Influence of technology on retail practice: the case of RFID.

Vouk, Rudolf ; Jakovic, Bozidar ; Markovic, Milivoj 等

1. INTRODUCTION

Retail industry is one of the most dynamic industries in last 20 years. High growth rates, internationalization of major retailers and growing concentration of the biggest firms are key trends characterizing the industry. Successful retailers have increased the number of their stores as well as their surface which led to booth wider and deeper assortments of merchandise. Additional characteristic of almost every major retailer is to build a distribution centre prior to opening any stores on a given market. In this way they are combining economics of scale with faster and more accurate delivery of merchandise to the stores.

Most of the merchandise in the distribution centre enter and exit in less than 24 hours. With such a high turnover of merchandise there are great demands on the retailer for achieving high levels of efficiency of operations. Problem arises in managing such a high merchandise turnover. Increasing number of employees and inaccurate inventory records are one the biggest cost associated with increased merchandise flow.

One of the tools that can aid managers in merchandise management in the distribution centres and stores or through the whole supply chain is radio frequency technology (RFID). RFID is more and more used by major retailers in an effort to speed up the flow of merchandise through the supply chain to their stores and to cut various cost.

The aim of this paper is to give an overview of RFID technology, current applications in the retail environment and point to possible directions of future development

In the second chapter we present a brief description of the RFID technology development and current status. The third chapter deals with the current level of RFID applicability within the retail industry and critically assesses key advantages and disadvantages of its use. The forth chapter presents a short look on the possible directions of development.

2. RFID SYSTEM--A SHORT OVERVIEW

RFID is not a novel technology. The basic idea dates back more than 50 years but only recent technological advancements have enabled its widespread use in various industries including retailing. RFID is basically a common term for a set of technologies that use radio waves to automatically identify people or objects. The most common components of RFID system are:

* RFID device (tag).

* Tag reader with an antenna.

* A host/enterprise system.

The system works rather simply. RFID tag holds certain information and transmits it over the readers' antenna to the reader which forwards ti to the host system for further processing. All devices must operate on the same frequency. Three types of tag exist. Active tags have their own power source that enable transmiting while passive tags use the energy received from the reader to send back the signal. Semi-passive tags have their own battery for running the circuits but nevertheless the device communicates by drawing the power from the reader

Active tags are mostly used in sea and railway transportation and (open) public warehouses since they can transmit to a range of 100m. Passive tags on the other hand due to their small size of few square millimiters have greatest use in retail setting hence they are in the focus of the article. Broadly speaking, low-frequency passive tags are effective within 30cmm, high-franquency passive tags within 1m and UHF passive tags within 3-5m (Roberts, 2006).

3. APPLICATION OF RFID IN RETAILING

3.1 Theoretical background

RFID gives virtually endless possibilities in tracking shipments through the entire supply chain. RFID tags can be inserted on containers, pallets or individual items on the shelf in the store.

At the time it was introduced the bar code had a potential to revolutionize the retail industry and it certainly delivered on many of its promises. The RFID has the sam potential if not even bigger. In addition to bar code RFID can hold supstantialy bigger amount of information and can be read without having a direct line of site.

Key advantages arising from the use of RFID in the retail industry are (Levy & Weitz, 2009):

* Reduced warehouse and distribution labour costs. Reducing manual labour intensive operations with sensors tracking shipments (items) can reduce labour cost by 30 percent.

* Reduced point-of-sale costs. The main savings are due to reduced labour hours needed to check shelf inventory and facilitation of self-scan checkouts that is shortening checkout times.

* Inventory savings. Less inventory errors. Companies do not need to review inventory as frequent as previously and informations about current levels of stoch are much more accurate.

* Elimination of counterfeited merchandise. With RFID tag on the original merchandise it will be much harder for counterfeiters to sell fake merchandise to retailers.

* Facilitation of selling process. Retailers install RFID readers in stores with digital displays to help consumers in their search for product of interest or to provide them with information about certain product. Consumers will also be able to see availability of the in different colours and sizes. Furthermore it an also facilitate cross-selling.

* Reduced theft. Not just in the store but through the whole supply chain RFID can be used to minimize opportunities for theft. Small and valuable items carry RFID tags in the stores. RFID tags are attached to high value apparel to prevent shoplifting while a customer tries them in the dressing room etc.

* Reduced out of stock conditions. Product tracking enables real time response to decreased stocks either in the warehouse or on the store shelves.

Furthermore there are additional possibilities arising from the RFID technology. Since RFID is not static technology it can record data over time which can be downloaded when necessary. In example, the data about the expiration date, temperature to which merchandise was exposed during the transport process, information about the country of origin etc (Kraft & Mantrala, 2006).

Despite evident benefites RFID brings to the retailer there are certain obstacles that hinder its wider use. First of all it is a price of the tag. Although constantly decreasing, the cost of the individual tag is around $0.25 to $0.35 (Chao et al. 2007). Additional cost arises from assembling and maintenance and supplemental hardvere investments. Considering that average size supermarket caries over 30,000 stock-keeping-units it would be quite expensive to tag each product.

Furthermore RFID produces far more data then any retailer can process in a normal time and in a meaningfull way. Suppliers also use similar arguments to delay the implementation of RFID tags. They claim RFID actually adds to the overall costs because of higher need of manual labour in tagging products which outweights the benefites.

Finnaly, one issue especially consernes the consumers and their advocates. That is the issue of privacy and security (Knospe & Pohl, 2004). Privacy issues mostly relate to possibility of misuse of personal data by the authorized individuals. Since this can lead to violation and invasion of privacy various consumer groups request stronger regulation of RFID implementation. Security issues relate to use of confidential information by unauthorized personnel. Requests are also being made to install special security mechanisms that will block unauthorized users from confidential data.

One more issue of great importance to retailers, especially international ones, concernes the question of standardization. The issue of RFID standards, especially in a global business environment, is a crucial concern (Moon & Ngai, 2008). There is no governing body that regulates issues concerning the use of RFID technology and basically each country has the possibility to regulate the matter to its own standards. International organizations such as ISO or EPCglobal are working on creating unified standards. Mutual standards will undoubtedly help the desimination of the technology and lovering the unit cost of the tag.

3.2 Evidence from the field

Sainsbury's (3rd largest retailer in the UK today) tested perceived benefits of RFID on managing the flow of short shelf-life products withint the supply chain. Single retail store and single supplier entered the test. After the test the total benefits achievable to Sainsbury's with full scale implementation were estimated to 8,5 million [pounds sterling] a year. Most of the benefits were the result of increased store replenishment productivity and reduced stock-loss (Karkkainen, 2003).

Wal-Mart (the biggest retailer in the world) as of 2003 had requested all its major suppliers to tag the pallets and cases shipped to selected distribution centers (their number will increase over the years). Target, Best Buy and other retailers are also making similar efforts (Hardgrave et al., 2005).

METRO Group reports on using RFID tags on pallet basis in 20 distribution centers. On the store level they currently use RFID tags on three product, Gillette Razorblades, Pantene Pro V Shampoo and CD's/DVD's. High unit cost and some unresolved technical issues are reported as major impediments to wider use (Kraft & Mantrala, 2006).

Muller-Seitz et al. (2009) among other things explored the acceptance of RFID from the customers's point of view in the electronic retail setting. This research gave new insight on the RFID technology considering that most of the research so far focused on firm view. Results have shown that consumers are in general likely to accept this technology however; the level of acceptance depends on perceived usefulness of the technology. The role of the marketers here is to communicate the benefits of the new technology to consumers and entice them to became more engaged with it

4. CONCLUSION

RFID technology is strongly changing various aspects of business and society overall. This article gives a focused and consized view of the development and current level of application of RFID technology in retail setting.

It can be stated that with lower costs and greater consumer acceptance RFID will undoubtedly fulfil the potential it has. Technological progress will undoubtedly direct the further application of RFID in retail industry but other issues are emerging as well.

First of all privacy and security issues will have to be systematically dealt with before the widespread adoption of RFID. Clearly determined borders between data collection and privacy invasion must be set. This will have positive benefits for the consumers, since they will be less concerned with the notion of missues of data.

Secondly, retailers have to state clear goals before engaging into the widespread use of RFID technology. It is clear that possibilities of RFID are not impediment to its use but the extrapolation of meaningful managerial informations from the data records. Many retailers during the 1990 is invested heavily in web based technologies more on the basis of hunch than sound reasoning and this should not be repeated again.

RFID should be seen as complementary technology to the retail practice and not as the one leading the development of any retailer.

5. REFERENCES

Chao, C. C., Yang, J.M. & Jen, W.Y. (2007). Determining technology trends and forecasts of RFID by historical review and bibliometric analysis from 1991 to 2005, Technovation, Vol. 27, pp 268-276

Hardgrave, B.C., Waller, M., Miller, R. (2005). Does RFID Reduce Out of Stock? A Preliminary Analysis, Available from:http://julienmarchand.free.fr/RFID/IMG/pdf/Does_RF ID_reduce_out_of_stocks.pdf Accessed: 2009-07-09

Karkkainen, M. (2003). Increasing efficiency in the supply chain for short shelf life goods using RFID tagging, International Journal of Retail & Distribution Management, Vol. 31, No. 10, pp 529-536

Knospe, H. & Pohl, H., (2004). RFID security, Information Security Technical report, Vol. 9, No. 4, pp 39-50

Kraft, M & Mantrala, K.M. (2006). Retailing in 21st century current and future trends, Springer, ISBN 978-3-54028399-7, Berlin-Heidelberg

Levy, M. & Weitz, B. (2009). Retailing Management, McGraw-Hill Irwin, ISBN 978-0-07-128424-0, New York

Moon, K.L., Ngai, E.W.T. (2008). The adoption of RFID in fashion retailing: a business value-added framework. Industrial Management & Data Systems, Volume: 108, Issue: 5

Muller-Seitz, G., Dautzenberg, K., Creusen, U. & Stromereder, C. (2009). Customer acceptance of RFID technology: Evidence from the German electronic retail sector, Journal of Retailing and Consumer Services, Vol. 16, pp 31-39

Roberts, C.M. (2006). Radio frequency identification (RFID), Computer & Security, Vol. 25, pp 18-26