Staples: ROI for RFID is iffy

MISSISSAUGA, Ont. – Following a successful beta test with RFID technology, retailer Staples Business Depot (Canada) is now considering how best to roll out the technology more broadly across its supply chain and control any costs it may incur.

“At the end of the day, we know additional cost is going to be passed down to us (from suppliers),” said Joe Soares, Staples’ director of retail processes, who spoke Thursday at the RFID Journal Live! Canada conference.

“To get (suppliers) on board, there is a substantial infrastructure investment” needed, he said. “It’s iffy as to whether we can get ROI.”

RFID (radio frequency identification) is a technology that allows for goods to be tracked through a supply chain wirelessly, replacing the need for the manual scanning of bar codes.

Soares’s main concerns were around the cost of the equipment necessary to get an RFID program up and running for a retail channel – costs that would be incurred not only by the retailer but by all of their suppliers too. However, the price of RFID tags are falling and necessary equipment like RFID readers will get cheaper as the technology becomes more pervasive.

“Once the equipment is in place, there’s a whole bunch of different procedural impacts,” said Soares, including vast improvements in delivery and unpacking times, which can translate into more stock on the retail floor and improved customer satisfaction.

Staples first embarked on its RFID pilot in August 2003 based on a feasibility study conducted with partners like PriceWaterhouseCoopers and Bell Canada. The group met on a monthly basis to strategize the best plan of action.

“Once we completed that feasibility study . . . we decided we were going to move forward with the pilot project,” said Jeff Ashcroft, vice-president of logistics supply chain for PwC.

The project was derailed briefly due to personnel changes, said Ashcroft, but that delay had some fortuitous side effects.

“Probably it was the best thing that happened to us,” he said. “Had we proceeded (earlier), we would have been using Gen1 technology instead of Gen2, technology,” he said, referring to generation 2 RFID tags, which take more of a standards-based approach than their Gen 1 predecessors.

Staples organized two test sites, one in Toronto, another in Mississauga, and a range of suppliers to trial the technology, including Unisource Canada.

“Our targets were very aggressive going in,” said Soares. The group aimed for 99.9 per cent accuracy in RFID read rates and ended up with an acceptable 97.41 per cent once the pilot concluded. Read rates were drastically improved overall, however. Before the trial, it took 17.75 minutes to register items on a pallet; using RFID scanners, it took an average of 2.7 minutes.

“If we can reduce even 20 hours (in labour savings), things are starting to look quite positive for us,” said Soares. But Staples is cognizant of the need for care when rolling out new technology, particularly when there is the possibility of human error in reading pallets or attempting to match RFID with back-end accounting systems. There comes “a tipping point” when labour savings can be undermined by costly data errors, he said.

“Data synchronization is really the foundation and the starting point to do this properly,” added Ashcroft.

Staples and its partners have identified the next steps they wish to take with RFID, with the end goal of rolling it out on a permanent basis and bringing more suppliers into the loop. RFID will also be used in other aspects of inventory management, like using it improve out-of-stock situations and tying it to in-store promotions.

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