Microsoft PowerPoint - RFID _Hagedorn_

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					Value Beyond Compliance
                 Presented By:
               Ray Hagedorn, CEO
     Premier Executive Consulting Group, LLC
                January 31, 2006
                        What will be covered?

         Industry Insight into the Value of RFID
         Emerging Science of In-Flight Predictive
         Challenges that are not often mentioned.

“By itself, RFID/EPC is little more than a fancy bar code, It can’t reduce
out of stocks or slash fraud. Only when you turn the data into actionable,
 executable information does it become powerful.”

David Greenberg, Manager, RFID Program Office, Intel Corp
Value Beyond Compliance?
 An Industry Perspective
Industry Value Proposition Examples
“Big Box” Retailers reducing out-of-stocks at shelf level
increase in sales conservatively 1%
     For Wal-Mart this amounts to approx $3 Billion
Suppliers to the “Big Box” Retailers
     Reduce inventory safety stock due to better forecasting
     Reduce invoice deductions due to improvements in ship and receiving accuracy
     Improve product recall process
     Competitive Advantage “Preferred Vendor”
     Increased sales
A multi-billion dollar paper manufacturer
     Improved inventory control and accuracy to 100%
     Eliminated shipping errors
     Improved warehouse labor efficiency and reduced cost
Health Care & Pharmaceuticals
     Reduce counterfeiting/fraud and theft in the supply chain
     Improved overall inventory control and product management
     Asset tracking (equipment, organs, etc…)
     Improved patient administration and patient tracking
        Root Causes for OOS

Floor Replenishment Failure
Spike in Demand (promo, price change, etc)
Shelf Replenishment trips insufficient
Product on floor but not accessible for sale
Product not received at store but at DC
Store order shorted
Safety stock insufficient at store and DC
  The Problem: Out-of-Stock Is Expensive…

                                 % Sales Losses from OOS
       Feminine Hygiene                                                       3.5
                  Diapers                                                           3.8
  For Promoted and New Items
          Salted Snacks                              2.1
                  Laundry                                               3.2

         OOS Range 17%-36%
                Hair Care
             Toilet Tissue                              2.4

          Very Costly for ALL!
          World Average
             Overall USA                                                              3.9

                             0        1          2               3                    4                    5

                                                           Source: Joint OOS study conducted by Emory University, University of St. Gallen

“On any given Saturday, only 1 out of 12 Out-of-Stock products are replenished.”                                                Linda
Dillman, CIO, Wal-Mart Stores. RFID World, March 2005
                    Wal-Mart Progress Report
                           From IDTechEX report of October 1, 2005

Results for 2005:
    500 stores and 5 DC’s RFID enabled
    Over 100 Suppliers shipping selected product with RFID tags case and pallet
    Installed 14,000 pieces of hardware and 230 miles of cable
    Data to suppliers available within 30 minutes
Read rates:
    Cases exceed 90% on carts
    95% on conveyors in DCs
    98% at trash compactors
    66% on cases on fully loaded pallets (needs to improve)

Results from independent 29 week study U of Arkansas:
    16% reduction of out-of-stocks
    Items with EPC replenished 3 times faster than standard UPC bar code
    Reduction of manual orders resulting in a reduction of excess inventory
Plans for 2006
    Double the number of stores to 1000
    Increase number of tagged product of initial 100 suppliers
    Add next 200 suppliers by Jan 06
    Add next 300 suppliers by Jan 07
                                    Benefit: Areas
Manufacturers have agreed that the benefits of RFID in their supply
chain will come in these areas.

          Warehouse                                                     45%
       Less Inventory                                     27%

          Deductions                                      27%

  Traceability/Recalls                              23%

    In Stock Position                         18%

    Improved Service                 9%

      Shipping Costs                 9%
            Supplier            5%
                         0%    5%   10%      20%          30%    40%        50%

                               Perceived Potential Benefits from EPC RFID
  Source: ARC Advisory Group
 One Value Proposition

Inventory Management!
Dilbert on Inventory and Planning
Inventory In the Supply Chain

                               Mfgr Avg=9.8Wks
                                22% Revenue                                                              ks lers
                                                                                                      ee etai
                                                                                                  5 Wthe r
                                                                                                7. er
In e to y( k )
  v n r Ws


                                e mfg ov
                             ag er
                                                                                                                   Retailer Avg=7.9Wks
                                                                                                                       13% Revenue
                           er y p
                        Av ntor
                 5  tal inve
                  To in
$168             0
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                                                                                                              Source: TrueDeman analysis, Company Financial Statements

“Inventory and OOS still remain high, our existing solutions have reached their limits...
RFID will be a key enabler of new solutions to reduce inventory and OOS for retailers
and manufacturers.” Simon Langford, RFID Strategist, Wal-Mart, NRF 2003
                                         Benefits: Visibility
In the early stages the ROI on RFID for a manufacturer is limited but
over time the potential for benefits can greatly increase as the
visibility of inventory in the total supply chain increases

                                                  7. Viable ROI for RFID
                                 t   y
                              ili            6.   Extended Supply Chain Benefits Emerge
                  in                     5. Price of Tags Drop (5 cents?)
                              4. Internal Benefits Emerge                                 benefits
                 3. Cases & Cases on Pallets can be readily read

        2. High Speed Encoders & Applicators Emerge

  1. Tag Yields Improve

                                         time/degree of trust & complexity
An Emerging Forecasting Science

   Predictive Analytics
Identify Predict Prevent
So What’s This All About?

REAL TIME Data Availability with RFID
  Reactive Replenishment Today…
                       Material Flow
 Mfg                     Mfg                   Retailer              Retail
Plants                 DC/Plants                DCs                  Stores
           Deliver                 Deliver                Deliver
          2-3 days                 3-5 days                 days

                                                     • Limited (PO)
    Manufacturer planning                            • Delayed
  based on information that is:
                                                     • Reactive

          Inventory,               Purchase
           Backlog                  Order                           Retail Link
          Every 1-2                Every 1-2                        AC Nielson
             Wks                     Wks
  Mfg                    Mfg                    Retailer
MRP/SCM                  ERP                  Procurement
                          Information Flow
       Proactive Replenishment Model
                          Material Flow
    Mfg                    Mfg                   Retailer                 Retail
   Plants                DC/Plants                DCs                     Stores
             Deliver                 Deliver                  Deliver
             2-3 days                3-5 days                  days

• Advanced visibility
• Real time
• Pro-Active                  Realized Demand Signals

            Inventory,               Purchase                            UCCNet
             Backlog                  Order                               GDSN
            Every 1-2                                                   TMS. WMS
               Wks                                                      Retail Link
   Mfg                  TrueDemand                Retailer               EPC-IS
 ERP/MRP/                 Planning              Procurement
   SCM                     Information Flow                 - Epc, WMS, POS, TMS data
                 The Difference
 Traditional Analysis               Predictive Analytics

In most cases all information     RFID real-time event data
not available for months          combined with operational
Analysis typically occurs after   data
the fact                          Enables end users to know
True root cause may never be      what is happening to their
determined                        products NOW what has
Data input Historical and in      happened and what is going to
large amounts                     happen
New Products lacks any            Predicts and prevent problems
history                           before they occur
                                  Measures the impact to aid in
        Evolution of Predictive Applications

       Supply Chain                    Responsive                          Actionable
       Diagnostics                  Analytics and Alerts                   Applications
 What Happened?                 What’s Happening?            What’s Going to Happen?

                  MRP/ERP            Event         Reactive              Predictive    Predictive
     BI Tools
                                    Monitoring    Applications           Analytics    Applications

1.   Why was the product       1.   How much inventory is on        1.      Product is going-to-be
     out of stock?                  the shelf?                              out of stock
2.   How long was the          2.   Is the product out of stock?    2.      Lost sales will be x, take
     product in the            3.   How much inventory is in                y action
     warehouse?                     the backroom?                   3.      What’s my current
3.   How long did my           4.   What’s my inventory                     inventory days of sales?
     product take to get to         quantity?                       4.      Increase replenishment
     the shelf?                5.   Did the store receive the               frequency to prevent OOS
4.   Did the shipment               product on time?                5.      Adjust distribution and
     match the order?          6.   Did the retail DC receive the           production to ensure
5.   Did the retailers stock        correct quantity on time?               product availability
     my product on time?                                            6.      Adjust next order to
                               Resolution Response Time                     prevent OOS

          Months                           Weeks                              Days/Hours
                    The Predictive Model Value Deliver—An Example
                                                                                                Annual Benefits for XYZCo by
                                                  Lost Sales ($M)                               Utilizing WMT RFID Information
                         30        25        20          15          10       5         0       ($2.7Bn in WMT Sales1)

In v e n to ry ($ M )

                                                                                               Net Profit Gain
                                                         Today                                 from Higher Sales2
                  1200                                                                         Cash Savings from             $18M
                  1100                                         TrueDemand                      Reduction3

                  1000                                                                         Total Annual                  $23M
                      0.95          0.96          0.97        0.98        0.99          1      Cash Return
                                                                                                                    REAL MONEY
                                                  Service Level
                 1.     Based on approximate XYZCo WMT sales only, 2004
                 2.     Based on $5M sales uplift via improved service level to WMT DC with 58% gross margin
                 3.     Assume that all WMT DCs are RFID enabled, service level improve from 98% to 99% with weekly replenishment. Based on 2004
                        COSG-inventory ratio of 8.3 and gross margin 58%Apx. 20% blended handling costs for packaging, shipping, storage,
                        insurance, returns, demurrage

         Improve Net Profit Margin for WMT Sales from 14.3% to 15.2%
            RFID Challenges
Finding the ROI for all parties
Technology and standards continue to evolve
Tag cost remain relatively high but dropping
with Gen 2
Read rates impacted by metals, liquid, extreme
temperatures, inner cases on pallet
Integrating processes across the total SC (mfg
and retailer) and how people do their job will
DATA What to do with all the data? How
accurate? Security? Ownership? Sharing?
Taking True & Trusted Partnering to new level
Business taking Ownership of RFID Not IT
Is the Pearl Worth the Dive?
 Thank You!
          Ray Hagedorn, CEO
Premier Executive Consulting Group, LLC
              28 West 5th Street
            Covington, Ky 41011
               P: 859-431-1555
               F: 859-431-2555
               M: 513-260-4036

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