As the cost to deploy RFID solutions continues to drop, many retailers and suppliers are still concerned about the perceived high price of the technology and its return on investment.
When it comes to ROI, however, Jerry Glinnen, the compliance manager at Lifetime Brands, Inc., says that RFID makes sense from a compliance standpoint alone, not to mention the improved inventory visibility that RFID enables.
This month Lifetime Brands started shipping eight SKUs of RFID tagged product to Macy’s, including cutlery sets and speciality knives from its Farberware line. The consumer goods manufacturer will up the ante in August when it begins to ship an additional 250-300 SKUs to Macy’s, including kitchen tools, cutlery and “gadget” items like can openers.
“As far as the ROI, my answer is that it’s up to the guys in finance to decide,” Glinnen said during an RFID event hosted by the MIT Enterprise Forum earlier this month. For Glinnen, the ROI from RFID is heavily tied to compliance with Lifetime’s retail partners.
When JC Penney first approached Lifetime Brands about tagging product, Glinnen says that the first question company executives asked about was the ROI.
“If we’re not compliant with a retailer like JC Penney, for example, we’re going to be charged back 60 cents per unit and $150 per PO for every oder that goes into their system,” he says. “So I might as well give away my $2.50 gadget and write them out a check.
“I told the guys in finance to worry about that, and that I’d worry about doing what I needed to do [to become compliant]. That pretty much ended the conversation about ROI.”
Glinnen’s stance is unique. When retailers began to request that suppliers ship products with RFID tags, most vendors wondered how they could benefit from the technology. The ability to get products onto store shelves quicker was the most common benefit provided by retailers eager to have their suppliers embrace the technology. Aside from reduced chargebacks and better visibility into sellout data, RFID can also reduce stock in transit and reduce shipment inspection times.
According to industry sources, Kohl’s recently informed some vendors that it will require RFID tags on all products from national brands beginning Aug. 1. Kohl’s hopes to have compliance from private label brands even sooner. The retailer is focusing its initial rollout on apparel products and jewelry items.
Glinnen says that Lifetime Brands isn’t expected to begin shipping RFID-tagged product to Kohl’s until sometime next year. However, Lifetime Brands is considering tagging all of its goods at the point of manufacture overseas as a way in to increase qualify and compliance with retail customers.
“Our retail partners are extremely important to us,” says Glinnen. “We jump through hoops for our retail partners.”
Glinnen notes that most retailers keep quality scorecards for their vendors that typically determine how many incoming cartons of a shipment are audited. Vendors with a good track record and a clean scorecard have a lower percentage of products audited. However, a series of errors can result in 100 percent inspection of an incoming order. Usually, the vendor is billed for the cost of the inspection and receives an additional penalty for any errors found in that shipment.
“That can be very expensive,” says Glinnen, “so we are considering tagging all of our products produced overseas with RFID for specific retailers that use RFID. Then when it comes into our warehouse we can scan those cartons and pick out any errors before we ship that carton to the retailer. We’re absorbing the cost to tag overseas, but cost isn’t the most important thing. What’s most important is that scorecard. If I can be a certified vendor with a retailer like Kohl’s, it allows our product to get to the sales floor two or three days faster.”
Glinnen sees the overall business gains from increased quality shipments, including the likelihood that buyers will place larger orders with certified vendors, as far outweighing the costs of source tagging.
In addition, by tagging 100 percent of its products at the source, Lifetime Brands will be ready to comply when other retailers request that products be shipped with RFID tags.
During last year’s NRF show in New York City, Macy’s chief administrative officer Tom Cole sent a strong message to suppliers, noting that the early adopters of RFID will benefit the most by selling more product into Macy’s.
“Compliance isn’t an angle that many people have talked about,” said Mike Liard, vice president of the Auto-ID practice at VDC Research. “When you become a preferred vendor with a high vendor rating they are able to get more product out the door and onto the store shelves quicker. Nobody is really talking about that angle.”
Macy’s and other retailers are looking to expand beyond tagging apparel and footwear items in an effort to accommodate omni-channel retailing strategies, which allow for customers to place orders over the phone or online and have orders shipped directly from stores or picked up at store locations. The retail industry’s desire to move to an omni-channel structure will put additional pressure on vendors to comply with RFID demands of retailers.
In the meantime, technology gains and lower costs to deploy RFID solutions should help vendors to comply and to reach a faster ROI.
“RFID is extremely fast and extremely accurate and nobody is doubting whether RFID can reduce labor,” says Zander Livingston, CEO of Truecount. “But finding the right tag to fit the product used to be extremely painful, and when it’s painful it becomes expensive. But when I need a smaller tag for a jewelry application there are lot more options out there now. We’ve seen prices come down, the form factor is changing and the performance is getting better. We’re seeing jewelry tags that can read six feet now and that was unheard of two years ago.”