Submitted by: Group 4

RFID AT METRO (Kurien Joseph, Karthik

Pillai, Mohammed Mishal,
Reju Verghese)
1.WHAT FACTORS CONTRIBUTE TO IN-STORE LOGISTICS PROBLEMS
IN GROCERY RETAILING? HOW WOULD PALLET AND CASE-LEVEL
RFID REDUCE THESE PROBLEMS?

Reduced shrink in the supply chain.

The industry estimate of shrink is approximately 2% of sales worldwide.

Using RFID could reduce shrink for average retailer by 25% if used at the case level and by up to
40% if used at the item level.
Increased product availability

The stock out rate is approximately 6 to 10% in the industry.

Out of stock had a significant impact on sales, brand loyality and consumer satisfaction. Not only
manufacturer retailers also are interested in reducing stock outs.
In 25-30% of all stock out cases product will be in store but not in display shelves.

RFID technology can improve replenishment process from backrooms to display shelves thereby
reducing stockouts. RFID helps in Improving existing store and DC processes limiting the size of
backroom or eliminating altogether.
Higher labour productivity
 As mentioned in Exhibit 9 a major benefit area is labour productivity in Manufacturer, DC and
Store level.
In the case of Pallet tagging the manufacturer get a 50 Euro benefit per pallet where as a retailer
benefits 15.7 Euro.
In the case of Case tagging the manufacturer get 7 Euro benefit per case and for retailer the
benefit goes upto 8.9 euro per case.
This works out to be huge savings.

Improving planogram and promotion compliance, Better data quality

New product introductions, change in planograms, sheer number of promotions in a week

creates heavy work load at the stores.
RFID technology could provide data on the location of products and hence improve both
planogram and promotion compliance.
EXAMINE THE PROCESS FLOW IN METRO'S GROCERY SUPPLY CHAIN AND
IDENTIFY HOW THESE PROCESSES WOULD IMPROVE WITH THE
IMPLEMENTATION OF RFID AT THE PALLET LEVEL AND AT THE CASE LEVEL.

Truck loading process Using pallet tagging.

Forklift drivers in order to assemble a delivery, at the manufacturers ware house removed pallets from
storage area and placed them in shipping area. The truck is operated by a third party logistics
provider. A person in warehouse supervises this when the truck driver loads the truck.
With RFID there is no need of this supervisor, where the truck driver automatically checks the identity
of a palet when it is moved to the truck. This save supervising time about 10minutes per truck where
there is 15 truck daily.
Using case-level tagging to improve mixed-pallet packing at Metro DCs.
Currently on receipt of an electronic order the DC generated picking orders forwarded to pickers. Picker
entered and confirmed number of picked cases using a handheld device. Here there is a chance of
errors or omissions. At METRO DCC these errors amounted to 0.5% of the cases picked. So Metro
required employees at the shipping area to recount 1% of the pallets leaving DC.
With RFID tags on each case the picker no longer have to manually enter the number of cases picked.
Metro estimated 4minutes for each of the 1300 pallets picked per day i.e a savings of 0.17 Euro per
case. In addition wrong picking will be signaled thereby reducing picking errors, which also improve
store performance thereby accuracy of the stores inventory, reduced stockout etc.. Altogether this will
save 0.15 euro per case, Metro estimated.
Use Case level tagging to improve Shelf restocking at stores.
Third party employees moved stock to selling floor from backroom. When shelf stock reaches zero
the employees have to replenish it from back room where there is no option to easily find whether
there is stock available in back room.
With RFID reader between backroom and selling floor employees would know which products are
available in backroom. The company estimates that the instock rate can be increased to 98%
which currently is 96%. Resulting increase in stock levels will lead to 0.5% increase in store sales.
Apart from this RFID implementation at the case level would result in 17% labour reduction, 11% to
18% theft reduction and a 9% to 14% reduction in stockouts due to products being in the
backrooms but not on the selling floor.

IS RFID A GOOD INVESTMENT FOR METRO? IN YOUR ANALYSIS, USE

THE BENEFITS LISTED IN EXHIBIT 8OF THE CASE AND ANY OTHER
BENEFITS MENTIONED IN THE CASE. QUANTIFY THE TOTAL SAVINGS
THAT METRO WOULD REALIZE FROM FULL-SCALE IMPLEMENTATION OF
RFID (FOR BOTH PALLET-LEVEL AND CASE-LEVEL IMPLEMENTATIONS).

Sl. ITEM PALLET TAGGING CASE TAGGING

#
a Benefit Per manufacturer 50 7
b Total manufactures/suppliers 100 100
c No of pallets/cases per week 24-36 1680-2520
d Total savings per week a*b*c 120,000 - 180,000 1,176,000 -
1,764,000
e Savings per year (d*52) 6,240,000 - 9,360,000 61,152,000 -
91,728,000
I. BENEFITS COMPARISON OF MANUFACTURER/SUPPLIERS
*note:It is assumed there is 70cases per pallet

II. BENEFITS COMPARISON OF DC

*note:It is assumed there is 70cases per pallet.

Sl. ITEM PALLET TAGGING CASE TAGGING

#
a Benefit Per DC 15.7 3.9
b Total DCs 10 10
c No of pallets/cases per week 24-36 1680-2520
d Total savings per week a*b*c 3768 - 5652 65,520 - 98,280
E Savings per year(d*52) 195,936 - 293,904 3,407,040
5,110,560
 III. BENEFITS COMPARISON OF STORES

Sl. ITEM PALLET TAGGING CASE TAGGING

#
a Benefit Per Stores 0 5
b Total Stores 250 250
c No of pallets per week 24-36 1680-2520
d Total savings a*b*c 0 2,100,000- 3,150,000
e Savings per year 0 109,200,000
163,800,000

Total savings in a year for METRO by implementing

RFID
a.via PALLET TAGGING is 6,435,936 - 9,653,904
b.via CASE TAGGING is 173,759,040 -
260,638,560
 WHICH OF THE THREE OPTIONS DO YOU RECOMMEND THAT
MIERDORF AND WOLFRAM PROPOSE TO THE RFID STEERING
COMMITTEE ON DECEMBER 13?
a.Expand the scope of the current pallet-level RFID rollout.
From Exhibit 9 looking at the benefit received per each benefit area and the total benefits it is
seen that the total benefit to manafucturere for pallet tag is 50 where as for the case tagging it is
just 7. Similarly for retailer also the benefit is 15.7 when gone for pallet tagging but 8.9 if opted
case tagging.
BENEFITS BY IMPLEMENTING RFID IN A TYPICAL EXTRA STORE.
No of No of Benefit per Total Benefit Benefit per
pallets per pallets per pallet per benefit in a per pallet retailer in
week year manufactur year for per a year
er manufactur retailer
er
24-36 1248 50 62400 to 15.7 19600 to
1872 93600 29400

That is considering three years the benefit will be approximately 187200 to

280800 for a manufacturer and 58800 to 88200 per retailer which is a
significant amount which will justify with the initial upfront investment and
maintenance expenses for RFID implementation.

The only drawback here is the product availability in the store of the retailer will
not be addressed in this option. But considering the other benefits
There were quite a lot of issues and concerns occurred during the implementation phase. Such as,

Putting tags on wrong side of pallet which lead to RFID readers cannot read it

Usage of low quality or with wrong frequency which again lead to failure in reading tags.

Usage of differenct brands which do not meet METROs high quality requirements

Connection problems with middleware, edge servers, readers and servers at HO

These are initial teething issues which can occur in any such large projects and can be addressed
by keeping some checks and balances, trainings to employees concerned.
In spite of all these the following benefits realized by Metro,

accuracy of Metro went up from 30% to over 90% in July 2005 in just a year time.

15 to 20 minutes savings in checking in and unloading the shipments in DCs and stores

Easily idenitifying incomplete shipments, improving inventory data accuracy at DCs and stores
Challenges in moving to Case level
RFID at case level requires a lot more involvement from both manufacturers as well as Metro.

Manufacturers have to purchase more tags and do more tagging

Make process changes inside their plants which is very significant, whereas in pallet tagging this
can be done by employees

Even with all these efforts to achieve 100% read rates at case level is impossible especially for
products containing metal or liquid.
In store level numerous changes in IT systems data storage would have to change in order to
distinguish between backroom and floor inventory. These data have to be combined with POS data
to trigger backroom replenishment.
To make sure all the employees complies lot of training will be required at stores as well as in DCs.
Considering all these factors and the real fact that not trying to correct and maintain the initial
planned activities of the project which can bring you benefits, jumping into another project will give
a wrong message to employees, manufactures and suppliers.
This also will create severe losses in the existing project which will not be able to recover for ever if
you move on to next level.
All these teething issues and difficulties will occur in new project also which will prolong the
benefits further and the morale of employees will be down by that time.
So it is better for METRO continue with current option of pallet tagging itself and expand its scope
for further roll out to reep the benefits as early as possible.