Rfid at the Metro Group free essay sample

The market is mature and continually seeks innovative ideas to enhance competitive advantage -Highly capital intensive -Low to moderate labor intensiveness -Low margin; high volume – they take advantage of economies of scale -Characterized by high volume holding capacity controlled through Information Technology Company Facts Metro Group was Germany’s biggest retailer (250 stores, 10 warehouses, 100 suppliers) that operates globally in 6 divisions: Metro Cash Carry (wholesale), Retail (hypermarkets), Extra (supermarkets), Media Market and Saturn (consumer electronics), Praktiker (building materials), Galeria Kaufhof (department stores) -Metro Group (hereafter, Metro) is the world’s 3rd-largest retailer -Having the capacity to carry large volumes of inventory and have it adequately controlled and managed by cost efficient Information Technology resources Increased company international expansion overseas -Metro is seeking to improve product accessibility: Having products consumers want in locations consumers can find them easily oReducing shrink in the Supply chain oHaving little to no Out of Stock occurrences -Launched the Future Store Initiative in September 2002 to test different initiative aimed at improving all aspects of the customer experience Competitive Environment -Porter’s Five Forces o Supplier Power- Relatively low; products can be procured from many different places at low price. Companies are investigating new way to improve product availability and cut costs Strategic Fit or Alignment -Metro’s supplier have not been implementing RFID as Metro would like. Misplaced, low quality tags are a major issue -Metro’s IT subsidiary has aided in improving fit across the 6 independent sale divisions -There is a lack of fit between employees’ training and the mission of management to implement the RFID -Lack of alignment existent within Metro’s leadership as to whether or not RFID should be applied company-wide as the solvent for Metro’s supply chain issues -Hard Conclusions: Metro should develop an even more strategic relationship with its suppliers so that they are cognizant of how to implement RFID and that they maintain a certain level of quality; Metro should also train its employees on how to apply RFID within their tasks; Metro’s highest management should continue to utilize RFID but should also seek to improve its supply chain in the areas suggested by opponents of RFID RFID Facts -RFID contains at least two parts oIntegrated circuit- storing and processing information, modulating and demodulating a radi o frequency and other specialized functions oAntenna- receiving and transmitting the signal Used in enterprise supply chain management to improve the efficiency of inventory tracking and management -Limited growth and adoption in enterprise supply chain markets due to advanced technology needed to implement it Metro’s Competitive Strategy -Metro is a leader in supply chain innovation through the use of the RFID system -Metro does not want to sacrifice quality over costs for RFID which: oReduces shrink because of great accuracy in inventory location oImproves on-shelf availability and reduces substitute purchases oReduces out-of-stocks by reducing poor store execution oImproves productivity and labor efficiencies by eliminating manual entries and barcode scanning Strengths (Metro) oMore economies of scale oGlobal recognition and success Moving in a positive direction with innovative technologies oSubstantial financial resources, can create leverage oWorks well with other companies in implementing new technology oCan create serious investments to pioneer new technological infrastructure and processes -Weaknesses (Metro) oMargins may be lowered due to competitive giants such as Wal Mart oThe cost advantages that METRO will possess with RFID will soon be gone due to competitors utilizing the same technology oVirtually no places to expand without confronting competition head on oLimits of low cost sales oRivalry with other Retailers causes unnecessary contention -Opportunities (Metro) Competitive advantage if they are first to successfully implement the RFID system at the case level -Threats (Metro) oWal-Mart has already begun to implement the RFID system with a high degree of success Supply Chain Analysis Qualitative -Potential RFID benefits in METRO’s supply chain -Improved inventory data accuracy oReduction in reverse logistics/returns oReduction in inventory (backroom, lower obsolescence) oReduction in obsolescence oImproved on-shelf availability oReduction of out-of-stock items, o9% to 14% reduction in stock outs due to products being in the backroom and not on the selling floor oImproved replenishment oStore labor productivity improvement Reduced substitute purchases from consumers due to improved on shelf and previously out of stock merchandise, leading to increased sales for companies -Implementing RFID will increase Metro’s responsiveness to both its suppliers and customers. However, this responsiveness will also cost Metro a great deal of money. -Firms on the cost responsiveness efficient frontier are continuously improving their processes and changing technology to shift the efficient frontier itself The development of the RFID process shifted the efficient frontier to the right (increased costs for increased responsiveness) -Therefore, if Metro would like to remain on the efficient frontier they must pay less attention to the implementation cost and more attention to how RFID could improve its responsiveness -Potential RFID weaknesses in METRO’s supply chain Must convince suppliers to use because it is a long term investment oAdds another process to manufacturer supply chain operations oAdditional costs will be incurred by the manufacturers oMETRO and its suppliers must spend time to train their workers in the new system oTraining incurs extra costs oMistakes with tags will be made such as placement of the tag, human error oTags of low quality or a different frequency caused problems in reading them oProblem with middlewear servers, bad connection, note too early or late for shipment, and note might contain the wrong information on the shipment. -RFID tagging on the palle t level oManufacturer Changes ?EPC tag on pallet is read in order to identify pallet EPC number is associated with content of pallet ?EPC tag at shipping area is read to identify in order to verify location ? Orders are assembled dynamically when trucks arrive and EPC tag on pallet is read when pallet is moved onto truck oRetailer Changes ?EPC tag on pallet are automatically read when pallet is unloaded; the EPC number is used to track the pallet in the DC ? EPC tag on pallet is automatically read when forklift arrives to identify pallet ? Location is verified by EPC tags on pallets ?EPC tag on pallet is read and verifies delivery -RFID tagging on the case level oManufacturer Changes ?Serial numbers of cases are registered when put onto pallets ? Based on tracking of serial numbers for cases, manufacturers can inform retailers which specific cases need to be returned/ are recalled; cases returned can be identified via EPC numbers and registered automatically oRetailer Changes ?EPC tags of cases that are on pallet are read when pallet is unloaded; information on cases in delivery is used to automatically compare the physical delivery with a n electronic delivery note ? EPC tags on cases are read in order to record and verify the number of cases picked ? No more sample counting, RFID assures accuracy ?Based on the tracking of serial numbers for cases, DC can determine which stores have received products to be returned or recalled and inform these stores. Shrink Improvement: -Improving shrinkage by 25% will increase Metro’s gross margin by . 5% Stock-Out Improvement -Improving the amount of stock-outs will increase Metro’s gross margin by . 05% Hard Conclusion: Given the shift of the efficient cost responsiveness frontier, Metro pays less attention to the initial costs and choose the option that yields the greatest benefit. Pallet level tagging does benefit Metro’s supply chain. However, those benefits may not outweigh the costs. Since case-level tagging benefits the organization significantly more, Metro should strongly consider switching to pallet-level tagging. Problem Statement/Key decisions Metro Group must decide whether the RFID system will be implemented at the case level or at the pallet level and the scale of implementation amongst suppliers -Metro must develop a means for its suppliers to employ the RFID system on inventory should the company chose to continue implementation Alternatives and Evaluation of Alternatives -Do nothing. o Advantages: No more costs will be incurred for training of employees, technology, etc. oDisadvantages: Metro will incur some sunk costs from investing in this new technology; the company may lose its competitive advantage when other competitors begin to use RFID which may drive margins down due to competitive pressures -Implement RFID at the case level to all suppliers. oAdvantages: Cost savings of â‚ ¬0. 2 per case in labor and other costs; improves accuracy of shipments which reduces stockouts, decreases inventory returned or thrown away and increases accuracy of inventory data; employees more able to determine when shelf replenishment needed which increases profits. oDisadvantages: more expensive than pallet-level implementation; serious development would be needed to prepare suppliers to make the change; Metro will incur upfront costs of investment and extensive employee training will be needed -Utilize RFID at the pallet level to all suppliers. oAdvantages: Cheaper than case-level implem entation; cost savings of â‚ ¬16,000 per year in labor. Disadvantages: Less accuracy than case-level implementation; Metro will incur upfront costs of investment and extensive employee training will be needed -Invest more in store and DC processes and in human resource management practices oAdvantages: More cost effective; could improve employee morale oDisadvantages: Metro will be at a disadvantage technologically in relation to its competitor i. e. Wal-Mart Recommendation -Metro should initiate full use of case-level tagging with the RFID system amongst all suppliers Plan of Action -Implement case-level tagging the same 33 suppliers, 9 Metro DCs, and 13 Metro stores that started pallet level tagging -Evaluate the progress in of the project in 8-12 months to ensure major problems are resolved -Start a major roll out of RFID at the case-level with the 250 stores, 10 warehouses and 100 suppliers that Metro had planned to implement pallet-level tagging with -Implement at existing store in batches of 300 and all new stores every six months for approximately 3 years