program Technology

• Distribution Center to Truck

13
Pilot Program Technology

• Distribution Center to Truck

14
Pilot Program Technology

• Distribution Center to Truck

15
Pilot Program Technology

• Distribution Center to Truck

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Pilot Program Technology

• Truck to Store

17
Pilot Program Technology

• Truck to Store

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Pilot Program Technology

• Unloading Truck at Store

19
Pilot Program Technology

• Unloading Truck at Store

20
Pilot Program Technology

• Unloading Truck at Store

21
Pilot Program Technology

• Other Deliveries and Back to DC

22
Pilot Program Technology

• Other Deliveries and Back to DC

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Pilot Program Conclusions

• Successful in using RFID and other technologies
  to achieve item level visibility
• Eliminated incorrect deliveries of dollies to
  participating stores
• System designed to easily expand to cover more
  stores and roll cages

24
Costs to Implement RFID

• How much will it cost to implement RFID?

25
Costs to Implement RFID (contd)

• Tags for 100,000 roll cages
• 3 Additional Readers for DCs
• Portable units for delivery drivers
• 100 dispatch bay readers

• Signposts
• Handheld devices for trucks
• ONeil did not account for 16,000 tags for
  dollies that will need to be replaced

26
Costs to Implement RFID (contd)

• Most of this was implemented during the pilot
  program
• Extend the software to incorporate roll cages

27
Costs to Implement RFID (contd)

• Add GPS to trucks, enhancing Working Time
  Directive legislation

28
Other Interest?

• Is it in Woolworths best interest to invest
  approximately 3 million into a store rather than
  investing in RFID?

• No, for the following reasons

- Better ROI - Increases Operating Income
29
New Store vs. RFID
30
New Store vs. RFID
31
Aggregate Changes-New Store
32
Implement RFID
33
Implement RFID
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ROI Comparison
New Store 10 yrs.
RFID 5 yrs.
784
35
Immediate Quantifiable Benefits (contd)

• Vehicle Telemetric system could track
  inefficiencies and improve freight costs by 8-10

• Brake usage
• Vehicle abuse

• Improve visibility of goods
• Measure fuel economy

36
Immediate Quantifiable Benefits (contd)

• Estimate 2,500 roll cages (at 100 each) could be
  saved each year

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Immediate Quantifiable Benefits (contd)

• Eliminate the need for proof of receipt documents
  and manifests

38
Immediate Quantifiable Benefits
39
Benefits of RFID Implementation

• Reduced Shrinkage
• 42 Million per year loss to errors and theft
  internally
• Improve internal shrinkage with RFID
  implementation, but limited because RFID stops at
  the stores backrooms
• RFID is put on the dollies and roll cages, not
  individual items

40
Benefits of RFID Implementation

• Bookstock Accuracy
• - Real-time inventory
• - Limited to see past roll cages and dollies
• Better Asset Management
• Reduced Labor Costs
• - More efficient use of labor by assigning
  employees to other positions within organization
• - Possible employee lay-offs

41
Risks

• Tight overall information technology budget
• Difficult to attribute quantifiable benefits to
  any individual component of the strategy
• Pilot success doesnt necessarily mean long-term
  success or funding

42
Risks (contd)

• Risking valuable resources would detract from
  other programs
• If RFID fails, would lose
• Time
• Money
• Ability to regain firm hold in the market

43
Ways to Differentiate

• Flexibility
• Speed/Time
• Quality/Design
• Use of Information Technology
• Forming Alliances
• Perpetual Skill Upgrading
• Perpetual Improvement
• Fast Innovation
• Service Added

Resources and Skills Needed

• Reputation for quality
• Long tradition/consistency
• Cooperation from channels
• Marketing abilities
• Product engineering
• Creativity

44
Sustainable Advantages

• Valuable
• Rare
• Costly to imitate
• Non-substitutable
• Is RFID a sustainable advantage?

45
Competitive Advantage

• "If you're not careful, you will simply promote
  the category." 
• - Simon Corah, CEO of MC Saatchi

46
Now or Later?

• Wal-Mart and other companies have already started
  to implement RFID
• Wait for costs to decrease
• Become first-mover and obtain advantages

47
Recommendation

• RFID Full implementation now
• RFID is a better investment than building one new
  store
• Better ROI
• Increases Net Income
• Innovate to cut costs
• Benefits gt Risks

48
Future
Past