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Wednesday, May 19, 2010

Lean Execution in Retail using RFID

In the highly competitive retail environment of today, market flexibility, lean process execution, and lean inventories are hallmarks of successful retailers. Led by retailers including Zara, which turned the apparel and footwear retail industry on its head with its unique supply chain model, other retailers are identifying the technologies and business practices that deliver stellar results. For Zara, the magic formula involved a combination of local and offshore manufacturing to balance cost of goods and agility so that trend-driven products could meet immediate need and be quickly discontinued, if unsuccessful, at acceptable increased costs.

For other retailers, the most critical issues center around managing inventory in the store at the item level. Lean retail execution in store radically improves the ability of retailers to surpass customer expectations in store while reducing inventory control costs and reducing shrink.

The best examples of lean retail execution stem from a reengineering of inventory fulfillment processes, at both the store and the distribution center, that leverage RFID to uniquely identify every article and expedite inventory counts and inventory accuracy and then use fulfillment logic that is tied to store merchandizing templates to drive highly accurate sales floor replenishment tasks and demand-driven order processes.

Principles of Lean Retail Execution

The following lean retail execution principles are modeled after the principles described by James Womack and Daniel Jones, authors of Lean Thinking:

● If your customers expect products to be delivered on trend, then eliminate obstacles such as extra handling and improve processes that are inhibited by poor workflow design.

● Plot the value stream. Identify and map all the steps involved in moving goods through the system, all the way to the customer. Activities that add no value should be eliminated.

● Make the process flow. Redesign processes that prevent the free flow of products to the customer.

● Pull from the customer. Lean execution requires a clear understanding of demand and current inventory, pulling merchandise to stores and to the shelf based on what customers want.

● Pursue perfection. Root out any remaining waste. Then do it again, and again, and again.

Retailers have an opportunity to revolutionize the last mile in the retail item life cycle by applying lean principles enabled by RFID core technology and item-level inventory execution software. The open question is, Will retailers seize the opportunity?

Lean retail execution in store radically improves the ability of retailers to surpass customer expectations in store, increasing sales while reducing inventory control costs and reducing shrink. In-store inventory management has not changed dramatically in many years, but RFID-enabled item-level visibility makes a whole new paradigm possible, forever transforming the detail of retail.

The RFID technology market has matured in many ways over the course of the past decade. Retailers with good business cases and an achievable implementation plan may be viewed as fiscally irresponsible if they do not move forward, given the significant benefits at stake.

Retailers, including apparel and footwear retailers, are realizing success today, driving dramatic improvements in in-store efficiency and service levels. Commonalities among these retailers include a clear business case, executive sponsorship, RFID system partners that provide experienced guidance, and an ability to direct source tagging or tagging of goods in store. The time is now for retailers to engage in and maximize the operating efficiency value that can be achieved with RFID-enabled lean execution. A retailer that is interested should start with a technology provider that can help shape the business case and define and deliver to unique benefits.

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