The Intelligent Shelf

SKOKIE, ILL. -- A new mini-chip, about the size of the period at the end of this sentence, is being tested on packaging by several manufacturers and retailers to determine if it can become the 21st century's bar code. The wireless technology system has the potential to eliminate out-of-stocks, both on the shelf and in the back room, minimize theft and boost P-O-P compliance. Beyond those basics, it may allow displays to interact with customers, react to timing patterns of promotions and help turn merchandising into a measured medium.The technology, called Radio Frequency Identification (RFID), focuses on a chip called an Electronic Product Code (EPC) that is attached to the item being monitored--a pallet, case, display or individual product item. The chip provides specific and individualized data about that specific item (date made, date shipped, SKU information, etc.) via an attached antenna that uses radio waves to broadcast the data continuously to nearby readers. The reader, which can be attached to a door, forklift, shelf or hand-held device, receives the signals and knows when the item arrives, leaves, etc. The "antenna" is nearly microscopic--and in fact tests are underway to make the ink used to print the package serve as the antenna. With a complete system in place, the tag allows a specific product to be tracked from the time it leaves the manufacturing plant until it is purchased in the store. Its benefits aren't just theoretical, either. At least one research firm already is using the tags in the field to boost retail compliance with P-O-P materials, and POPAI will make limited use of that service during part of its ongoing study this summer to gauge the impact of displays on product sales.Brand Marketers Blaze TrailA number of brand marketers and retailers have begun testing the tags, and more than 80 companies serve as sponsors of the Auto-ID Center, a non-profit global research organization headquartered at the Massachusetts Institute of Technology in Cambridge, Mass. Founded in 1999, the Center has run two successful phases of a three-phase testing program for the technology and this summer will complete its testing. It then will issue standards that companies in the supply chain can follow to create a unified, consistent RFID approach."We've looked at how the supply chain currently works, and what we're seeing is that it just isn't meeting our consumers' needs," says Jeannie Tharrington, a spokeswoman for Procter & Gamble, Cincinnati, a founding Center sponsor that is conducting RFID tests. "We want to create a system so that when a consumer wants to buy our product, it's there to be bought. We want our supply chain to be more focused on the consumer. We think RFID really is a win for the entire supply chain. Once everyone realizes what a great thing this is, more will get on board." One of those already on board is The Gillette Co., Boston, which earlier this year announced it will test RFID systems and placed an order for up to half a billion tags. Explains Paul Fox, director of global external relations for Gillette, "Our goal is simple--we want our product to be on the shelves when the consumer wants to buy it. We believe generating transparency in the supply chain so we can track our products will help do that."Bar codes have done an admirable job in starting the supply-chain transparency, but bar codes are more than 25 years old, notes Fox. RFID offers two benefits over bar codes. First, it's an automatic process, sending radio waves without any activation, rather than needing to move a bar code past a scanner or vice versa. Second, bar codes identify only specific SKUs. An EPC identifies the specific item, including SKU information, dating and delivery information, and location information. Theft/Shrinkage ReducedThat means that, once readers are installed at each stage of the process, every single product can be tracked from the time it is created until it is sold at the cash register--and even beyond. That gives it the ability to reduce or eliminate every type of shrinkage: that is, the miskeying of items, transportation theft, employee theft and shoplifting."It absolutely, with 100% accuracy, knows where everything is at all times," explains Fox. "It lets me know which 100 cases of a product I sent to a retailer, and it lets me know when they arrived." The radio waves make this happen automatically, eliminating the need to key in data or scan bar codes at each stop. That means 100 cases don't accidentally become 10 cases in inventory. Cases also aren't lost because they're misplaced in the back room, because stores know precisely how much product arrived--and their hand-held readers can find the products by walking through the storage area until they are detected. Transportation and employee theft can be detected, since any reduction in case loads between shipping and receiving can be tracked to the facility where the discrepancy occurs.In perhaps the most coordinated use, RFID technology also can reduce shoplifting, Fox explains. Shelf readers monitor when a product is removed or even picked up from the shelf, indicating that a consumer has selected that product. The readers can be programmed to remain silent with minimal removal but use an audio acknowledgment for larger ones, such as, 'Thank you for selecting 10 packages of Gillette's Mach 3 razor blades.'"It may be blindingly obvious, but studies show people are deterred from shoplifting if they believe there is a chance they'll be caught," Fox says. "They don't want to be seen stealing or alerting store personnel that something's been stolen." This system ensures the shoplifter knows his actions were detected. But it doesn't stop there. When an unusual number of products are removed from the shelf, the reader sends a signal to the office or the store's hand-held devices and then signals a security camera to photograph the shelf. That photo is transmitted to the office and printed out, so security personnel can identify the person as he leaves the store. If the products are scanned at the checkout, the checkout readers signal the devices that the products were purchased.The ability to know how many products are removed from a shelf allows the system to signal employees when a shelf or display has been sold down, Fox adds. "The problem today is that a shelf can remain empty for hours or days, until someone notices," he says. "If the product isn't on the shelf, it can't be sold, and that absence leaves the customer incredibly frustrated." Shelf readers also can be programmed to automatically reorder products once back-room monitors indicate no more cases are available and the shelf readers show product levels have reached a preset minimum. This would be particularly useful for products that stores want to ensure they never run out of--fast-moving destination consumables such as razor blades, aspirin and diapers, for instance. RFID Aids P-O-PRFID will aid merchandising efforts beyond its ability to keep shelves filled. Goliath Solutions, Chicago, already is tagging P-O-P displays in five markets to track display compliance and execution in some retail stores. "We see this as nothing short of a revolutionary change for the industry," says Bob Michelson, CEO.The tags can report when the display was assembled and taken down as well as if the display is moved outside of a preset perimeter within the store. When that movement occurs, Goliath can call to determine why. "We can't tell from the tag that the display is out of stock, but often a display is moved out of the way when it sells out," Michelson explains. "Then we can notify the manufacturer that the store is out of stock and speed up the reorder process."Display execution isn't completed for many other reasons as well, he notes, requiring the company to create a list of sources to track a problem indicated by the tag. "It's possible the distributor didn't deliver it, the retailer didn't assemble it, store operations moved it to clean and didn't put it back, or it was out of stock so they moved it aside," he says. "We learn the problem and try to resolve it to get the display back in compliance." In the future, if all key points in the system have readers, it will be more apparent what the cause is. But that's in the future, and Goliath is focused on the significant benefits already possible, Michelson says. "We are taking RFID's theoretical advantages and making it practical reality today. The benefits of RFID technology are significant for manufacturers, retailers, P-O-P producers and ad agencies."The company currently is working in five markets--New York, Atlanta, Indianapolis, Chicago and Denver--with two packaged-goods manufacturers and one retailer to gauge how the system works. Michelson said initial anticipation was that the study would be skewed, since retail employees would be aware they were being monitored, so displays would receive close to 100% compliance. But execution on display programs in all tested stores ran about 60%. "It was terrible," Michelson says.The company also has run tests marrying compliance data compiled from the RFID tags with sales data from the checkout. Stores with near-perfect records of display execution saw product sales double, he reports. Those with poor execution had flat sales. "The data is blowing everybody away," he says. To be sure, such compliance can be achieved with third-party merchandisers and auditors, he notes. But the automatic exception reports generated by RFID produce a more effective and comprehensive system. Officials at POPAI agree. The association will use Goliath's RFID-based monitoring system for part of the study it runs this summer to gauge how different display types affect sales lift. More Advantages to ComeThere are further advantages to using RFID tags with P-O-P materials waiting down the road, says Etan Avni, director of business development for KSW Microtec, Cincinnati. Because the tags know when a product is picked up, even if it's then returned to the shelf, they can be a catalyst for interaction with the consumer. "Picking up a product can activate a movie on the shelf or provide other information," he says. It creates a more effective usage pattern than a motion detector or button, as it is only activated when interest has been shown. The tags' ability to register touches and returns as well as removals could allow marketers to evaluate ratios of purchases. Tagging each individual product also allows for more customization of displays, he points out. For instance, since an EPC can indicate a product's expiration date, a reader on the display can be programmed to signal store personnel to lower pricing as that date nears or to remove the display once the date passes. At some future date, he notes, wireless sign technology may make it possible for such changes to be made automatically, with the tag signaling the sign to drop the price on the expiration date.Barriers RemainTo be sure, there are miles to go before signs are automatically lowering prices on display signs as expiration dates arrive. Foremost among these is the expense to attach tags to each product and install readers at every point in the supply chain. P&G's Tharrington says the company doesn't consider the technology viable until pricing reaches about five cents per tag at the case/pallet level and about one cent per tag at the product level. "Once the technology rolls out and more people become involved, the costs will drop," she says. "And as manufacturing processes evolve and new materials are found, the manufacturing process will become less expensive, too."That point is being reached quickly, says Gillette's Fox. "At the very early stage, we said that if tags could be produced for 10 cents or less apiece, there was some commercial viability for the technology," he says. "I can't discuss details of our purchase, but I can say that the quest for low-cost tags is now a reality, and there will continue to be improvements in bringing down the costs." Gillette made news earlier this year when it announced its intent to purchase up to 500 million tags from Alien Technology, Morgan Hill, Calif. The tags were developed in conjunction with the Auto-ID Center, of which Gillette was a founding member. The company will purchase the tags in staggered lots as its testing continues.Concerns about accuracy, consistency of manufacturing and costs for readers remain to be resolved, as do ways in which manufacturers organize the vast quantity of data the tags will create. RFID radio waves also have a difficult time penetrating liquids and metals, a key concern to P&G, makers of such products as Folger's coffee (packaged in metal cans) and Pantene liquid shampoo. Pantene will play a key role in P&G's RFID tests for that reason, Tharrington says. "We want to test one of the hardest products to read and see what happens. We're still looking at where it makes the most sense to put the tag for each package."Another, more psychological conflict may arise, too, notes Jeff Sandgren, principal in Sandgren Consulting Inc., Watertown, Mass. "Retailers are receiving slotting allowances for having products on their shelves and for running promotions," he points out. "Do they want to let marketers know that they are not receiving very high compliance in return for that payment? Will the retailer be willing to share that information? If they do, will marketers demand discounts based on execution rates--or will retailers demand more for higher execution rates?" In addition, since this data will have a high value, who will have ownership? There's potential for the data to be organized and managed by a third party, much as exists for scanner-read bar-coding information today--and for joining the two, notes Sandgren. "Once companies get past the concerns over disclosure of this data, there's a huge benefit to having it all melded into product-movement data to show the value of displays." Such quantification may give P-O-P placement the status of other measured-media, a concern some marketers have expressed in the past about determining the value of P-O-P.Privacy concerns also will have to be addressed, Sandgren notes. If a company can track a product from its manufacturing line across the country and onto a retail shelf, it could continue to track it into a consumer's home. Consumers typically are willing to trade their consent for value, Sandgren notes, citing a variety of programs including loyalty cards and Internet cookies. There also might be ways to disable the signal--which is extremely short-range in any case--once the product leaves the store.Many Tests UnderwayTests of RFID technology by various companies so far have been encouraging. The Auto-ID Center will launch the third phase of its program this summer, following earlier successful tests to determine if the technology worked on a small scale and if it could track cases of product through the supply chain. The next program will test its ability to work in mass production. That test involves 11 retail companies in several states using various applications, including back-room receipt.Gillette's own test is being conducted at several Wal-Mart stores in Massachusetts and at a Cambridge, England-based, Tesco store, the country's largest grocery chain. Those tests feature "intelligent shelves" with readers that will track out-of-stock situations. Another Gillette test underway at its Fort Devens, Mass., packaging and distribution center will track Venus female razors through the company's supply chain from the manufacturing line through packaging, inventory, customer orders and out the back door. Procter & Gamble was testing the tags on its Pantene shampoo at a Wal-Mart store in Broken Arrow, Okla., by early April, Tharrington says. Those tests will use intelligent shelving to determine how easily the readers can detect movement through the shampoo liquid and the plastic container. The test is to be completed this summer. Wal-Mart is working with a number of companies, including Unilever, Johnson & Johnson, Coca-Cola and Pepsi, according to Sandgren.Other manufacturers and retailers are conducting tests, too, Sandgren notes. These include CVS, which is performing a pharmacy-level inventory-management pilot program; Lowe's Cos., which is looking at shrink-reduction applications; Marks & Spencer, which has begun a full rollout of an inventory application; and Prada, which has tagged items at its SoHo store in New York.Gillette's Fox says his company should have data to share by mid-year. "Accuracy is the goal, and there are many field trials going on, so it's important that we all share our data and learn from one another," he says. Timeline ScenariosMany marketers and retailers will be awaiting those results, says Sandgren. "If Gillette backs off--and companies won't need to know why they did, only that they did--others will back off, too." That could set back progress on these programs by a year or more, he estimates. If the test proves partially successful, and Gillette, P&G or another company keeps moving ahead, he anticipates "significant deployment" of RFID technology in 2004. If the Gillette program proves entirely successful, several additional big players would be encouraged to join. "At that point, we could see aggressive deployment in 2004 and 2005."P&G's Tharrington sees a similar timeline. "As more technology companies make tags and prices come down, more manufacturers will do their own pilot programs," she says. "I expect that in 2003 and 2004, we'll see a lot of pilot-testing, and they will become larger." The tests probably will begin at the case/pallet level, she notes and then move to individual products. She also expects any rollout will begin with small, high-priced (i.e., easily shoplifted) items such as DVDs and health and beauty aids. Fox agrees that tagging may be done on a case-by-case basis, with retailers helping to prioritize which products get tagged by indicating where they'll install shelf readers. "It truly will be a partnership program," he says. "Manufacturers will have to put the tags on their packages to track them through the supply chain, and retailers will have to install shelf readers to benefit."With many tests to be completed this summer and the Auto-ID Center on track to release standards this fall, momentum is definitely on the side of determining how effective the technology can be at this point. If it proves viable, marketers, retailers and P-O-P producers will focus on how to exploit its vast potential. "The key to our involvement in this program is that we think the technology will help consumers," says P&G's Tharrington. "The real win is when our product is in the right place at the right time at the right price so our consumers are happier."

The Intelligent Shelf

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